Whither Europe? Towards The German Banks [View article]
The problems haunting the EMU are far more complex than simply devising means to provide additional liquidity to patch over a host of structural problems including national insolvency, lack of competitiveness, inadequate capital buffers, insufficient resources, conflicting national interests and lack of political cohesion.
Better than anyone else, Germany understand that Greece, for sake of discussion, will never be competitive and weaned from debt until it undertakes essential reforms to address endemic corruption, tax evasion, over paid state workers, excessive government spending and inflexible labor markets. Unless these reforms are undertaken Greece will remain a ward of the EMU indefinitely.
Germany also realizes that Greece cannot undertake these steps while at the same time bleeding from unsustainable high interest payments, making the case for banks taking haircuts which would reduce Greece's debt burden and interest payments, and also reduce the amount of monies the EMU would need to contribute to Greece through the EFSF or other channels.
In the simplest of terms, money in the form of additional debt is not the solution to insolvency and structural economic flaws. To the benefit of the EMU, Germany and the IMF understand this while the ECB and most other states do not.
There Will Be No European Liquidity Crisis (Part 1) [View article]
These proposals, including the EIB, are only on the earliest stages of discussion but there mere mention were enough to send everything parabolic yesterday and last night.
If some of the more extreme proposals are adopted, which I doubt will be the case, this will prove to be the mother of all band aids and can kicking combined. The numbers are staggering with some estimates reaching euro 4 trillion.
None of this is likely to happen as political parties would topple amid riots and contested battles to amend the treaties which bind the EMU. And to add insult to injury, beyond buying time through massive infusions of cash little would improve because the underlying problem of a dysfunctional currency union would persist along with all attending imbalances.
Interestingly, this highly leveraged bailout of banks and sovereigns is believed to be the genius none other than Mr. Geithner.
Basel III Rules Could Put the Screws to Top Banks [View article]
So now what are we going to have in Basel III? Four layers of capital: two levels or Tier I capital, a conservation buffer and a counter cyclical level. In all it was proposed that total capital be 9% of assets but under industry pressure this has recently been reduced to 8%.
All of this being built upon Basel II, which contained constructive language but also contained “pillars” or recommendations about how supervisors should evaluate activities and risk of individual institutions to see if there should be extra capital requirements against complicated securitisations or other assets not fully understood. Pillars, while useful, are not mandatory and are subject to discretion.
So in addition to diluting down the originally proposed 9% capital rule and allowing implementation of capital standards over years, Basel III will inherit many of the pillars of Basel II …..a repository of all things good under an intelligent regulatory system……..but risk inaction because no nation wants to act first against its banks and suffer a competitive disadvantage.
Had we aggressively enforced the clauses and pillars of Basel II we could have easily averted the past and continuing financial crisis. If what is agreed to is not enforced, it’s likely to have little practical impact.
Worries of a New Debt Contagion Rattle Wall Street [View article]
Under the IMF/EU proposed plan Greece's debt to GDP will actually worsen between now and 2014. Some feel it will peak in 2015, strongly underscoring the point that the issue of sovereign debt will be with us for some time and during this period it is certain to spread to other countries.
Before I share some material from the FT, let me add that the level of restructuring being proposed for Greece, as measured by the primary deficit, is of epic proportions and few countries have successfully achieved this order of change. This points to how far out of control matters are in Greece and how difficult it will be to rebalance the primary account. From the FT:
The presentation of the main economic arithmetic behind the Greek Economic Policy Programme (EPP), as agreed with the IMF, EC and ECB, reveals the enormity of the task ahead. The programme envisages that the general government deficit will be cut from 13.6% of GDP in 2009 (which could be revised to about 14%) to 8.1% of GDP this year, 7.6% in 2011, 6.5% in 2012, 4.9% in 2013 and 2.6% in 2014. Assuming Greek real GDP expansion is about 2.1% by 2013-14, this implies the debt/GDP ratio would peak at 149% in 2013 (note that the authorities seem to be including an assumption that the public debt/GDP ratio will be revised up 7pp, which would take the 2009 ratio to 122%).
