Here are the best links from my posts since last week's Best of. The Weekender posts are next, probably one tonight and one on Sat/Sun. If you have a job offer, leaked material or brown envelopes with unmarked bills, you can keep in touch with "MoreLiver" through Twitter, Facebook, email, paper.li.
To the articles:
EURO CRISIS: GENERAL
The Eye Of The Hurricane Passes: Full List Of European Known Knowns As The New Quarter Begins – ZH
UBS calendar, plus long discussion of event risks by country.
Very nice.
A look at the firewalls, what and why the markets are hoping for and the need for single central political authority to avoid fears of moral hazard
A Centerless Euro Cannot Hold – Project Syndicate
Rogoff: Europe may never be an “optimum” currency area by any standard. But, without further profound political and economic integration – which may not end up including all current eurozone members – the euro may not make it even to the end of this decade.
My answer to that is the euro is failing on both counts. It hasn’t helped turn Europe into a strong, competitive economy capable of contending with either the U.S.or a rising Asia. And where is the camaraderie supposedly behind the euro’s lofty mission? What I see is an increasingly undemocratic Europe, where countries are forced to take irrational steps by overbearing neighbors to preserve a common currency offering little good in return.
Eurozone I: Bail-outs are no substitute for reforms – bruegel
We are reminded almost every day that either the bail-out efforts must be greatly expanded or the Euro will perish. The biased pressure being exerted reflects the advantages to be gained by certain parties, and the erroneous beliefs of others. As to the advantages to be gained, it is easy enough to understand why creditors should prefer bail-outs for the debtor countries. And many political leaders also welcome the way that official crisis lending can ease market pressures. The media, meanwhile, thrives on its role as bearer of bad news.
The Ugly Truth For Northern Europeans – ZH
...in order for the mercantilists of the north to have these jobs, and to sell their wares, they have had to put large portions of their income into savings that was backed by the worthless debt of their target export markets. The north has executed a classic vendor finance structure, with no chance the financing will ever be paid back…In the event of a mass default, euro break-up or EMU unwind, this ugly truth will become immediately transparent. The entirety of the northern financial system will be insolvent.
Golden Rules for the Eurozone – Project Syndicate
In the aftermath of the crisis, some policymakers are beginning to see that a monetary union is not necessarily identical with unfettered capital mobility. Recognition of diverse credit quality is a step back into the nineteenth-century world, and at the same time forward to a more market-oriented and less distorting currency policy. Different interest rates in different countries might open the door to a more stable eurozone.
Sudden stops in the euro area – bruegel
Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis. The issue has gained further relevance with the widening of imbalances among euro-area central banks within the Target 2 settlement system and has important implications for both the short and the long-term policy responses. In a recent paper, we provide evidence of capital flows reversals in Greece, Ireland, Portugal, Spain and Italy and show that on the basis of the Calvo criteria, these episodes can be characterised as Sudden Stop. We discuss the implications of this finding for the Target2 discussion and the appropriate responses to the euro crisis.
Two Types of Credit Losses – TF Market Advisors
Yields, spreads and curve worse across the board. Loss type 1: default, loss type 2: forced to sell because the risk becomes too great.
In the new Eurozone-CAC crisis days, the concept is to crush the private-sector holders, and that means no market access for a long time. Instead, we will have ongoing and increasing sunk costs by governmental institutions. Caveat: government does not know how to cut losses and run. Government only knows how to run up small losses until they are huge…I am more pessimistic about peripheral Europe than I have been.
Collective action clauses shall be included, as of 1 January 2013, in all new euro area government securities, with maturity above one year, in a way which ensures that their legal impact is identical.
EURO CRISIS: EURO AND BREAK-UP
The euro zone has always been a selfish union, crafted in times of unprecedented growth that are unlikely to be repeated and predicated on short-term economic gain rather than longer-term political union within Europe. To fix the euro, you have to fix that problem — and as we’ve written many times, it’s tough to do without a common fiscal union, as you have in the U.S., in which money can be transferred from stronger states to weaker ones.
A Divorce Settlement for the Eurozone – EconoMonitor
Roubini & Das: The eurozone still lacks essential features of monetary unions that have stood the test of time; and planned reforms may exacerbate latent fiscal, banking and external imbalances, leaving it less, rather than more, resilient to regional shocks. Splitting up may be hard to do, but it can be better than sticking to a bad marriage
Euro Was Flawed at Birth and Should Break Apart Now – View / BB
Charles Dumas: The blithe assumption that such imbalances would be evened out by the ready mobility of labor was always flawed…In the future, the euro can survive only if these surpluses are given away as unrequited transfers - more or less what is happening now, in the form of bailouts…leaving the euro area is likely to be cheaper than staying in it.
Wolfson Economics Prize for eurozone contingency planning
Prize for the best plan on how to exit the eurozone, the finalists have been selected:
Wolfson Economics Prize – Policy Exchange
Videos: Shortlist – Credit Writedowns (all on one page)
What Wolfson Did Next – Edward Hugh / EconoMonitor
Five Ways to Break Up the Euro – MarketBeat / WSJ
An 11-year-old’s solution to the euro crisis – Wonkblog / WP
Raison d’etat and leaving the euro, by Jurre (aged 11) – alphaville / FT
An 11-year-old’s solution to the euro crisis – Wonkblog / WP
Raison d’etat and leaving the euro, by Jurre (aged 11) – alphaville / FT
Five Visions of How to Solve the Euro Crisis – DealBook / NYT
EURO CRISIS: SPAIN
Demand shocks, hysteria and forgetting the ECB – Place du Luxembourg
While countries might be under the illusion that they can pursue unilateral policies, the absence of an independent national central bank exposes them to the demands of the ECB, who will always win the ensuing games of chicken. In sum, there’s no need to worry because after some struggle the ECB will always come to the rescue.
