12th Oct - Best of the Week

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

EUROPE

  BANKS

The asset-quality review: Gentlemen, start your audits – The Economist

Close scrutiny of Europe’s banks may turn up unexpected shortfalls.

Backstop before Asset Quality Review and Stress Tests in Europe – Marc 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 loop – Reuters

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 Wants – WSJ

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.

  PIIGS

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 Revealed – WSJ

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 monitor – Danske 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

  EUROPEAN CENTRAL BANK

Great Graphic: A Look at LTROs – Marc 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 aid – FT

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 2013 – ECB (pdf)

ECB to Create Currency Swap Line With China Central Bank – WSJ

Q&A: What’s a Currency Swap Line? – WSJ

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

  FEDERAL RESERVE
Macro Digest: FOMC minutes show hunger for taper – TradingFloor

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 Show – Tim 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 Doves – ZH

Yellen

Economists React: ‘What We Really Need in a Fed Chair’ – WSJ

The biggest challenge Yellen will face as Fed chair – WaPo

Yellen called the housing bust, mostly right on jobs. Does she have what it takes – WaPo

Smart reads – Janet Yellen – The World / FT

Wall Street Reacts: ‘She Has Her Work Cut Out for Her’ – WSJ

Is Yellen a Hawk in Dove's Feathers? – View / BB

  SHUTDOWN / DEBT CEILING

Debt Ceiling Drama Scenarios: BGOV Executive Outlook – BB

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 ceiling – WaPo

Prioritization Of Payments: Would They? Could They? – ZH

No Clear Fiscal Deadline, and That’s a Problem – Macro and Market

Sneaky Solution To The Debt Ceiling – BI

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 default – Nordea (pdf)

What will happen if the unlikely scenario of a US default comes true?

Republicans offer plan to postpone U.S. default – Reuters

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 Night – ZH

The Republicans’ worst poll yet – WaPo

OTHER
IMF's World Economic Outlook – MoreLiver’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 another – alphaville / 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.

FINNISH
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 ihmiskokeita – Tyhmyri

Euroalueen talouspolitiikka erityisen tuhoisaa

Älkää haudatko valtiota – TalSa

Valtiolla on yhä käyttöä, vaikka iskut sitä vastaan kovenevat.

Valtio ei ole kotitalous – TalSa

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 tynnyri – PS

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 pärjäisi – Tyhmyri