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Monday, November 7

7th Nov - All your gold are belong to us

Is the world really coming down to this? Photo source
Good morning! The world is definitely looking very bleak at the moment, but at least most of the dumb and unworkable ideas have soon be exhausted. In fact, that is a good start. The day of reckoning is approaching - it will be a choice between
  1. disorderly defaults and euro breakup or
  2. full backstop by ECB. 
Given the technical difficulties and political weakness everywhere, the previous ideas of a split currency unions (e.g. Northern and Southern euro) are not realistic. Posted earlier: the week in review/ahead and usual links in the “Weekender” and the “Best of the Week”, a collection of previous week’s finest. follow me on Twitter, Facebook or email me. Have a good week - MoreLiver

Quote of the day: To sum up, the euro zone is in an existential crisis, brought on by fiscal, private sector and current account, imbalances in a fixed exchange rate environment lacking a lender of last resort. – Credit Writedowns

Quote of the day 2: If France and Italy want to expand the EFSF, why don't they pledge their own gold rather than asking Germany to pledge its gold? One possible answer is that any country dumb enough to pledge its gold will very quickly lose its AAA rating. However, the Euro-nanny finance minister clowns are probably not bright enough to figure that out. – Mish’s

News (Mon morning) – BTH
Danske Daily - Danske (pdf)
Morning Briefing – BNY Mellon 
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT

Goldman's Roadmap For Europe - The Next StepsZH
Fiscal consolidation is a precondition for further ECB support, central scenario high local volatility but lower overall systemic risk, if
Rome fails the ECB stops SMP and fiscal authorities ( EFSF, IMF) would have to step in.

Morgan Stanley Says Europe's Pandora's Box Has Been OpenedZH
The EU summit’s comprehensive solution is not comprehensive or a solution, Merkozy have said aloud that leaving (or being kicked out) euro is possible. The previous big signaling was July’s Greek haircut: EZ sovereign debt is not risk-free. Now the possibility of runs on sovereigns and banks is real. 

Is Greece About to Derail the Bailout Yet Again?naked capitalism
After Greek Prime Minister Papandreou’s inspired gambit of a national referendum to approve the latest bailout pact was beaten back by an ugly combination of betrayal by his finance minister and bullying by the IMF, Merkel, and Sarkozy, the sad farce of the Eurorescue seemed to be back on track. The endgame is clearly default for Greece, or in lieu of that, a deeper restructuring down the road. 
G-20 Demands German Gold To Keep Eurozone Intact; German Central Bank Tells G-20 Where To Stick ItZH
1) Germany will not give away its FX and gold reserves 2) EZ, ECB and EFSF are broke, have zero credibility and they know it 3) while Germany can tell G-20 to shove it, insolvent countries relying on EFSF and ECB’s SMP may not be that lucky and the prize they have to pay could be their gold. 

The ABCs of the Euro crisisSol Sanders / ZH
It was inevitable when [not if], a major new economic crisis hit the world economy, the Euro would be imperiled. For it was being used by participating governments for their own individual economic strategies rather than any common development.

IMF's "Nouveau Rich" Willing To Bail Out Old EuropeForbes
Reinforcing the IMF seems to be something the cash-rich BRIC’s state they are willing to do.

Withdrawal and Expulsion from the EU and EMU Alea blog
Whilst a Member State’s exit from the EU would, therefore, entail its exit from the euro area, this does not necessarily mean that the euro could no longer circulate in its territory. Extracts from the 2009 ECB paper.
Methinks Thou Dost Protest Too MuchThe Epicurean Dealmaker
1) investment banks never completely eliminate the residual risk involved in buying and selling investment contracts like CDSs and other derivatives 2) the collateral protection mechanism itself can trigger contagion both within and across tightly linked firms. 3) nobody can be assured they are not transacting with another AIG Financial Products

Known UnknownsThe Epicurean Dealmaker
If there is no central repository of trade data in a particular security or derivative market, no standardization and reporting of net and gross positions, what is to prevent the rise of yet another bunch of idiots like AIGFP to create a huge net risk position of which their multiple, competing investment bank counterparties remain blissfully unaware?

ISDA Standard CSAAlea blog
The SCSA seeks to standardize market practices by removing embedded optionality in the existing CSA, promote the adoption of overnight index swap (OIS) discounting for derivatives, and align the mechanics and economics of collateralization between the bilateral and cleared OTC derivative markets. (pdf slides)

What caused the financial crisis? The Big Lie goes viral.WP
Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.

Once A Liar, Always A Liar - Hedge Fund Performance RevisionsZH
nearly 40% of hedge funds revise their historical returns. Revisions predict low or negative alpha and investor outflows.

A Curated Linkfest For The Smartest People On The WebSimoleon Sense