Bankers. Not your elected leaders!

NY Times:

ROME — A day after accepting the resignation of Prime Minister Silvio Berlusconi, Italy’s president on Sunday asked Mario Monti, a former European Commissioner, to form a government charged with helping defend Italy from Europe’s sovereign debt crisis.

President Giorgio Napolitano formally tapped Mr. Monti on Sunday evening after a day of meetings with political leaders across the spectrum, almost all of whom had pledged their support for a government of technocrats to guide Italy into its post-Berlusconi future.

“The president of the republic … has received Senator Mario Monti and conferred a mandate to form a government,” said a statement from the presidential palace, according to Reuters.

But in a sign of political wrangling to come, the leader of Mr. Berlusconi’s People of Liberty party said on Sunday that the party would support a Monti government only for as long as it could fulfill its mandate to push through measures to help reduce Italy’s $2.6 trillion public debt and increase growth to keep the country competitive. The party had been pushing for early elections, while media reports say Mr. Monti hopes to serve until the end of the current legislature in 2013.

Mr. Berlusconi addressed the nation in a video message on Sunday evening, declaring his “love and passion” for Italy and his bitterness at having been jeered on Saturday after he tendered his resignation, an act he said had been one of “generosity” toward the country.

The real news here is not the change of guard. But the bloodless coup d’etat orchestrated by bankers in two European countries. It tells us how powerful the banking interests have become in the world. Democracies are being ‘taken over’ by “bankocracies.” Last week there was a change of guard in Greece -- the new PM is an Ex VP of ECB, not popularly elected.

Not just Mario Monti -- the head of ECB, (another super) Mario Draghi is also a squid alumnus. Ladies and gentlemen -- the masters of universe now are Goldman Sachs:

————-
But on the political fringes there are already those portraying Mr Monti – who is listed by Goldman Sachs, the investment bank, on its board of international advisers – as a tool of the “masters of the universe”, along with Mario Draghi, head of the European Central Bank and former Goldman Sachs executive.

“This is the band of criminals who brought us this financial disaster. It is like asking arsonists to put out the fire,” commented Alessandro Sallusti, editor of Il Giornale, a Milan daily owned by the Berlusconi family.

Related posts:

1. All About Europe’s Sovereign Debt Crisis in One Picture
2. Bloomberg Interview: Jim Chanos on China and Europe (Oct 28, 2011)
3. Nigel Fagare Rips EU on Euro Crisis

From the (THINGS THAT MAKE YOU GO Hmmm) article linked via Scribd. Other than saying this is exactly what I was saying on my show on Friday (Oct 28 -- Telugu podcast will follow), no further commentary needed:

With the carefully-orchestrated way in which the word ‘voluntary’ was unceremoniously shoehorned in front of the word ‘haircut’ this week and the unsurprising complicity of ISDA in declaring(seemingly with a straight face)that a failure to receive 50% of your investment back some how does NOT constitute a credit event, yet another problem was ‘avoided’. However, avoiding that problem today (namely more huge losses for the banks who, along with holding long positions in sovereign debt themselves, wrote CDS protection on for other holders of that same debt) could mean that tomorrow brings a whole new set of woes for two obvious reasons:Firstly, there is no doubt in my mind that in very short order, the lawsuits will begin to cascade down from the holders of those CDS contracts. These holders have VERY deep pockets and stand to make or lose enormous amounts of money should this be allowed to stand. they will NOT go quietly -- that you can be sure of.Secondly -- and this is where the whole thing comes full circle -- by ensuring CDS protection on sovereign debt doesn’t pay out upon default of the bonds, the Eurocrats have shot themselves in both feet simultaneously because they have taken away the most effective hedge for people buying government bonds.For a region looking to rollover hundreds of trillions of Euros in the debt markets in the next couple of years, this step has more or less ensured they will have fewer buyers. Fewer buyers means higher yields. Higher yields means…. well, trouble -- and that’s without allowing for anyone having to sell their existing holdings because it has been demonstrated that their hedges are ineffective.
—
Hmmm October 30 2011

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In case if you were betting that Europe will be fixed over the weekend… the headline says it all. Friday’s “breakout” in stocks could be a head-fake. Via Telegraph.

Just when the eurozone governments thought it could not get worse for Europe’s single currency, it did.

Shell-shocked EU finance ministers meeting in Brussels on Saturday were already reeling from the worst Franco-German rift for over 20 years and a fractious failure to resolve the problems that have brought Greece, and the euro, close to the brink.

But then a new bombshell hit as a joint report by the EU and the International Monetary Fund (IMF) warned that, without a default, the Greek debt crisis alone could swallow the eurozone’s entire €440 billion bailout fund -- leaving nothing to spare to help the affected banks of Italy, Spain or France.

An EU already rocked by divisions between France and Germany over how to increase the “firepower” of the European Financial Stability Facility (EFSF) in order to save the wider eurozone from Greek contagion now faced the prospect of losing it all in one go.

As dark-suited finance ministers contemplated the pains au chocolat laid out on their desks alongside their talking points and position papers, Jan Kees de Jager, the Dutch finance minister, told colleagues: “We’ve got to get real. People are talking about new defences but with one gulp the whole €440 billion could be gone, leaving the eurozone with no protection at all.”

