Weekend Recap Reading (while Rome is burning).
Meanwhile Rome is burning, live cam here.
Weekend reading by MoreLivers.
Goldman Sachs – Europe: Close to the Edge – ZH
Summary of the report and a pdf-link to full document
You shall not default, the ECB commands it – alphaville / FT
“Frankly though, we’re amazed if the ECB thinks it has the suasion power to tell sovereign debtors what to do. And by linking the euro explicitly to a no-default rule, we would argue that they only make it more likely that sovereigns will leave the euro altogether in order to default.”
German Politicians Call for Changes to EU Treaties – Spiegel
“If Merkel is really serious about backing a fundamental reform of the EU, she has a lot of convincing to do.” Last October she stressed the importance of treaty changes and said the proposals should be submitted by March 2011.
ECB Tells Belgium Not To Backstop Dexia Interbank Deposits, Says Bailout Plan May Be Against The Euro Charter – ZH
“ECB is effectively telling national governments to not try and become their own central banks under the ECB’s umbrella, which would likely result in not only in various sovereign downgrades (that is guaranteed) but in loss of conviction in the European Central Bank, something which the insolvent European continent and the insolvent hedge fund in its core, aka Jean-Claude Trichet Capital et Cie. which holds hundreds of billions of Greek bonds at par, can certainly not avoid.”
Dexlexia, Scrabble Countries, And Humpty Dumpty – ZH
Peter Tchir: “The likely outcome is that any solution will be a strictly German/France one at the sovereign debt level, and a national one on the bank level…In the end, we will likely continue to bounce higher on plans of plans, and sell off as those plans don’t work, and the economies fail to rebound.”
Italy’s Statistics Revisited – The Source / WSJ
EFSF / ‘DEATH STAR’
Wolfgang Münchau – Eurozone quick-fix will create political monster – FT
It might have worked in 2008. Now 1) the sums are too big 2) nations are not ready to give power over banking to EU 3) non-EMU members (Britain) will block European-wide solutions 4) after mopping-up, original problems of no rules to contain moral hazard remain.
The Merkozy Line – Macro Man
“one of the prerequisites of a successful European bailout plan is to “Keep It Complicated Stupid” to prevent the public asking to many focused questions about what is really going on whilst providing just enough clarity for the markets to regain comfort.”
Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall – ZH
“In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn.”
UBS Kills Latest European Bailout Proposal: “Why A 50% Haircut On Greek Debt Will Not Work” – ZH
Full scribd version of the UBS Weekly Economic Focus
The Evolution Of The EFSF, And Its €726 Billion In Max Losses – ZH
Peter Tchir has so many good points and his post is concise, so just read this.
A systematic approach to the eurozone CDO – alphaville / FT
Credit Suisse’s analysis: Greece is equity; Ireland and Portugal junior mezzanine; Belgium, Italy and Spain are senior mezzanine, France/Finland/Netherlands/Austria are senior, and Germany is in a super-senior class of its own due to its size and special status as issuer of “risk-free” bonds: ECB will have to step up and provide a credible and unconditional backstop to Spanish and Italian spreads and therefore prevent the crisis escalating to the senior mezzanine tranche.
While Everyone Is Making Fun Of The Slovak Republic – ZH
Peter Tchir: 29bn of debt, only 46%/GDP, rated A1/A+ on positive outlook. EFSF share 7.8bn, 10%/GDP, 27%/total debt: “about 1,000 euro per person that they are using to support countries that have more benefits than they provide their own citizens.”
The fallacy of the ‘big bazooka’ – The A-list / FT
Wolfgang Münchau: “We have reached the end of the line with the present system of a monetary union that refuses to be a fiscal union. We are right at the edge of what is legally, politically and financially possible under the current legal and political structures. That is why the Europeans are tinkering, and not firing. To move, they need a new monetary union.”
First aid is not a cure – Martin Wolf / FT
“at bottom this is far more a balance of payments crisis rooted in financial sector misbehaviour and cumulative divergence in competitiveness, than a fiscal crisis. The architects of the eurozone thought that balance of payments crises were impossible in a currency union. They were wrong.”
