 | ||
| All your EFSF money are belong to us. |
Summary: Today the usual euro “Plan” articles, with focus on the bank recap plans. The current sentiment is more of the same, too little, too late and the key problems ignored. I find it difficult for the leaders to put together anything that would convince the markets – except a full unconditional backstop by the ECB, and it is not a realistic expectation at the moment. Yesterday’s evening post might be worth your time.
Quote of the Day: A clear lesson is that even rapid economic growth cannot be maintained unless it is inclusive, creates jobs for the growing labor force, and is accompanied by social policies for the most vulnerable. For economic reforms to be sustainable, their gains must be broadly shared, not just captured by a privileged few. Widespread corruption is not just an unacceptable affront to the dignity of citizens, it also deprives them of the economic benefits. And the absence of transparent and fair rules of the game will inevitably undermine inclusive growth. – What the Arab Spring Has Taught Us – iMFdirect
Did you at first think the above quote came from an angry blogger supporting OWS? Someone against the moral hazards of international banking or the Euro? Think about it for a second. Is it because you know this also relates to Western developed countries?
Back on 7th September my blog entry’s headline was Greece can give 100%. It now looks like Greece can give 200%, as the 1 year bond yield is currently at 184 (high 188.51). Then to the links, follow “MoreLiver” on Twitter, Facebook or email me.
News (Wed evening) – BTH
News (Thu morning) – BTH
Danske Daily – Danske Bank (pdf)
Tomorrow’s Tape – WSJ
FX option vols – Saxo
TV: Bloomberg, CNBC, BBC World News
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Solvent? Who said solvent? – Kantoos Economics
If Spain and Italy want a backstop – that realistically only the ECB can provide – it is their burden of proof to show that German taxpayer money, that does not grow on trees either, is worth risking in this operation.
The IMF should pull the plug on the euro – MarketWatch
The euro zone is in the midst of this crisis because it created a completely dysfunctional monetary system, ignored the imbalances building up within it, and allowed everyone to break the rules. It is a completely self-inflicted wound. There is no reason why taxpayers in Korea or Brazil or the U.S. should have to help fix it.
There are better ways forward for the EU – voxeu.org
EU policy response should explicitly target improvements to trade and income balances, and address high external debt through debt restructuring.
Just Because There Is A "Will" There May Not Be A "Way" – ZH
Peter Tchir: They are running into legal roadblocks, death spiral scenarios, the reality that once they give the money to the PIIGS that the power reverts to the PIIGS, that everything is circular and self-referencing, that debt markets in the end can decouple from CDS markets, that Germany and France are going to see borrowing costs spike (even after the ECB rate cut), and that there are so many holes to plug - bank capital, bank bonds, PIIGS debt, Belgium debt, something about Dexia that no one even remembers, voters are against it, Greece isn't going to fool anyone, etc.
EFSF / ‘DEATH STAR’
Steen Jakobsen from Saxo: Lawyers for governments and European institutions have warned that using the bailout fund to provide direct guarantees would violate the European Union's restrictions on bailouts – but rules have not meant much in the past
Perhaps this is why EU bank regulators also flagged the idea Wednesday that the EFSF might guarantee bank debts, perhaps with a similar collateral scheme.
And Now The Bundestag Demands A Say – ZH
German parliament, which made it all too clear wants to be heard in all future European bailout instances courtesy of the constitutional court decision in early September, has just announced it wants to be heard, this time for real, and decide, on any EFSF expansion facility and specifically the usage of more leverage to fight already unbearable systemic leverage.
It is almost following the script that Friedrich von Hayek wrote in The Road To Serfdom 67 years ago. The next step for the cradle of democracy will be martial law. At some point elections will be “temporarily” suspended in order to “stabilize the economy.”
BANKS
The continuing mystery of US banks’ European exposure – alphaville / FT
Citi’s quarterly report shows $4.3bn drop in net exposure to GIIPS banks. Who is taking the other side of these bets?
Gilt-stuffed and shrinking: euro banks’ capital hole – alphaville / FT
EBA on why 100m is enough: the positive impact on banks’ capital position of applying market values to the region’s better performing sovereigns, such as Britain and Germany, offsetting the peripheral haircuts – the flight to safety has become a soft landing strip, until the feedback loops kick in.
Eurozone Latest: Banks Will Only Be Made to Raise 100 Billion Euro in Capital
Exhausted followers of this exhausting story will recall that 100 billion euro might not even be a downpayment on the amount of money European banks really need.
FT Reports Europe To Sacrifice Its Banks To Bailout Sovereigns - Under €100 Billion In Bank Recap Funding Available – ZH
Alas, there is no outcome that saves both the banks, and guarantees future European sovereign issuance under the currently contemplated structure. None.
EFSF Talks Focus On Collateral for Guarantees – WSJ
OTHER
The Quiet Coup (May 2009) – The Atlantic
Former IMF economist Simon Johnson rocks: One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card. The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear.
Alpha Research Digest – Turnkey Analyst
Links are small and in light font. Be careful not to miss some.
Some Papers on Physical Arbitrage & Route Choice – Front-Run The Delta
DIVERSION
Kurzweil Responds: Don't Underestimate the Singularity – technology review
After Paul Allen’s The Singularity Isn’t Near, here is K’s response