….

Compounding the trauma, Christine Lagarde, the French finance minister turned IMF chief -- and one of the few key players who appeared to be enjoying herself in her new headmistress-like role -- issued a grim warning to her former European peers.

The IMF would no longer be willing to pick up a third of the total bill for rescuing Greece, a contribution worth €73 billion, unless European banks were prepared to write off 50 per cent of Greek debt.

“It was grim. The worst mood I have ever seen, a complete mess,” said one eurozone finance minister.

Related posts:

1. Greek Austerity Now: Bankster Cartel’s Another Victory Over the People
2. Give the Banks What they Want, or there Will be “Tanks In The Streets, Mass Suicides”
3. Barry Ritholtz: Not the Greeks, But Their Creditors Get Bailed Out

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1. All About Europe’s Sovereign Debt Crisis in One Picture
2. S & P Downgrades US Debt. Now What?
3. Move Over the Republics of Europe, Your New Masters are…..

The picture above shows today’s Credit Default Swap spreads of the sovereign debt of PIIGS (Portugal, Italy, Ireland, Greece and Spain) countries. It means that the interest rate spread OVER the comparable Treasuries is 1737 basis points. Or, full 17% higher than the Treasuries. It means that it is virtually certain one of the countries in PIIGS is going to default -- soon. It is virtually certain it is Greece, followed closely by Italy.

What will happen if Greece defaults? Immediately many European banks will be in trouble -- especially the French Banks. Today, WSJ reported the following about French bank, BNP Paribas:

‘We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.”

Ah, banks! Investment banks to be precise. They work relentlessly hard to bring down the cost of capital, and stick several times that cost to us and future generations.

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1. Nigel Fagare Rips EU on Euro Crisis
2. Goldman Invoved in Greece’s Crisis
3. S & P Downgrades US Debt. Now What?

Stock markets around the world have new fuel for rally: rumors. There is a rumor every minute.

Yesterday: “China to buy Italian bonds.” Not true. But, market rallied for over 100 DOW points in 5 min.

Today: “French President and Greek PM are to “talk.”  But markets bolted higher.

Late today: Brazil to the rescue of European debt crisis.Not to mention -- not true.

vare va!

Zero Hedge: European Rumormill Goes Full Retard

Update: Italy Hasn’t Asked for Any Help From China, Deputy Min Says… Yeah. Full Retard

Wondering why stocks are soaring and the EURUSD is above 1.37 again? Why, nothing short of the latest rumor, this time that Russia will bail out Europe. Bloomberg reports that Russia may use its international reserves to buy common euro-area bonds if European policy makers back joint debt issuance, Reuters reported, citing an interview with Finance Minister Alexei Kudrin… Sorry, we just report them. Time for the trader diary to get its latest update. The only problem we see with this strategy of rolling daily bailouts is that after China and Russia, who would be far smarter to participate in a stalking horse bid of European assets than to invest general unsecured pre-petition claims, there will be nobody left to “rescue” Europe: after all who else is out there? Zimbabwe? Japan? Argentina? Iceland? We doubt even the 80286′s will buy that…

Interesting times.

Related posts:

1. Morning Musings: 2011-08-09
2. Morning Update: 2011-08-10
3. “Ireland is Not Greece, Portugal” Never Believe a Rumor Until it is Officially Denied Edition

On Friday, Aug 5 2011 at 8:01 PM when all financial markets (ex ForEx) in all western countries have closed for trading, Standard and Poor’s downgraded US Debt. Via Bloomberg:

S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. Even with the specter of a downgrade, demand for Treasuries surged as investors saw few alternatives amid concern global growth is slowing and Europe’s sovereign debt crisis is spreading.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.

This downgrade is not the first. Dagong Global, a Chinese State sponsored rating agency has downgraded US debt late last year. The act was laughed at by most Western investors and politicians alike. China now gloats about the latest downgrade. [Via Xinhua, the official Chinese news outlet]:

Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth.

China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.

To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.

…

The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.

It should also stop its old practice of letting its domestic electoral politics take the global economy hostage and rely on the deep pockets of major surplus countries to make up for its perennial deficits.

A little self-discipline would not be too uncomfortable for the United States, the world’s largest economy and issuer of international reserve currency, to bear.

Though chances for a full-blown U.S. default are still slim now, the S&P downgrade serves as another warning shot about the long-term sustainability of the U.S. government finances.

…

All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss.

What caught my fancy are these lines:

For centuries, it was the exuberant energy and innovation that has sustained America’s role in the world and maintained investors’ confidence in dollar assets. But now, mounting debts and ridiculous political wrestling in Washington have damaged America’s image abroad.

There in lies recognition of true American spirit. Not only what sustained America’s leadership in the world is its exuberant energy and innovation, I am confident that it will continue to be the leader by getting its act together. The political circus of excessive deficit spending, especially on wars, and ideological demagoguery. Yes, US should cut its massive spending on defense, which is where the bulk of the waste is, and then on entitlements. At the same time, US should bite the bullet and revert Bush tax cuts.