Whereas the economic program that Greece agreed with its European partners foresaw a mild contraction this year of 0.3 per cent of gross domestic product, followed by three years of steady growth in 2011, 2012 and 2013, the IMF-influenced plan sweeps aside such forecasts as far too rosy.
It envisages a 4 per cent slump in GDP this year, a 2.6 per cent drop in 2011 and a return to modest growth of 1.1 per cent in 2012. Similarly, the old plan was founded on the assumption that Greece could slash its budget deficit to less than 3 per cent of GDP by the end of 2012, from an estimated 12.7 per cent in 2009.
Reflecting its harsher growth forecasts, the IMF-eurozone plan abandons the 2012 target date for budget consolidation and sets 2014 as the year for Greece to bring its deficit below 3 per cent.
By the time the goals of the IMF/EU plan are realized Greece's external debt to GDP could easily be in the 150% to 170% range, up from 126% today. As I much as I support the austerity measures and reigning in Greece's corruption and out of control suite of entitlements, I think the steps being imposed by the IMF will leave little room for anything other than default.
I firmly believe others anticipate a similar outcome but the world's market are not ready to hear this ugly truth. The current steps are to calm kittery markets, reduce rates and minimize risk of contagion; default is very much on the table.
This underscores that if we continue to overlook or somehow rationalize political and economic pathologies, we will be faced with other sovereign bankruptcies.
Hidden Benefits of a Greek Debt Default [View article]
I'm sure there are bankers supporting "reform" and additional lending to Greece but the primary culprits behind this bankrupt idea are the political leaders who supported the eurozone and the technocrats in Brussels who embrace collectivism in any and all forms. On any given day, you can see thousands of these little creatures, who populate the EU, EUC, ECB, ESCB and EuroStat, donned in trench coats scurrying about with Blackberry's while busily texting and planning the economic revival of Western Europe. For these progressives, a default within the EU would represent failure of the EU of the itself; this would create a serious fissure in the groundless arguments for collectivism and the need for thousands of apparatchiks. Who knows they might have to join the ranks of many in Greece and get a real job.
Goldman's CDO Switch? All Perfectly Legal [View article]
Andrew you make a number of good points and this is not going to be a slam dunk for the SEC. It will come down to proving intent to defraud investors through creating a financial instrument designed to fail and misleading investors through questionable statements and omissions.
From what I have read, including the complaint, it would appear that this particular issuance of Abacus was designed, created and structured purely at the behest of and around the interests of Paulson.
ACA, concerned about Paulson's involvement, was told by Goldman (Fab) that Paulson was going long $200 million to allay their concerns of his involvement and cherry picking many of the reference securities used to construct the CDO.
Further, in the flip sheet many pages are devoted to ACA's qualifications but the materials are silent on Paulson's involvement, which could prove to be a material omission. Why go on and on ad nauseum about ACA's track record and qualifications when Paulson made most of the selections? There's only one answer: inducement.
Another interesting point is that Paulson may have not purchased the CDS written and sold as part of creating the CDO; Goldman and other clients may have taken down these instruments while Paulson bought CDS on specific tranches within the CDO from Goldman. It's not clear but the complaint suggests as much and if it's true Goldman would have hedged their exposure through AIG.
So now we have material omissions, Paulson cherry picking reference securities and going short through instruments not essential to the transaction. I don't think this is perfectly legal.
The Greece / EU Ballet Enters Act III [View article]
All of the noise about recently announced austerity measures is designed to allow Greece to return to the bond market and borrow around $6 billion on its own but at high rates. Angela Merkel will not commit to assistance.
They have to refinance and finance around $100 billion and nobody is anxious to guarantee, loan or otherwise assist with this amount with or without austerity measures. Without austerity measures, its simply more of same with Greeks living well by spending borrowed money (sounds familiar); with austerity measures, the economic growth and deflationary forces will make default on existing and new debt more likely. After years of self-indugency, apathy, lethargy, profligacy, deception, corruption and fraud they are in a box canyon with no way out.
