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Friday, December 16

17th Dec - A Very Beary Christmas

Quote of the day:  It is as much a tale of over lending as it is of over borrowing and, just as nobody should feel undue sympathy for those who miscalculated the amount of debt they could service, nobody should feel for those who miscalculated their lending risks. Joshua Rosner

News – BTH
News – The Trader
Market Preview – Saxo Bank
Morning Briefing  – BNY Mellon
FX option vols – Saxo
Markets Live – alphaville / FT
Debt crisis: live – The Telegraph

 ...and now to today's links: 

EURO CRISIS
What the euro crisis is notMacroscope / Reuters
Joshua Rosner: not a bailout of periphery, but a bailout of banks in the core. It is as much a tale of over lending as it is of over borrowing.

The European Union in disarray: A comedy of eurosThe Economist
The EU has suffered plenty of disappointing summits without the sky falling in—a good many of them in the past year. But unlike the marathon dispute over a new constitution, the euro is in a race against time because markets are pushing countries to insolvency. As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.

France in Recession; Italy in Recession; Poles Protest; Credit Agricole Quits Commodity Business; Liquidity Crunch Continues; Italy in Recession; Poles Protest; Credit Agricole Quits Commodity Business; Poetic IronyMish’s
The story of Credit Agricole is symbolic of the banking sector everywhere. Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital because of new Basel requirements.

ECB Success and FollyMacrobusiness
The big question is whether the latest night’s auction result was spurred on by the new ECB long term repo operation which could be encouraging Spanish banks to purchased their nations sovereign bonds and then front up to the ECB… If this is the case, then this is obviously a positive for struggling sovereigns because the ECB liquidity operations are providing a small sovereign backstop.
  
How Investors Should Think about EuropeA Dash of Insight
Nothing much matters except Europe: it is the headline, the volatility, the counter-party risk, the recession contagion and earnings threat of the world.

EFSF presentation updatedEFSF (pdf)

Revised EFSF Draft Shows Italy, Spain Responsible For One Third Of European Bailout FundingZH

EURO CRISIS: BANKS
Platt: Europe’s banks are insolventPragmatic Capitalism
Founder of BlueCrest in his first-ever tv interview opens up, big time.

U.S. Exposure to Europe – Unknowns UnknownsCredit Writedowns
Very nice roundup of recent writings and events, concentrating on the aftermath of shadow banking, repo markets, rehypothecation.

Now That European Banks Have Money, Lots Of People Have Ideas For What They Should Do With ItDealbreaker
Since they’re now all flush and awesome, various people have come out of the woodwork to help them spend their money. (I’m happy to help too! Call me!) One possible answer is “bail out your reprobate governments,” which FT Alphaville have dubbed the “Sarko trade”…

OTHER
Where Is the Volcker Rule?Economix / NYT
Simon Johnson: The main problem is that the rule as drawn does not set out the clear, bright lines that banks and regulators need, nor does it provide for meaningful enforcement. Instead of drawing the lines, the proposed rule mandates that firms write many of the rules themselves.

Peak creditThe Aleph Blog
As it is, we face many years of slower growth ahead as we bleed debt out of the economy, or a number of years of inflation ahead, as we inflate away debts.  I suspect the former, but I can’t ignore the latter.

What is the new normal for volatility?Pragmatic Capitalism

Correlation Ruled 2011 But It Won’t for EverThe Source / WSJ

Credit Suisse makes life a little harder for aspiring rogue tradersMarketplace
The purpose of forcing traders to take two-week blocks of vacation without access to their computers is not, of course, to make sure that they are well-rested and effective.

DIVERSION
Physics EnvyWSJ
Malkiel reviews Derman’s book: Creating financial models involving human behavior is like forcing 'the ugly stepsister's foot into Cinderella's pretty glass slipper.'