Cardboard Spaceship

Large European Bank Nearly Failed Last Night

The news just keeps getting uglier and uglier.

From Forbes, via Zero Hedge: 

"It appears that a big European bank got close to failure last night.  European banks, especially French banks, rely heavily on funding in the wholesale money markets.  It appears that a major bank was having difficulty funding its immediate liquidity needs.

The cavalry was called in and has come to the successful rescue. 

The Federal Reserve, the Bank of England, European Central Bank, the Bank of Japan, the Swiss National Bank, and the Bank of Canada in a coordinated action moved to provide liquidity to the global financial system."

So they saved it last night, and tomorrow, when everyone begins to know who is in trouble?  If the bank is bust, only central banks propping it up, then it is a dead bank walking, and we will find out soon enough who it is.  Then we'll see what's left standing afterwards.

Euro Again

Well, I guess I was kinda hoping that there would be some kind of Deus ex Machina that might pull us out of the situation, but it's looking less and less likely.  Two quotes both from the gold ole' Torygraph, in this article and its counterpart from Jeremy Warner. 

Warner first:

"Contingency planning is in progress throughout Europe. From the UK Treasury on Whitehall to the architectural monstrosity of the Bundesbank in Frankfurt, everyone is desperately trying to figure out precisely how bad the consequences might be. What they are preparing for is the biggest mass default in history. There's no orderly way of doing this. European finance and trade is too far integrated to allow for an easy unwinding of contracts. It's going to be anarchy."

Brogan then chips in:

"The Economist, with its cover of a euro coming down in flames, asks 'Is this really the end? and answers that, basically, yes it is. A senior minister explained to me a few days ago that contingency planning is now well underway, and takes in both preparations at home for a shock on the banks and work with consulates and embassies abroad, specifically in the eurozone, to anticipate social and banking disruption when it all goes wrong. The betting in Team Dave seems to be that the game is as good as up for the single currency. "It's in our interests that they keep playing for time because that gives us more time to prepare," the minister told me."

This is not going to be fun folks.  We paid a lot for the ticket, and the show is no good.

Euro WTF?

I keep on wanting to write something about the Euro crisis, but as soon as I begin to think I have an understanding of the current situation, it transmogrifies in front of my astonished eyes...

First we get the EFSF supersized, but with nothing in it. 

Then G-Pap says we need a referendum, without evening mentioning it to his cabinet members, which is already surreal.

Italian bond yields go bananas.

Sarko and Merkel go ballistic.

G-Pap resigns, apparently, then we have a Greek national unity government.  Likely led by an ECB apparatchik.

Sarko and Merkel now say Greece has to shape up, or they will throw it out of the Euro, and the EU!

Sometime, somehow this had to come to decision point, but man, this an exercise in anti-crisis management.

I used to joke, "enjoy the show, you paid a lot for the ticket."  I ain't enjoying the show, folks. 

Euro Show Continues...

Man, if you had to do a text book case of how to mishandle a complex and escalating situation, you could not do a more mangled and screwed up job than the vast numbers of people who all seem to have conflicting roles in the demise or whatever happens next to the Euro.

Greece will default, it's a question of how long, and how much.  When it does the big banks go down.  Dexia is looking wobbly already, SocGen and BNPP have also been the subject of intense speculation, and at least some German lenders would be very exposed.  Short question is who gets screwed?  The PIIGS by being forced into austerity and deflation, or the bank countries, notably Germany and France?

None of it bodes well for the overall popularity of the Euro experiment. 

Eurobond - S&P Says "No Way"

One of the options frequently mentioned to solve the Euro problem is to issue Eurobonds, because then the bonds will attract the high credit ratings of the core countries. 

Only the exact opposite seems to be true according to this from Standard and Poors:

"A joint bond issue by euro zone countries would get the weakest member's rating if the issue was jointly guaranteed, the head of Standard & Poor's European sovereign ratings said on Saturday.

Moritz Kraemer said his understanding was that joint euro bonds would be structured along the lines of Germany's jumbo bonds, in which federal states team up to issue debt and each guarantees its own bit.

"If the euro bond is structured like this and we have public criteria out there then the answer is very simple. If we have a euro bond where Germany guarantees 27 percent, France 20 and Greece 2 percent then the rating of the euro bond would be CC, which which is the rating of Greece," he said.  (my emphasis.)  "If it is a joint and not a several guarantee then it would be the weakest-link approach, as we call it," he added."

