Greece’s Debt Odyssey (and more)
Guest Post by the MoreLivers.
Terrible week in the markets, no hope, only delusion, denial, empty promises, one more drink, one more turn, I will never hit you again. None of it is true anymore. Four weeks ago it used to be that the price was the news, in absence of solid, trustworthy politicians and central bankers. Price was followed, as it knew what was what. Now all markets are manipulated, squeezed, closed, restricted or kept in the dark. Market participants have no news, no prices and no statements or rules, so now rumors of rumors are moving the markets.
On Tuesday the Greek parliament will vote on austerity measures. The end result is uncertain, and if the parliament says no, the EU bailouts agreed on 21st July are not happening. They might be stupid enough to vote no and learn to eat stones and fight regional wars, or brave enough to vote no, as in this game of chicken the Germans, French and the ECB have more to lose. I gave my odds for Greek default here one week ago. I see no reason to change my view.
At some day, at some point, someone will uncover how much the banks have paid the European politicians to get recapitalization without participation and then put the full burden of their self-inflicted crisis on tax payers and austerity-ridden PIIGS. At that point these people have no political future, respect or security.
Joke of the day: “While the first ten years of the euro have been a success, the crisis exposed a number of shortcomings in the policy framework.” – Statement of Commissioner Olli Rehn to IMF committee – IMF (pdf)
Dear Olli, where, how much and when the euro was a success, and at what total cost? Go f**k yourself, Olli.
Joke of the day 2: Van Rompuy paints rosy picture of EU at first-ever UN speech – euobserver.com
This speech is so delusional that I cannot say anything about it. Has he passed the Voight-Kampff-test?
Then to the links, plenty of stuff and no fillers.As per your feedback, I’ve added “editorial content” and in link summaries also bring forth my view on the topic. Bookmark now, read later if you have to. Feedback would be much appreciated – what do you find most useful here? Leave a comment, follow me on Twitter or email me.
NEWS, WRAPUPS
** Evening summary: Friday Watch – Between The Hedges
Morning summary: Morning Take-Out – DealBook / NYT
Emerging markets: The weekender – beyondbrics / FT
All EM currencies hit, IMF warns about corporate debt risks. Let’s see what all of this will do the public sector deficits in the near future.
For much more, continue below.
Weekly Bull/Bear Recap: Sep 19-23 – Rational Capitalist Speculator
Succinct summation of week’s events (09/23/11) – The Big Picture
FX Options Analytics: Vols, Risk Reversals & Pin Risk – tradingfloor.com
** Credit Markets: Anterograde and Retrograde amnesia – Macronomics
Excellent charts, post goes through all major areas from yields, CDS, liquidity. Most notable is the confirmation that the crisis contagion is clearly spreading to BRIC-countries. And the conversation is good as well. Hope he would post this every day.
EURO CRISIS
** Dysfunctional Europe, Washington (and now G20?) – Humble Student of The Markets
Adding more cooks, with headline promises, but no real action, and no coordinated response.
** Europe must choose – Macro Business
Exceptionally well-written and thoughtful article. Europe must choose its poison, bail or default.
** What Really Caused the Eurozone Crisis? (Part 1) – The Street Light
Local or systemic? Systemic: PIIGS had the worse current account balance and the euro system has no way (devaluation opportunity) to compensate. Crisis begun when they joined. Good charts and discussion.
Eurobonds Will Create Moral Hazards, Not Solve the Crises – HistorySquared
The markets, not political debt ceilings, are taken seriously; the introduction of Eurobonds would remove that disciplining function.
Obama to EU: Get Your S__t Together; Got An Election Next Year – ZH
Maximum pressure from U.S., but both Merkel and Sarkozy face domestic political pressure and ECB is, well, ECB.
Europe’s debt crisis: The good, the bad and the ugly – WP
Three scenarios: good (core countries do what is needed), bad (continue the same until bitter end), ugly (uncontrolled defaults, banking crisis). Most probable is bad, as political will is not enough for good, and everyone wants to avoid the ugly.
Fiscal rules for the Eurosystem: From “free talk” to effective incentive schemes – voxeu.org
Concise review of the suggested changes.
Eurovillains – Krugman / NYT
Bad thinking and policy everywhere, but special awards to OECD, ECB and BIS. Article is short, so go read it.
Europe to speed up euro fix – all the way to July 2012 – Pragmatic Capitalism
ESM delayed. Who cares, as ESM and ESFS are fatally flawed reactive fixes, not proactive fixes that are needed. Something else will happen in the end game.
Marshall Auerback: The ECB v. Germany – naked capitalism
ECB must step in do what it has to do, even though Germany does not like it.
Three More Reasons the Eurozone Is Doomed – of two minds
Imbalances between exporting and importing nations, no devaluation possibility, crushing private and public debt.
Fiscal Union Needs Monetary Back-Up to Solve Crisis – Morgan Stanley
ECB paper highlights limitations of reforms to Stability and Growth Pact – PDF
Precise debt rules not necessarily effective, statistical governance may not prevent future misreporting, still a lot of administrative and political discretion at each stage.