How do you justify to Germans, who retire in their late 60's, that its in their interests to help the corrupt and ouzo swilling Greeks who retire in their late 50's or early 60's on fat pensions. Rather than tell them how to make baklava and micromanage their economy, It would be far wiser to force Greece to sell its islands and/or its massive investments in state controlled enterprises that span tourism, utilities and shipping to meet its spending needs.
Recognizing a chain is only as strong as its wekest link, the EU should spin them off with a highly depreciated drachma with debts remaining in euros.
House Plans to Subpoena Geithner over AIG Decisions; Geithner's Got to Go [View article]
An iquiry has begun but we need a Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office, who was a master of detail and drama. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act and other changes designed to prevent the formation of banks too big to fail.
Time to Indict Geithner for Securities Fraud [View article]
The spin masters, those who clean up political messes and purveyors of political cover are arguing that Geithner recused himself shortly after the correspondence began and after he had been nominated to his current position.
People who know Geithner have commented that he forged very close relationships with the heads of banks and other institutions under the authority of the NY Fed. Despite these associations, we are told the NY Fed has always acted on behalf of the interests of the taxpayers.
There are so many contradictions and inconsistencies in this story that it's nauseating.
Whither Europe? Towards The German Banks [View article]
Better than anyone else, Germany understand that Greece, for sake of discussion, will never be competitive and weaned from debt until it undertakes essential reforms to address endemic corruption, tax evasion, over paid state workers, excessive government spending and inflexible labor markets. Unless these reforms are undertaken Greece will remain a ward of the EMU indefinitely.
Germany also realizes that Greece cannot undertake these steps while at the same time bleeding from unsustainable high interest payments, making the case for banks taking haircuts which would reduce Greece's debt burden and interest payments, and also reduce the amount of monies the EMU would need to contribute to Greece through the EFSF or other channels.
In the simplest of terms, money in the form of additional debt is not the solution to insolvency and structural economic flaws. To the benefit of the EMU, Germany and the IMF understand this while the ECB and most other states do not.
There Will Be No European Liquidity Crisis (Part 1) [View article]
If some of the more extreme proposals are adopted, which I doubt will be the case, this will prove to be the mother of all band aids and can kicking combined. The numbers are staggering with some estimates reaching euro 4 trillion.
None of this is likely to happen as political parties would topple amid riots and contested battles to amend the treaties which bind the EMU. And to add insult to injury, beyond buying time through massive infusions of cash little would improve because the underlying problem of a dysfunctional currency union would persist along with all attending imbalances.
Interestingly, this highly leveraged bailout of banks and sovereigns is believed to be the genius none other than Mr. Geithner.
Basel III Rules Could Put the Screws to Top Banks [View article]
All of this being built upon Basel II, which contained constructive language but also contained “pillars” or recommendations about how supervisors should evaluate activities and risk of individual institutions to see if there should be extra capital requirements against complicated securitisations or other assets not fully understood. Pillars, while useful, are not mandatory and are subject to discretion.
So in addition to diluting down the originally proposed 9% capital rule and allowing implementation of capital standards over years, Basel III will inherit many of the pillars of Basel II …..a repository of all things good under an intelligent regulatory system……..but risk inaction because no nation wants to act first against its banks and suffer a competitive disadvantage.
Had we aggressively enforced the clauses and pillars of Basel II we could have easily averted the past and continuing financial crisis. If what is agreed to is not enforced, it’s likely to have little practical impact.
Worries of a New Debt Contagion Rattle Wall Street [View article]
Before I share some material from the FT, let me add that the level of restructuring being proposed for Greece, as measured by the primary deficit, is of epic proportions and few countries have successfully achieved this order of change. This points to how far out of control matters are in Greece and how difficult it will be to rebalance the primary account. From the FT:
The presentation of the main economic arithmetic behind the Greek Economic Policy Programme (EPP), as agreed with the IMF, EC and ECB, reveals the enormity of the task ahead. The programme envisages that the general government deficit will be cut from 13.6% of GDP in 2009 (which could be revised to about 14%) to 8.1% of GDP this year, 7.6% in 2011, 6.5% in 2012, 4.9% in 2013 and 2.6% in 2014. Assuming Greek real GDP expansion is about 2.1% by 2013-14, this implies the debt/GDP ratio would peak at 149% in 2013 (note that the authorities seem to be including an assumption that the public debt/GDP ratio will be revised up 7pp, which would take the 2009 ratio to 122%).