It will be tempting to blame this entirely on Obama especially for those righwing nuts out there. Lest we forget, President Bush doubled the deficit in his 8 years by over $5 Trillion. Other than the $700 b stimulus he pushed for, Obama inherited all this mess from Bush.

Listeners of my Telugu internet show MMGL, heard me say on July 29th show the following:

• The US will not default on its debt this week as many callers feared (Check)
• A debt deal will be reached between Democrats and Republicans (Check)
• Just like the spoiled child rolling on the floor crying in a super market gets everything from his parents, Republicans will get what they want in the debt deal, like no tax increases. [It happened just as I said it would. Even the spoiled child analogy was used in the polls conducted afterwards. However, the polls were too politically correct - they referred all politicians as spoiled children. A child who only got 2% of what he asked for is not a spoiled child.]
• The debt downgrade would probably happen, regardless of the debt deal. [It did]
• The markets will most likely sell off. [They did]

All the above assertions by me played out almost exactly I said. A broken clock analogy comes to mind. Seriously, they were educated guesses.

I am asking myself, “What next?” I am assimilating information from various sources. I will post my musings in a day or two.

In the immediate term, I think on Monday market will open down big (most likely go up at the close). The only regret I have is closing all equity puts towards the market close on Friday.

Related posts:

1. Blog Roundup: Is France Next to Get a Downgrade?
2. China Downgrades US, Again
3. Morning Update: 2011-08-10

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Trading in FTSE:MIB suspended (Aug 4)

Short-Term Yields Going Negative

In simple English, it means that you have to PAY THE BANK TO KEEP YOUR money. This kind of imbalance happens in extreme panic situations.Via Zero Hedge:

The stunner in this morning’s newsflow (the long, long overdue market collapse which is a much needed catalyst for QE3 should not surprise anyone), comes out of the WSJ which has just reported that the Bank of New York has informed institutional clients it will begin charging a fee of 13 bps on deposits in excess of 110% of the client’s monthly average. This is nothing short of outright terrorism to get everyone out of cash and into fiat-based ponzi products. Such as Short Term Bills. Indeed, as was reported earlier the 3 Month bill just hit zero. But you ain’t seen nothing yet. As Credit Suisse strategist Ira Jersey reports, courtesy of Bloomberg,  “If this is true then we’re likely to see short-end interest rates actually go negative. By what degree depends on who else follows and how much money is involved.” Cue unpredictable consequences of a totally broken bond market. What happens next will likely make the market dislocations following Lehman like a breezy walk in the park.

Last time this happened, I believe September 2008, soon after Lehman filed for bankruptcy. We all know what happened afterwards.

Folks, I hope I am not sounding like an alarmist. But, this is happening too fast and the markets are imploding. Trading in FTSE: MIB (Italian stock index) has been suspended today as it tanked. [Market triggers got triggered.]

Take necessary steps.

Related posts:

1. Update (Aug 18, 2011): Panic Hits World Financial Markets. Again.
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Carl Bernstein -- the Washington Post investigative journalist who (along with Bob Woodward) exposed Nixon’s 3rd rate burglary and break-in of Watergate weighs in on Murdoch’s News of the World hacking scandal. He doesn’t mince any words.

Visit msnbc.com for breaking news, world news, and news about the economy

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Once again, Jon Stewart gives Fix News taste of their Own Medicine on his Jul 19th show. Cal Thomas on Fox: “The biggest case of piling on since the last rugby game I saw.” Jon picked from that moment and pounced. Jon contrasted Fox’s hysteric coverage of a comment made by NPR executive to virtual silence on the phone-hacking scandal at News Corp. This scandal started with the death of a 13-year old girl and the guy who blew the whistle was found dead. Scotland Yard Police, touted to the elitist of elite police forces in the world, said that the death is “not suspicious.” Do you think this disposition has anything to do with the fact that the Scotland Yard Police has also been implicated in the scandal? Nah! That would be for ‘conspiracy nuts.’

At least two deaths, the Prime Minister of England being implicated, resignations en masse -- including the resignation of several top level executives and even the Scotland Yard Police Chief, multiple arrests, etc etc. Yet, the Fix News idiots don’t think that this news is worthy of a mention on its ‘news’ shows. The only mention of this comes in the form of attacks on Fox by the left leaning media. Oh my God.. these guys have some nerve!

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John Isner of USA finally won the longest match in tennis history, which lasted for 3 days. The American hit a backhand winner to win the last of the match’s 980 points, and he took the fifth set Thursday against Nicolas Mahut, 70-68.

The first-round match took 11 hours, 5 minutes over three days, lasting so long it was suspended because of darkness -- two nights in a row. Play resumed Thursday at 59-all and continued for more than an hour before Isner won 6-4, 3-6, 6-7 (7), 7-6 (3), 70-68.

Isner had 112 aces, and Mahut had 103 -- previous record of aces was 78.

Man, I wish I saw this game live!

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The pounding continues in Asia (9:08 PM, May 20, 2010)

What is going on? Sovereign debt crisis, leading to disintegrating Euro, leading to major currency crisis. More on this on Friday, May 21st MMGL.

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