Here are this week's previously highlighted links. Earlier today I posted the Weekender - The Summit Hangover extra-large linkfest. Have fun, leave a comment, follow me on Twitter, Facebook or email me.
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"”Best of The Week” is republished with permission of MoreLiver’s Daily."
EURO CRISIS
Taking over the European Central Bank puts Mario Draghi in a position as perilous as Europe’s – The Economist
Joschka Fischer, Germany’s formin and vice-chancellor from 1998 to 2005: It was believed at the time that formalized rules – imposing mandatory limits on deficits, debt, and inflation – would be enough. But this foundation of rules turned out to be an illusion: principles always need the support of power; otherwise they cannot stand the test of reality.
It Can’t Happen, It’s a Bad Idea, It Won’t Last: U.S. Economists on the EMU and the Euro, 1989-2002 – EJW
Paper from Jan 2010 by two eurocrats on why the euro is seen as a mistake – and find it surprising. Great stuff, clowns…
Whenever you assert responsibility for issues you do not have authority to tackle, you risk a crisis of credibility that undermines the authority you do have. Europe’s leaders see themselves as mustering resources for a war with the markets: a war which they will lose, not just because they will never find sufficient resources to defeat the markets, but because they are really fighting reality.
Assessing the Damage of the European Banking Crisis – The Big Picture
Wonderful post from John Mauldin and Stratfor’s recent reports. Must-read.
EZ rescue or recession: Fallout of the October 2011 package – voxeu.org
The voluntary, ad hoc nature of the bank recapitalisation will induce banks to engineer a massive credit crunch. The renewed emphasis on national austerity will induce EZ members to engineer a massive fiscal contraction. All of this is to happen over the next six to nine months regardless of deteriorating macro prospects. The EZ is headed for a recession. This recession will undo all the October packages work – weakening banks, sovereigns and Greece. Expect another EZ crisis Summit before Spring 2012
Why the Euro Crisis Will Deteriorate Before It Will Get Be – EconoMonitor
The eurocrats had three goals to satisfy the markets: 1-2 trn super EFSF, bank recap of 100 bn, Greek haircut of 60-75%. These goals were not met, and denial is still prevalent: The eurozone crisis, too, will pass. But there is no return to “business as usual.” When the dust finally settles, the world will look very different.
THE SUMMIT
What could tonight’s summit agreement involve? – openeurope blog
Goldman's 10 Unanswered Questions On The European Bail Out And The Revised EFSF – ZH
E.g. What is the EFSF, how big are its guarantees and who is liable? What is the EFSF’s actual lending capacity and what happens if a country ‘steps out’? Will the ECB continue to backstop the financial system?
Edwards: Going bust and ECB QE – alphaville / FT
SG’s Albert Edwards: I feel more bullish! Why? Both Dylan [Grice] and I have come to the view that the ECB will be forced, by events, to monetise debt in the GIIPS and beyond. And if investors believe the governments in Spain and Italy are bust, then Germany, France, and not forgetting the UK and US, are far, far worse.
So. Many. Bailout questions – alphaville / FT
Questions on both the Greek debt deal and the EFSF
The battered, listing Euro-zone ship sails on – BNY Mellon
Has a good list of “remaining key risks” toward the end.
More lessons from bank recap history… – alphaville / FT
How will the EBA make sure banks are not trying to avoid raising capital by simply shrinking their balance sheets, i.e. cut lending.
Nothing original, but at the moment the best problem bullet points on the Greek haircut, bank recap and EFSF.
How badly do you want EFSF first-loss protection? – alphaville / FT
Investor Q&A to EFSF recently updated, with comments.
CDS FIASCO
Obligatory Greek CDS Post – Dealbreaker
Long, well-linked and good text.
How gross and net CDS notionals really work – alphaville / FT
please stop interfering by way of introducing sheer uncertainty into the market. The market has plenty of it without over-engineered debt restructurings and bailouts that come too late.
It’s not easy, being Isda – alphaville / FT
A credit event is difficult to define so that it is not too tight or too loose.
As the survivability of CDS markets is questioned, a look at recent trends to see where the demand comes.
TMM would like to introduce their readers to the humble Bond Future. That long-standing, well-understood derivative that has provided liquidity, transparency and price discovery to bond markets in many countries for 40 years. Bond futures with deliverable bond baskets allow basis trading, speculation and hedging, without the idiosyncrasies of CDS contracts. But of course, futures markets aren't that profitable for banks... well, you reap what you sow, right?
If You’re Not Into Greek CDS Any More, Maybe You Can Buy This Monstrosity – Dealbreaker
The irony that Europe is both (1) screwing with your ability to get paid on CDS on shaky European sovereign debt (sort of) and (2) hoping people will buy more shaky European sovereign debt because they can get tradeable first-loss protection,
GREECE
A Greek Short Back and Sides – The Source / WSJ
To get to an average 50% default on Greece’s outstanding debt, while ensuring the ECB and the IMF don’t take any losses on their holdings, would mean the privately-held component of Greek debt probably being written off entirely.
OTHER
Paul Volcker interviewed – Charlie Rose
Academia versus industry – Locklin on Science
Abolish banks? Maybe, maybe not... – The Physics of Finance
good economics is never going to provide the apparently certain, simple and complete answers which the pre-crisis conventional wisdom appeared to.
A Goldman guide to the monetary policy playground – alphaville / FT
A primer on “‘unconventional’ unconventional policies” to guide us through the maze of recent central bank moves from ‘operation twist’ to UK QE2 and the imposition of a minimum rate for the EUR/CHF exchange rate by the Swiss National Bank.