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| Finish the game. Source |
Summary: Weekend's main event is coming, drafts with little content are circulating, the chasm between the French soft line (because they're broke) and the German hard line (because it's their money) is probably much more intense than what we are told. Some commentators expect Merkel to cave in on Sarkozy's "solidarity" demands, but she knows that bailing out the French banks is not really an election winning strategy for her, might be unconstitutional and against the EU Treaty.
Of course, Sarkozy's line would guarantee him another term as a president, but I don't think Germans would be happy to pay his campaign bill. There is one reason why Merkel could surrender - the imminent threat of French sovereign credit downgrade, as that would kill the EFSF and any hope of finding other solutions except full transfer union or breakup.
After the stock short selling bans, we now have the ban on CDS naked longs scheduled (very roughly equal to naked bond shorts), and again are hearing demands to at least occasionally ban credit raters from commenting on embarrassing, about-to-default countries. This is surely a non-starter, as the French Commissioner was pushing this idea also back in July and no-one else seemed to support his flash of genius then. At least the other eurocrats seem to understand that banning the messenger of bad news does not make the news any better.
My wife wondered three months ago why I was sitting so much in front of the screens. I explained to her (she's a tennis fanatic) that this is equivalent to Wimbledon's men's finals, but only played once every twenty years. The ball is in the air and somebody will try to hit it. The crowd is silent, but soon it will be over. The extend-and-pretend is coming to an end. I don't know if it will be the Europe's Fall, or an introduction of a "Death Star", or a break-up. But quite frankly I'm getting bored. I already knew not to put a lot of faith in politicians, officials, banksters or voters. I would like to return to the people who I can trust. Finish the game.
News (Thu evening) – BTH
FX option vols – SaxoTV: Bloomberg, CNBC, BBC World News
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Building a Complete Crisis Management Framework for the EU – Re-Define
Excerpt from the report to the European Parliament, includes a link to the full 40-page document. Very good discussion – the eurocrats should order more thinking from outsiders.
Resolving the current European mess – voxeu.org
..the current plan to enlarge the EFSF and recapitalise banks through markets will fail. The twin crises linking sovereign debts and banking turmoil need to be addressed simultaneously for Europe to avoid economic disaster.
Link to full UBS piece on scribd from 10th Oct, 16 pages.
EFSF / ‘DEATH STAR’
Peter Tchir puts the players in their proper places. ECB and Germany are prudent and want to save ammunition and credibility, while France and Belgium are “all-in” – as they have no choice. Austria and Netherlands are standing on the fence, while Italy and Spain are either happy or very happy with anything, as they are the major beneficiaries. The fact that the country with the biggest problems at the bank level is the biggest proponent of turning the EFSF into a bank is also somewhat ironic, if not ludicrous.
Euro summit statement: the leaked draft – The Telegraph
Quite sad.
EU Summit Statement: Leaked Draft Has Large, Truck-Sized Holes – MarketBeat / WSJ
EFSF as bond-buyer (and repo monster) – alphaville / FT
Draft documents include a word on repos…but only for liquidity management.
An Important Four Letter Word – Macro Man
Noticed the same thing but only after writing a long post. On the other hand, if the EFSF draft would change the wording on repos, it would be something worth understanding.
BANKS
Draft: Banks Getting EU Aid Would Have to Restructure – BB
Eurozone Leaders Ready €80 Billion Band-Aid for Banking Industry Gunshot Wound – naked capitalism
Ok roundup of the latest headlines with commentary.
To meet capital requirements, banks’ threat to decrease balance sheets is credible. Good way to resist recapitalization demands and thus protect existing shareholders.
Google translate of the article from today.
OTHER
Banning naked sovereign CDS, gently – alphaville / FT
How big a market, do CDS’s influence bond prices, is the ban any good, why it is permanent but still allows later suspending of the ban. The probable intent was to try to stop the rotting of the core, with (still) low CDS prices.
EU mulls rating agency ban for troubled states – RTE
EU institutions hit back at markets, ratings agencies – euobserver.com
Speak no evil. That’s all I say. Except that of course the Commissioner is French.
The curious case of super-backwardation – alphaville / FT
First in a three part series trying to explain why the short-end of the curve of oil is high compared to long-end.
DIVERSION
The Secret of a Healthy, Wealthy Life – The Psy-Fi Blog
Being able to wait for the reward is the strongest single predictor of future “success”, even after controlling for intelligence and socio-economic background. One third of the tested population (1000) belong to this group of people with strong self-control.
How Friends Ruin Memory: The Social Conformity Effect – Wired
We remember what others remember.
The Delicate Sensibilities of Bankers – The Atlantic Wire
On the record, bankers are polite and try get sympathy, but angry and scared off-the record.
Facebook connections displayed in physical space – FlowingData
Nice floor showing how and to whom you are connected to. Next dance floor?
Reflections on the Iranian Assassination Plot – Stratfor