Euro banks
Shortening MMF maturities, chart du jour – alphaville / FT
Report from Fitch points out the MMF risk aversion towards the French banks
The Fed, ZIRP and the French boomerang – Lighthouse IM
Why French banks are getting hit in a vicious cycle.
Major European bank stocks are connected in a state of high volatility – voxeu.org
The main result is hardly news, but the charts of which banks are volatility receivers and which are volatility transmitters are interesting.
Greece
** Greece’s debt crisis odyssey – BBC
Excellent flowchart of what will happen to Greece. End results are pyrrhic victory, depression, moral hazard, political turmoil or global meltdown. Today’s pic is from here.
** Six reasons why Greece should default – The Curious Capitalist / TIME
Inevitable, markets already assume it so not a Lehman-event, bailouts not working, nobody believes Greeks can adhere to the austerity program, the bailout money is needed elsewhere (Spain and Italy), bailouts push Greece to turmoil.
Full Analysis: Greece Should Default and Abandon the Euro – EconoMonitor
Roubini’s article from last Tuesday’s FT updated.
Models for a Greek Sovereign Default – Bronte Capital
1: “Argentine” or default and depeg, 2: default and stay in euro
Greece: Enter the Reaper – EconoMonitor
Some calculations of what the eventual default will do. Author shares my earlier opinion (here) that 50% haircut is not enough, probably 65% would be ok.
Greek Bond Exchange Has Surprise Upside – WSJ
Especially the switch from Greek to English law.
It still all depends on the humble Greek depositor – alphaville / FT
Greece is utterly destroyed and has managed to tie its faith with the euro.
Greek finance minister tries to quash talk of ‘disorderly default’ – euobserver.com
Swift backlash to Greek austerity as workers down tools – euobserver.com
FINANCIAL CRISIS
** PIN’ing the Blame – Macro Man
Entertaining rant on how things are so bad that even things that were good are now bad. E.g. low inflation and low interest rates have for some time now been bad. Even gold going down is now bad news.
** Attempts to Suppress Volatility Could Lead to a Crash in Existing Economic and Political Systems – Washinton’s Blog
The monetary and fiscal policies, and regulation and structures have targeted smooth day-to-day progress, but introduced huge regular crashes.
** Strong Leadership, Collective Action Key to Economic Recovery – iMFdirect
Annual IMF meet this weekend, this is their must-read links and summaries. Mostly because the market is now a politician’s game.
The false dichotomy of greed – MacroBusiness
Because of heavy lobbying and bribing: “The political right, ever since Ronald Reagan, has identified government as the “problem”… That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system.”
Do not be detoured by bankers and their friends; our future financial salvation lies in the direction of Basel – voxeu.org
Booms come from underestimation of risks, banking regulation alone not enough (fiscal and monetary policy are very important), Basel II too kind to large banks, derivatives are very important and outside the scope of many regulatory frameworks, Basel II did not pay attention to liquidity, and here we are.
Systemic Risks in Global Banking: What Available Data can tell us and What More Data are Needed? – IMF
Very good paper if one wants to understand where and why banks stand. And good luck to regulators wanting the critical data from banks. The politicians are well-paid to ignore the lesson.
The Great Debt Scare – Project Syndicate
Robert Shiller argues many forward-looking economic indicators are not that useful now, as the real scare is not the next six months but the long term low growth future.
OTHER
** Marc Faber: On Operation Twist, The Dollar, Gold, And The Greeks – ZH
Text and video clips from a recent interview: “I don’t know anyone who owns Greek bonds. But who owns them? The ECB and European banks. The banks, the problem is that they’re not run as banks where they have a fiduciary duty…They take the capital and go and gamble left, right and center. They should default.”
Commodity money: It’s back! (and it sucks) – MacroMania
Metals have become money – they are used as collateral. Recently even during huge risk-off days, gold, silver and copper prices have tumbled. So now all correlations have gone to 1.
If There Are Riots In New York, You Can Blame Ethanol And Index Funds – Dealbreaker
Food prices now at historical highs, maybe because of ethanol conversion, or momentum-driven idiots buying? Note that riots and revolutions usually accompany extreme food prices.
Emerging Markets Could Be Hit Hard if European Banks Melt Down – MarketBeat / WSJ
Eurobanks are big lenders to the emergency – sorry, emerging countries. Maybe this is why EM’s were not hit much by the U.S. crisis, but are now getting shafted.
DIVERSION
** The perils of pragmamorphism – Emanuel Derman / Reuters
“The world is complex and you lose a lot by insisting that the things you don’t understand already fit into the boxes you imagine you do.”
** Swiss Must Save UBS’s Bonus Pool or Die Trying: Jonathan Weil – BB
Great parody: “When poor people lose their money, it’s a tragedy. There are so many of them, and they had so little to start with, there’s not much government can do, unlike with the wealthy.”
** Brain Imaging Reveals What You’re Watching – technology review
Recording dreams is one step closer. Videos here
How Math Whizzes Helped Sink the Economy [Book Excerpt] – SciAm
Outtake from Scott Patterson’s book Quants, (2010)
Friday Fun – Market volatility edition – Capitalists@Work
Philip Pilkington: The History of Greed – An Interview with Jeff Madrick – naked capitalism
Long interview