Misery Economic Theater 2011

[Christenson]

Originally Posted by R.D. Silverman

More fallout:

http://money.cnn.com/2011/10/28/news...obal/index.htm


"A lot of firms are going to incur pain as a result of the European debt crisis," said Sean Egan, managing
director of Egan-Jones, the independent rating agency. "The problem is the transparency is far from acceptable."


And here, in a nutshell is what the OWS protests are about:

A quote from the cited article:

"But Egan said he wouldn't be surprised if buyers just tried to hire MF's talent rather than buying its troubled assets."


The senior managers after thoroughly fucking up still get to keep their high
paying jobs. At another company, of course, but they still keep their jobs.

No question, Jim Corzine leads a charmed existence....he won't be wondering just how he will pay for real necessities any time soon.

I'm rooting for him and some other managers to get new addresses, ones they don't have a choice in...and with the value of MF falling by the day, I'd hire their traders in a minute, if I could use one....the traders didn't screw up, the managers did.

[R.D. Silverman]

Originally Posted by ewmayer

Mish has a nice news roundup on the fallout from MF Global, including the utter failure (again) of the NYFed to do its job at regulating the firm's risk taking:

Regulators Investigate MF Global for Missing Customer Money; MF Global Goes Bankrupt Before Making 1st Interest Payment; Corzine's Achievement Sheet

Regarding Mr. Cohan's quote: Why would anyone still be surprised? Did the supposed regulators learn anything from the 1987 computer-trading-gone-amok market crash? From the LTCM blowup? From the Japanese housing bubble and bust? From the DotCom implosion? Why would one believe they finally learned something from the 2008 financial crisis, when all they've done as a result is put taxpayers on the hook for the bailouts and losses and allowed risk to concentrate even more in the surviving firms? Heck, just a few weeks ago the (alleged) regulators, in this case the FDIC, allowed Bank of America to transfer some unknown (but likely huge) amount of derivatives from its Merrill Lynch unit (where they were not FDIC guaranteed) onto the book of its retail-banking operation, where the taxpayer is on the hook for losses if any of those bets blow up.

As Denninger notes, in this case the regulatory nonfeasance is especially glaring because MF was added to the fed's primary dealer list just last year. So here we have yet another big financial firm enjoying all the perks of primary-dealer status, but being run as a hugely overleveraged hedge fund, recklessly (and illegally) using client money to help fund its proprietary-trading gambling habit, and none of the regulators knew anything. The close ties of Corzine to Obama are also going to provide for some fun (this is froma July story linked n KD's post):

For more along these lines see:

http://www.dailyfinance.com/2011/11/...h-wall-street/

[Fusion_power]

Greece is a situation comedy, a soap opera, a circus that does not stop. At least, that is how it looks from here.

http://www.bbc.co.uk/news/world-15575198


As of this morning, a news story says PM Papandreou will offer to resign. He has already arranged for a referendum to be taken re the EU bailout which has pumped hundreds of billions of Euro's into propping up his economy. In essence, this vote is not whether to take the bailout, it is whether Greece will stay in the EU. France and Germany might almost prefer that Greece leave the union.

DarJones

[R.D. Silverman]

Originally Posted by Fusion_power

Greece is a situation comedy, a soap opera, a circus that does not stop. At least, that is how it looks from here.

http://www.bbc.co.uk/news/world-15575198


As of this morning, a news story says PM Papandreou will offer to resign. He has already arranged for a referendum to be taken re the EU bailout which has pumped hundreds of billions of Euro's into propping up his economy. In essence, this vote is not whether to take the bailout, it is whether Greece will stay in the EU. France and Germany might almost prefer that Greece leave the union.

DarJones

The market seems to be ignoring this farce; today the Dow is up again.

I'm waiting to see the impact of the congressional "super-committee"
later this month; I will wager they will stalemate on everything.

[literka]

Originally Posted by Fusion_power

Greece is a situation comedy, a soap opera, a circus that does not stop.

