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Tuesday, December 20

20th Dec - The answer is to stop growing

I'm off to the KLF Laboratory. No, it is not a night club. ECB's financial stability review is a good read.

– MoreLiver

You can follow me on Twitter and Facebook and email me for suggestions and requests. Then to today's links:

News (Tue morning) – BTH
EM headlines – beyondbrics / FT
FX option vols – Saxo
Markets Live – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ

*Financial Stability Review Dec 2011ECB
Risks to eurozone financial stability increased considerably in the second half of 2011, as the sovereign risk crisis and its interplay with the banking sector worsened in an environment of weakening macroeconomic growth prospects

So Long, And Thanks For All The StressThe Daily Capitalist
The euro zone is an object lesson in an unwieldy, oversized political construct haphazardly cobbled together amongst irreconcilable cultural entities. Wherever something is wrong, wrote Kohr, something is too big. The answer is not to grow, embracing ever more disparate states within a dysfunctional currency union with make-it-up-as-you-go-along rules. The answer is to stop growing. 

One nation overdrawn: Lessons for Europe from America’s historyThe Economist
The ultimate lesson of America, then, is that what holds an economic union together has less to do with fiscal and monetary institutions than the desire of its people for closer political cohesion. That is an example that Europe is struggling to emulate.

IMF Completes Second Review Under an EFF with PortugalIMF
Good progress has been achieved so far on policy implementation, but given the strong headwinds from the deteriorating external environment, perseverance and determination to implement the ambitious fiscal program and push through tough, but essential, structural reforms will be critical, along with continued European support.

An Inconvenient TruthNYT
The truth is the opposite: Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street. Among other things, the Wallison-Pinto case relies on inflated data — Pinto classifies just about anything that is not a 30-year-fixed mortgage as “subprime.” The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.

Bank of America Lists The "Other" Risks For 2012ZH
Hard landing in
China, currency wars, Middle East oil supply shock.

Global savings glut or global banking glut?
It has become commonplace to assert that current-account imbalances were a key factor in stoking subprime lending in the US. This column says the ‘global banking glut’, i.e. the rise in cross-border lending, may have been more culpable for the crisis than the ‘global savings glut’. As the European banking crisis deepens, the deleveraging of the European global banks will have far-reaching implications not only for the Eurozone, but also for credit supply conditions in the US and capital flows to the emerging economies.

Another Preposterous Proposal to "Fix the Unfixable"; Political, Economic, and Mathematical RealitiesMish’s
The devalue-your-way to prosperity proponents are out in full force in spite of the mathematical silliness of it all.

Credit Stress IndicatorsCalculated Risk
There are several possible channels of contagion from the European financial crisis. The most obvious is the trade channel... A more significant channel would be tightening of U.S. credit conditions in response to the European crisis.

China’s Financial ArchitectureGlobal Macro Monitor
Here’s what we will be reading over the holiday,  Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, which Bloomberg named as one of the top business books of 2011. 

Will North Korea Stay Crazy?Slate
We know practically nothing about its new leader and what he might do. That’s scary.

Robert Samuelson: "Bye Bye Darwin?"CEPR
Okay, Samuelson actually wants to say goodbye to Keynes, but he would have had a better case if he was talking about
Darwin and the theory of evolution. After all, when we have seen nothing but confirming evidence for years, why should we still accept the theory?

FiveBooks Interviews: John Gapper on Financial SpeculationThe Browser
We all have a bit of the rogue trader in us. So says the chief business commentator of the FT, who tells us about the greed, vanity and weakness that can lead to financial disaster