Is Greek Debt Restructuring Next? [View article]
Whereas the economic program that Greece agreed with its European partners foresaw a mild contraction this year of 0.3 per cent of gross domestic product, followed by three years of steady growth in 2011, 2012 and 2013, the IMF-influenced plan sweeps aside such forecasts as far too rosy.
It envisages a 4 per cent slump in GDP this year, a 2.6 per cent drop in 2011 and a return to modest growth of 1.1 per cent in 2012. Similarly, the old plan was founded on the assumption that Greece could slash its budget deficit to less than 3 per cent of GDP by the end of 2012, from an estimated 12.7 per cent in 2009.
Reflecting its harsher growth forecasts, the IMF-eurozone plan abandons the 2012 target date for budget consolidation and sets 2014 as the year for Greece to bring its deficit below 3 per cent.
By the time the goals of the IMF/EU plan are realized Greece's external debt to GDP could easily be in the 150% to 170% range, up from 126% today. As I much as I support the austerity measures and reigning in Greece's corruption and out of control suite of entitlements, I think the steps being imposed by the IMF will leave little room for anything other than default.
I firmly believe others anticipate a similar outcome but the world's market are not ready to hear this ugly truth. The current steps are to calm kittery markets, reduce rates and minimize risk of contagion; default is very much on the table.
This underscores that if we continue to overlook or somehow rationalize political and economic pathologies, we will be faced with other sovereign bankruptcies.
Hidden Benefits of a Greek Debt Default [View article]
Goldman's CDO Switch? All Perfectly Legal [View article]
From what I have read, including the complaint, it would appear that this particular issuance of Abacus was designed, created and structured purely at the behest of and around the interests of Paulson.
ACA, concerned about Paulson's involvement, was told by Goldman (Fab) that Paulson was going long $200 million to allay their concerns of his involvement and cherry picking many of the reference securities used to construct the CDO.
Further, in the flip sheet many pages are devoted to ACA's qualifications but the materials are silent on Paulson's involvement, which could prove to be a material omission. Why go on and on ad nauseum about ACA's track record and qualifications when Paulson made most of the selections? There's only one answer: inducement.
Another interesting point is that Paulson may have not purchased the CDS written and sold as part of creating the CDO; Goldman and other clients may have taken down these instruments while Paulson bought CDS on specific tranches within the CDO from Goldman. It's not clear but the complaint suggests as much and if it's true Goldman would have hedged their exposure through AIG.
So now we have material omissions, Paulson cherry picking reference securities and going short through instruments not essential to the transaction. I don't think this is perfectly legal.
The Greece / EU Ballet Enters Act III [View article]
They have to refinance and finance around $100 billion and nobody is anxious to guarantee, loan or otherwise assist with this amount with or without austerity measures. Without austerity measures, its simply more of same with Greeks living well by spending borrowed money (sounds familiar); with austerity measures, the economic growth and deflationary forces will make default on existing and new debt more likely. After years of self-indugency, apathy, lethargy, profligacy, deception, corruption and fraud they are in a box canyon with no way out.
How do you justify to Germans, who retire in their late 60's, that its in their interests to help the corrupt and ouzo swilling Greeks who retire in their late 50's or early 60's on fat pensions. Rather than tell them how to make baklava and micromanage their economy, It would be far wiser to force Greece to sell its islands and/or its massive investments in state controlled enterprises that span tourism, utilities and shipping to meet its spending needs.
Recognizing a chain is only as strong as its wekest link, the EU should spin them off with a highly depreciated drachma with debts remaining in euros.
House Plans to Subpoena Geithner over AIG Decisions; Geithner's Got to Go [View article]
Time to Indict Geithner for Securities Fraud [View article]
People who know Geithner have commented that he forged very close relationships with the heads of banks and other institutions under the authority of the NY Fed. Despite these associations, we are told the NY Fed has always acted on behalf of the interests of the taxpayers.
There are so many contradictions and inconsistencies in this story that it's nauseating.