DarJones

There are European countries in worse situation than Greece. Although Greece has a huge debt, it may have lot of income from tourists. Just because it is a very attractive country. The problem is that to repay past debts, Greece needs to get new loans.
Imagine any other country, which cannot get loans. The situation would be the same.
The situation worsens since Greece is borrowing money with high interest rates, Tourists refuse to go to Greece etc.
I don't think Greece has any other choice than accept European proposal. They fell into a trap, as Ireland fell and as other Eurpean countries will fall. Everything is ahead.

[cheesehead]

Originally Posted by R.D. Silverman

The market seems to be ignoring this farce; today the Dow is up again.

Actually, the market is up because it's following the farce quite closely:

"Greek PM scraps referendum on Greek debt plan"

http://news.yahoo.com/greek-pm-scrap...144719929.html

"Stocks spike as Greek referendum is scrapped"

http://news.yahoo.com/stocks-spike-g...154758266.html

[ewmayer]

Originally Posted by literka

There are European countries in worse situation than Greece. Although Greece has a huge debt, it may have lot of income from tourists. Just because it is a very attractive country. The problem is that to repay past debts, Greece needs to get new loans.

Do you see the problem captured in that last sentence? It is the key to the debt death-spiral playing out (at various rates, with different "blowup by 20xx" dates) in overindebted sovereigns the world over. When governments can borrow at rates of interest below what the free markets would demand - whether this is by way of joining a monetary union and benefiting from the better fiscal discipline of the larger members of same, or coordinated debt-buying by a central bank in conjunction with large 'private' banks and investment funds - the end result is nearly always a disincentive for the political leaders of the country to implement painful structural fiscal reforms. The voters of said countries also share blame, because they persistently elect pols who promise the proverbial free lunch, no matter how ludicrously false or long-term-untenable such promises may be.

Imagine any other country, which cannot get loans. The situation would be the same.
The situation worsens since Greece is borrowing money with high interest rates, Tourists refuse to go to Greece etc.
I don't think Greece has any other choice than accept European proposal. They fell into a trap, as Ireland fell and as other Eurpean countries will fall. Everything is ahead.

No other choice? Greece needs to leave the EMU and regain some control of its fiscal destiny via its own currency. Devaluation of one's currency is no panacea - It also amounts to a hefty tax on incomes and outright theft of accumulated capital, but it does allow one to implement austerity on something resembling one's own terms. It is somewhat illogical but a proven historical truth that as long as said devaluation does not end in a hyperinflationary death spiral - which usually is the result of devaluation not accompanied by default on debts demoninated in foreign currencies - it leads to less social unrest and domestic economic disruption that austerity imposed from without, i.e. on the banks' terms. And if the government still does not implement the needed structural fiscal reforms, then the sovereign currency will simply continually debase - think the Italian lira. That is less bad, because the only way to fund a bloated public sector without debt accumuation is to have taxes to match. If ththe e public says "we want all these goodies, but aren't willing to cover them via taxes", well then government simply prints money to civer the shortfall and gets its taxes that way. So Greece needs to leave the Euro and default on Euro-denominated debt. A devalued Greek currency but no near-daily riots and strikes would quickly bring back the needed tourists.

Yes, a default would lead to a near-term crisis of the Euopean credit markets and insolvency of major banks holding Greek debt, not to mention many big financial firms (including the Big 5 in the U.S.) which are making billions per year writing CDSes on sovereign debt and expecting never to have to pay out (so-called naked CDS). That becomes a long-term crisis if governments do as in 2008 and again try to bail out the same banks at taxpayer expense, in essence rewarding the overleveraged gamblers rather than making them face the consequences of their greed. Let them fail, governments should step in to backstop the *productive* credit markets as the crisis plays out, then one will have actually laid the groundwork for a real recovery.

[literka]

Originally Posted by ewmayer

what the free markets would demand - whether this is by way of joining a monetary union and benefiting from the better fiscal discipline of the larger members of same, or coordinated debt-buying by a central bank in conjunction with large 'private' banks and investment funds

European Union is not a free market. Central intervention in the market in Europe is on unprecedented scale. Everywhere subsidies rewarding "good guys" and in consequence punishing "bad guys". This also concerns access to new loans. This time Greece happened to be on a wrong side. Why Greece? I can only quess. Probably because it is a small country and preserved kind of independence.