The European Sovereign Insurance Mechanism – Also Sprach Analyst
Original source of the “news”, with a full scribd of the Allianz presentation
EFSF – A very European monoline – alphaville / FT
Proposal by Allianz for the EFSF to act as a bond insurer is getting more popular, as it would increase the firepower of the fund from the 440bn to up to 3 trillion. Also, the plan would not be sensitive to the loss of participants’ AAA-credit rating (= France)
The bazooka we won’t get – Daiwa
Italy is too large to fail, Greece should be allowed to default. “Frankly, what use is a guarantee that is partially guaranteed by the country that already (supposedly) guarantees the bond in the first place, particularly in view that the EFSF has no paid-in capital?”
Hi, It’s Tim, I’m Stuck In Paris, And Need You To Send $500 – ZH
Peter Tchir: “Contagion has spread to Spain and Italy not because Greece and Portugal are having problems, but because Spain and Italy have too much debt and their banks have too many bad loans on their books”
Erste Group Reveals Stunner: Reports Billions In Previously Undisclosed Underwater Sovereign CDS; Who Is Next? And How Much More Is Out There? – ZH
“soon many other banks’ counterparties will demand a pound of flesh in daily variation margin, for even the tiniest amount of CDS exposure, which in turn will lead to a sudden and very dramatic liquidity crunch as unlike quarterly reporting where banks can fudge numbers and data all they want, when it comes to counterparty exposure, other banks know better than anyone just how bad the bank on the other side of the phone is. And will act accordingly.”
Erste’s fumble, and where (else) to hide sovereign marks – alphaville / FT
“Those helpful sea creatures at Goldman Sachs have called 36 banks to see if any of them were treating CDS protection sold in the same way that Erste Group was.” – but that is not the only way to hide.
The Wicked Game – yanisvaroufakis.eu
How Greece is being beaten into a pulp to force Europe’s banks to accept capital while keeping Italy et al in awe.
Will internal devaluation work? – naked capitalism
“I do not believe this private sector balance sheet recession can be successfully tackled via collective public sector deficit spending balanced by a private sector deleveraging. The sovereign debt crisis in Greece tells you that.”
Credit Suisse Buries China’s Banks – ZH
with a full scribd-link to the 37-pager
On the clairvoyance of sovereign CDS – alphaville / FT
Interesting look at how CDS’s price default risk. Not only fundamentals, but risk aversion and contagion.
Most Analysts Lack Historical Context and Suffer from Various Behavioral Bias’ – HistorySquared
“Chinese land prices are up 800% since 2002. They pull a 10% drop and soft landing out of their ass as best I can tell.” – Excellent short read on what global macro trading is about.
Low yields leave investors with difficult choices – The Economist
Ritholtz: Your Brain On Stocks @ TBP Conference – The Big Picture
Behavioral finance presentation notes
The outsized returns from lobbying – WP
The stocks of top 10% lobbyists in the S&P500 outperform by 11% annually.
The Volcker Rule As Price-Setting – Dealbreaker
With plenty of links. “Much of the meat of the rule is a bunch of qualitative and quantitative information that banks must collect and hand over to regulators, each piece of which tends to indicate whether a trading desk is more prop-y or flow-y.”
Benford’s Law and the Decreasing Reliability of Accounting Data – Infectious Greed
“Unsurprising but interesting results from a Benford’s time-series analysis of U.S. public company financial accounting data. Things are, in short, getting worse.”
Richard Feynman, the late physicist, is hero of new graphic novel – WP
300-page graphic novel biography of Feynman. Strong buy. Buy here!
A Curated Linkfest For The Smartest People On The Web – Simoleon Sense
Iran and Saudi Arabia Square Off – Foreign Affairs
Wall Street, With Calm, Not Hysteria – NYT
Interview with the director of the coming movie “Margin Call”. Trailer here.
Paul Allen: The Singularity Isn’t Near – technology review
The solution to market-related noise – Abnormal Returns
Discussion and collection of links to why financial news is so bad.
The 1930s Sure Sound Familiar – NYT
Summary of a book “Since Yesterday” by Frederick Lewis Allen, published in 1940 on the thirties. Here is the Internet Archive link that has the book in multiple formats.