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Saturday, October 12

12th Oct - Best of the Week

Best article links selected from the ending week’s posts.

The asset-quality review: Gentlemen, start your auditsThe Economist
Close scrutiny of Europe’s banks may turn up unexpected shortfalls.

Backstop before Asset Quality Review and Stress Tests in EuropeMarc to Market
Europe is moving, however slowly toward a banking union… If it is judged that the banks need to raise capital, it also makes sense to ensure that there are facilities in place that will allow for this without triggering a new financial crisis. 

Hugo Dixon: Bundesbank right to focus on doom loopReuters
Germany’s Bundesbank is not afraid of playing the role of bad fairy. Last week, it criticized rules that encourage euro zone banks to load up on their own governments’ debts.

Winding Down EU Banks: The Job No-One WantsWSJ
The top job in Europe’s new bank resolution regime has become something of a poisoned chalice. Lawyers for European Union states this week urged the European Commission to take on even more powers over winding down troubled banks. But the commission immediately said it didn’t want them.

Hold on, the periphery looks relatively calm?alphaville / FT

How important was the “structural balance” screw-up in driving European austerity?Noahpinion
I’m really glad to see that this European screw-up is, eventually, making headlines and that the European Commission is reconsidering the operational details of its production function method to estimate potential output and structural deficits

IMF Document Excerpts: Disagreements RevealedWSJ
These are excerpts from confidential IMF documents, including board meeting minutes, staff briefs and board-member comments reveal considerable disagreement at the May 9, 2010 meeting at which the IMF board approved Greece’s first bailout.

Periphery business cycle monitorDanske Bank (pdf)
Euro area periphery countries continue to show improvements in sentiment, although a setback in some indicators in September underlines the fragility of the recovery. Sovereign spreads have continued to tighten on the back of a decline in political risk

Great Graphic: A Look at LTROsMarc to Market
The pending stress tests will likely accelerate [repayments] the risk is that as the LTRO repayments are made, it further reduces the excess liquidity in the euro system and may exert upward pressure on money market rates.

Penalties planned for banks receiving ECB aidFT
EU regulators overseeing next year’s long-awaited stress tests of the region’s banks are preparing to penalise any lender that remains reliant on the European Central Bank’s landmark cheap funding scheme.

Monthly Bulletin, October 2013ECB (pdf)

ECB to Create Currency Swap Line With China Central BankWSJ
Q&A: What’s a Currency Swap Line?WSJ

SocGen: End Of QE3 Will Lead To 15% Market Drop, Surge In VIX, Followed By "The Big Sleep"ZH

Macro Digest: FOMC minutes show hunger for taperTradingFloor
September's surprise decision not to taper makes a lot of sense now that the US government is in shutdown. But the FOMC minutes suggest that the Fed will proceed with tapering—just probably not in 2013.

Kind of a Clown ShowTim Duy’s Fed Watch
Monetary policymakers are viewing financial stability as an important element of sustaining maximum employment and stable prices over the course of a business cycle.  The challenge is that this involves a new trade-off in the monetary policy process that they are struggling to understand.  Unfortunately, the public debate they are carrying on is somewhat clownish in that it is sending conflicting signals about the path of monetary policy.  This is really not surprising.  What exactly is the Fed's reaction function if we throw financial stability into the mix?  They don't know any better than we do.

Here Are Next Year's Voting Hawks And DovesZH

Economists React: ‘What We Really Need in a Fed Chair’ – WSJ
The biggest challenge Yellen will face as Fed chairWaPo
Yellen called the housing bust, mostly right on jobs. Does she have what it takesWaPo
Smart reads – Janet YellenThe World / FT
Wall Street Reacts: ‘She Has Her Work Cut Out for Her’WSJ
Is Yellen a Hawk in Dove's Feathers?View / BB

Debt Ceiling Drama Scenarios: BGOV Executive OutlookBB
Immediate ‘Clean’ Extension * Extension With Some Conditions * Administration Invokes 14th Amendment * Administration Prioritizes Payments * Temporary Default Followed by Compromise *
Kick the Can *

You probably think the shutdown’s about spending. It isn’t.WaPo

What If We Go Past The "X" Date?ZH
BofAML: Most options are unviable – the most fair and sensible option would be to implement a delayed payment regime where no payments would be made until they could all be made on a day-by-day basis.

Absolutely everything you need to know about the debt ceilingWaPo

Prioritization Of Payments: Would They? Could They?ZH

No Clear Fiscal Deadline, and That’s a ProblemMacro and Market

Sneaky Solution To The Debt CeilingBI

Final Options: Wall Street Broaches Crazy Maneuvers To Avert Default WSJ
With a key deadline for raising the nation’s debt ceiling a week away, Wall Street analysts and even President Barack Obama are talking openly about outlandish strategies to avoid default, from issuing Treasury debt with super-high interest rates to selling the gold at Fort Knox.

Treeing the full faith and credit alphaville / FT
Nomura remain optimists even if they do think a solution will only come in the 11th hour:

Thinking the unlikely: Fixed income implications on a US defaultNordea (pdf)
What will happen if the unlikely scenario of a US default comes true?

Republicans offer plan to postpone U.S. defaultReuters
Republicans in the House of Representatives offered a plan on Thursday that would postpone a possible U.S. default and urged President Barack Obama to negotiate an end to the 10-day government shutdown.

White House, Republican Meeting "Inconclusive", To Continue Throughout The NightZH

The Republicans’ worst poll yetWaPo

IMF's World Economic OutlookMoreLiver’s Daily

The 106 Finance People You Have To Follow On Twitter BI

The most important charts in the world BI
From the Wall Street's brightest minds.

The shadow banking system, crunched one way or anotheralphaville / FT
Here’s a useful assessment of both shadow banking’s relationship to the real economy and how it will be affected by forthcoming regulatory reforms, by strategists at Barclays.

Pian kohti liittovaltiota – pelastus vai käärmeenpesä?TalSa
IMF:n ekonomistien mielestä pankkiunioni ei riitä, vaan euromaiden on pian otettava seuraava askel kohti liittovaltiota. Se on "fiskaaliunioni", jossa talousvaltaa, verotusoikeutta ja velkavastuuta siirtyy euromailta "Brysseliin". Aihe on tulenarka: Saksan keskuspankki Bundesbank varoittaa liian hätäisiä uudistajia sohaisemasta käärmeenpesää.

Talouspoliittisia ihmiskokeitaTyhmyri
Euroalueen talouspolitiikka erityisen tuhoisaa

Älkää haudatko valtiotaTalSa
Valtiolla on yhä käyttöä, vaikka iskut sitä vastaan kovenevat.

Valtio ei ole kotitalousTalSa
Kotitaloudet eivät voi elää yli varojensa, miksi valtiot voisivat? Kyse on talouden eri sektoreista, joiden sekoittaminen toisiinsa johtaa haitallisiin seurauksiin. Hallituksen finanssipolitiikka tuhoaa yksityisen sektorin nettovarallisuutta.

Koskenkylä: Hallituksen rakennepaketti on tyhjä tynnyriPS
Hallituksen rakennepoliittisessa ohjelmassa on 18 sivua toiveita, tavoitteita ja hurskastelua. Kehittämisestä puhutaan yli 100 kertaa, konkreettisuutta on kovin vähän. Suomen Pankin ex-johtaja Heikki Koskenkylä analysoi ohjelman ehdotusten kestävyyttä ja sen mahdollisuuksia saattaa Suomi uudelleen nousuun.

Yksittäisen vientiyrityksen etu ja Suomen etu eivät ole sama asia – yritys voi pärjätä vaikka Suomi ei pärjäisiTyhmyri