Originally Posted by ewmayer

Greece needs to leave the EMU and regain some control of its fiscal destiny via its own currency. Devaluation of one's currency is no panacea - It also amounts to a hefty tax on incomes and outright theft of accumulated capital, but it does allow one to implement austerity on something resembling one's own terms.

Greece will not leave European Union and will not leave eurozone. And it is not because Greece does not want it but rather because of larger members benefiting from its priviledged position. So you described something which is not an option.

[imwithid]

Originally Posted by ewmayer

That becomes a long-term crisis if governments do as in 2008 and again try to bail out the same banks at taxpayer expense, in essence rewarding the overleveraged gamblers rather than making them face the consequences of their greed. Let them fail, governments should step in to backstop the *productive* credit markets as the crisis plays out, then one will have actually laid the groundwork for a real recovery.

I think we took a bite out of that shit sandwich back in 2008 when Lehman was allowed to collapse but we didn't like the taste, so it was back to the BLT sandwich with AIG (arguably necessary as the CDS market was a blind man's bluff) et al with the gains benefiting the failures and the pain shared disproportionately among the public. Moral hazard seems to be the one of the big problems. An expectation that one is too vital or too big to fail leaves actors to behave as though they cannot lose. Some of this has been rectified with changes to the CDS market.

In the case of Greece, the credit market may have reached their elastic limits. If allowed to fail, the only way out may be to inflate the existing debt away, hence eventual high to hyper inflation. It seems as though the likelihood of that taking place has been reduced with the Greek government confidence vote favouring the current government. In this case, the Euro Zone will have to make changes, if all goes well, to fiscal policy so that the "beggar-thy-neighbour" problem does not re-occur.

[ewmayer]

The tragicomedy in Greece continues apace, with one overwhelmed leader abbreviated G-Pap soon to be replaced by an L-Pap who will similarly soon realize he is in way over his head ... meanwhile Italian bond yields are doing interesting things (and U.S. equity markets appear to be thinking that "higher bond yields are, like, good, right?") which indicate that the hopeful talk of "containment" is delusional ... and here in the U.S. it will soon be time to stock up on popcorn and other movie-style snacks because our own domestic sovereign-debt-crisis-dressed-up-as-farce will soon be playing on live nightly TV again:

Staring Into the Budget's Abyss

Republicans, looking for leverage to slash federal spending, created the phony debt-ceiling crisis that led to creation of the Congressional deficit-cutting “supercommittee.” But with the committee close to a deadlock — largely because Republicans will not agree to higher taxes on the rich — and the deadline for an agreement approaching, some Republicans are now talking about undoing the process.

We are no fans of the supercommittee. It is undemocratic, and the deep, automatic cuts the law would impose if the committee fails to reach agreement are gimmicky and potentially dangerous. But walking away at this point would be an embarrassment for Congress and a far-reaching blow to Washington’s financial credibility.

Try not to snicker too loudly at the bit about "Washington’s financial credibility" -- it's not polite.

[Fusion_power]

Add to the Greek woes and raise the ante. Today Italy hit 7.36% bond yields on 10 year notes. Seven percent is the tipping point at which a bailout becomes a certainty. The key immediate concern for Italy is @$480 Billion that has to be rolled over in 2012. Longer term concerns are from a total debt in the range of $2.6 Trillion.

The immediate concern for the EU is the EFSF which does not have nearly deep enough pockets at present to resolve the crisis for Italy.

I'd love to make some quip about Spain and shaking in boots, but that might sound like they were doing a lively dance. Come to think of it, I've often read of someone dancing at the end of a rope. That might come close to expressing how they feel. It is no longer a question of "if" but rather "when".

Note for Ewmayer, my alter ego used on several gardening forums is "SnickeringBear". I have a vested interest in living up to the name.

DarJones