Eurozone I: Bail-outs are no substitute for reforms – bruegel
We are reminded almost every day that either the bail-out efforts must be greatly expanded or the Euro will perish. The biased pressure being exerted reflects the advantages to be gained by certain parties, and the erroneous beliefs of others. As to the advantages to be gained, it is easy enough to understand why creditors should prefer bail-outs for the debtor countries. And many political leaders also welcome the way that official crisis lending can ease market pressures. The media, meanwhile, thrives on its role as bearer of bad news.
All Spain All the Time · Structural versus Cyclical Dilemmas · The Mother of All Housing Bubbles · Spanish Banks en Bancarrota · Meanwhile in the Rest of Europe · And Two More Leaked Documents · The Fat Lady Has Not Sung · San Francisco, New York, and Philadelphia
Good charts and discussion. The Spanish banks cannot buy their sovereign bonds as fast as foreigners are selling them. Should Buba and other core central banks decline them as collateral, sell-off would accelerate.
Spanish bonds / banks / bonds / banks – alphaville / FT
Bank of America: Italian banks are currently long cash compared to Spanish banks. This leaves them in a much better position to support their sovereign going forward. Nomura: A large and pre-announced form of QE would allow the ECB’s purchases to have the predictability that the SMP lacks, and hence to play a major role in the asset allocation decisions of investors.
Bank of America: Italian banks are currently long cash compared to Spanish banks. This leaves them in a much better position to support their sovereign going forward. Nomura: A large and pre-announced form of QE would allow the ECB’s purchases to have the predictability that the SMP lacks, and hence to play a major role in the asset allocation decisions of investors.
EURO CRISIS: CENTRAL BANKS, TARGET2, LTRO
Germany is preparing a raft of measures to safeguard its financial system and prevent excess stimulus from the European Central Bank leaking into an inflationary credit boom.
Both Target2 and ISA balance have risen considerably since the outbreak of the crisis. We address the differences and similarities between ISA and Target2 imbalances and argue that without a well-functioning interbank market only two options remain: mounting or discounting.
When safe assets return – alphaville / FT
Credit Suisse: Less debt, lower value, higher haircuts, and reduced collateral velocity: in our view, this is an ongoing and significant monetary shock.
Credit Suisse: Less debt, lower value, higher haircuts, and reduced collateral velocity: in our view, this is an ongoing and significant monetary shock.
EURO CRISIS: EFSF / ESM
Bailout Availability goes from €300 billion to €500 billion, kind of, maybe – TF Market Advisors
So at some point in the near future there will be about €40 billion of money sitting in the ESM and a bunch of promises from countries failing to live up to existing debt obligations, and that is the big firewall?
Wolfgang Schauble admits euro bail-out fund won't halt crisis – The Telegraph
Europe's "big bazooka" bail-out fund is not ready and won't stem the debt crisis that on Tuesday pounded Italy and the European Central Bank (ECB), admitted Wolfgang Schauble, Germany's finance minister.
Mark Grant Explains The Farce, The Hustle, And The Scam – ZH
Whether some proposed firewall is $760 billion or $1.3 Trillion or $13 Trillion makes no difference as in zero, nada, nothing and null. It is an IOU, a promise to pay and it is not counted in any European sovereign debt numbers nor is it counted in the figures for the European Union’s debt. It will not stop Spain or Portugal or Italy from asking for or needing money.
Whether some proposed firewall is $760 billion or $1.3 Trillion or $13 Trillion makes no difference as in zero, nada, nothing and null. It is an IOU, a promise to pay and it is not counted in any European sovereign debt numbers nor is it counted in the figures for the European Union’s debt. It will not stop Spain or Portugal or Italy from asking for or needing money.
The Hazard of Second Best – Project Syndicate
Mohamed A. El-Erian: In pivoting from internal to externally-financed firewalls, Europe is pushing a political agenda that is not yet warranted by economic and financial realities.
ASSET CLASS VIEWS
Credit Suisse shifted to a more negative 'underweight' stance to European equities… a positive view on domestic German equities and the broad DAX index (and USD earners) while notably negative on France and Spain in general (with Spain expected to underperform Italy).
60+ pages of market goodness, view online or download as pdf.
OTHER
Things that make you go hmmm… – Grant Williams / the trader (pdf)
Credit Derivative tutorial – Sober Look
276-page tutorial from Morgan Stanley (downloadable)
From Risk-Free Return To Return-Free Risk Overnight – ZH
Citi’s very good charts and analysis. 'risk-on risk-off' environment is here to stay… more likelihood of catastrophic loss when risk-goes-off (as liquidity spigots are closed however temporarily).
Citi’s very good charts and analysis. 'risk-on risk-off' environment is here to stay… more likelihood of catastrophic loss when risk-goes-off (as liquidity spigots are closed however temporarily).
Bank Downgrade Forward Calendar – ZH
Moody’s schedule for future (possible) bank downgrades, collected by Morgan Stanley.
The Changing Face of Big Money – DealBook / NYT
Spring 2012 Special Section: about the super-rich
Spring 2012 Special Section: about the super-rich