Which leaves me genuinely mystified as to how this is supposed to work?  A sort of "portfolio of crappiness, assuming you are yoked together" approach might seem hard to quantify satisfactorily...

At Last, Some Summer, and the Collapse of Western Civilization

Sitting here in the garden at the Spaceship, clearly in a lighter frame of mind now that the Attack of Lumps is in abeyance.  Finally, like the rest of Europe, rain has turned into some sunshine, and I am taking advantage of a bit of time in the hammock, all of which is balm for the soul. 

The three recurring themes of the summer remain valid.

The Euro will collapse on current form, especially given the huge vacumn of leadership that seems apparent in the Eurozone.  The options remain the same: fuck the PIIGS, fuck the German and French banks, or fuck it all, by not deciding which of the former two is the least bad option.  Right now, lamentably, the third option looks like the default, pun intended.

Fukushima is now the greatest unreported disaster in history, likely to have now exceeded Chernobyl comfortably, and may yet render large swathes of Japan uninhabitable.  Yet we hear not one sound in the mainstream media.  Is it because there is no point in talking about something that cannot be changed? 

Finally, the Arab Spring has rolled on, and it looks like the end game may be approaching in Libya, and Syria is now the bad boy of the scene, with the West piling on to try and get Assad to go. 

Hmmm. 

I am staying in the hammock, and watching the show over my bare toes. 

Good Old AEP of the Daily Telegraph on the Euro Crisis

You can always rely on Ambrose Evans Pritchard of the UK's Daily Telegraph for some clarity of thought, even if he can be alarmingly pessimistic sometimes.  Here he is on the Euro Crisis, unfolding as we speak.

"In a nutshell, unless the ECB is willing to step in – I mean really step in, not piss in the wind – until such a time as the revamped EFSF bail-out is ratified by all parliaments and is ready to take the baton (say November), and unless the EFSF itself is quadrupled in size and given to a €2 trillion mandate without all the German-imposed ifs and buts, then the game is up.

If the EU authorities refuse to do this, it is best for everybody that is recognized immediately and that arrangements are made for the orderly break-up of monetary union …  not next year, or next month, but next week."

Really not a nice concept, especially as trying to revoke a huge treaty like monetary union on an ad hoc basis would not be easy.  But one way or another, the banks are going to have liquidity freezes, and runs on consumer banking, unless some kind of resolution is apparent.  If you are in Greece, do you take out all the Euros you can, to avoid being in the Drachma again, or as a German do you drop the Euros in your account for something else like the Swiss Franc, to preserve value until the new DM comes in?  Either way, massive flows build up quickly into self-fulfilling prophecies. 

Keep watching.  Don't blink.

My Three Summer Panic Items, Number One: the Euro

Well, we knew the PIIGS were in trouble, and have been for some time, but now it is the turn of Italy and Spain, and that means game over for the Euro in one of two directions:  either full fiscal integration right now, like today, or a bust up. 

Problem is, neither is actually legally possible, and so no mechanism exists to save the situation, as outlined by none other than Baroso.

I am to some extent covered being in the wildly over-valued Swissy, but that's an illusion too in the long run, it's all interconnected.

Enjoy the Show, you haven't even started paying for the ticket. 

Ouch Greece, Very Ouch.

In about the least surprising thing since, well, just about ever, Greece is now running at record highs in terms of what it is paying to get money:

"Greek two-year bond yields, which have an inverse relationship with prices, lurched 160 basis points higher, one of the biggest daily moves of the year, to a euro-era record of 28.02 percent.

Greek five-year CDS leapt to a high of 1,700 basis points, or a cost of $1.7 million to insure $10 million of debt annually over five years. Greek CDS is also pricing a 75 percent chance of a default by the country over the next five years – it was about 45 percent at the start of the year."

At this point the market has called the EU's bluff on the kick-it-down-the-road model.  No country or individual can be expected to go into austerity, to pay money to others, at such a punitive interest rate.   Default, however structured, seems like the only option.  Question at this point is; what would it take with it when it goes?  One way or another, I suspect we are about to find out. 

Winnowing the Financial Nutcase Sites

If you like alternative views of what is going on in the financial and hence rest of the world, you can end up reading some sites that might not be mainstream, but what to look for? 

Here is the best summary of the go-to financial nutcase sites that I have ever seen, courtesy of "And the Band Played On."  Worth a read just as a summary of the current financial perceptions of the players...