Irish Margin Call vs. Bernanke Super Put

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Irish Margin Call vs. Bernanke Super Put

What happens when an irresistible force meets an immovable object? We may be about to find out in the financial markets. Just as Bozo Ben turbocharged the leveraged speculating community with a heroic dose of QE2 N2O (nitrous oxide for you sober-sided stick-in-the-muds -- monetary laughing gas), a big clearing house has blown the whistle on leveraged sovereign debt holders:

Nov. 10 (Bloomberg) -- Irish 10-year bonds tumbled for a 12th day, leading a rout in debt from Portugal to Greece, as LCH Clearnet Ltd. said it will raise margin requirements for trades after yields on the nation’s securities soared.

The yield on the Irish 10-year bond surged 48 basis points to 8.57 percent at 2:25 p.m. in London. The spread over bunds soared to an all-time high of 603 basis points, or 6.03 percentage points, according to Bloomberg generic data.

LCH said today that an additional margin requirement of 15 percent will be charged on investors’ net exposure from tomorrow, and the change will be reflected in a margin call in two days. The world’s second-largest fixed-income clearing house told its clients on Oct. 5 that it may increase the margin requirement after the yield on Irish 10-year bonds rose to more than 450 basis points above a euro-region AAA benchmark bond. Irish debt has plunged on concern that the cost of bailing out the nation’s banks has made the government debt load unsustainable.

The Irish bond headed for its longest losing streak in at least three years, sending the yield difference, or spread, over benchmark German 10-year debt to a record. Ten-year Portuguese yields jumped 28 basis points to 7.20 percent, while Greek and Spanish bonds also slumped. Bunds fell as a sale of two-year notes attracted the lowest demand since May.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=ab5Xij6XpCUc&pos=1

 

What do you do when you get a margin call you can't meet? Sell like there's no freaking tomorrow!

Just when Chairman Bensane got the specs all lathered up, LCH stopped the music, flipped on the lights, and let the cops in.

And as the old Wall Street saying goes, when the paddy wagons show up, they take the good girls along with the bad.

Funny money vs. margin calls -- which is the more powerful? 

Stay tuned for the answer, folks -- same Bat-time, same Bat-channel!

 

'Twilight of the sovereign bonds -- only one man can save the planet!'

 

 

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Re: Irish Margin Call vs. Bernanke Super Put

Charles Forelle David Enrich --Ireland's Fate Tied to Doomed Banks--WSJ:

Two weeks later, the estimate came in: Up to €50 billion—nearly $50,000 for every household in the Emerald Isle.

But now, investors are betting the bill could be higher still and could reignite Europe's sovereign-debt crisis. The unpopular government is bracing for collapse, and on Tuesday, Irish government bonds continued a week-long slide to a fresh record low. The debt is judged as risky as Greece's was this spring just before that nation begged for a European Union bailout.

Mr. Lenihan, racing to ease those fears, proposed Thursday shrinking the country's 2011 budget by €6 billion. Proportionally, that's as if the U.S. suddenly eliminated the Defense Department.

http://online.wsj.com/article/SB1000142405274870450640457559236033445704...

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Re: Irish Margin Call vs. Bernanke Super Put

After watching a few Dems. and Repubs. after the election it looks like we are on the same path.

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Re: Irish Margin Call vs. Bernanke Super Put

Day 13 of the Irish crisis:

Credit-default swaps on the junior bonds of Allied Irish Bank are signaling that full government ownership of the lender is “all but fully priced in” by traders, according to Credit Agricole SA. Contracts on Allied Irish senior debt soared 99 basis points to 1,008 basis points yesterday and were at 1,018, while swaps on Bank of Ireland, which yesterday jumped 42 to 741, weren’t immediately available.

Irish 10-year government bonds fell, widening the yield spread with benchmark German bunds by 32 basis points to 651 basis points, a record, according to generic data.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a5HDfb.PI4nc&pos=5

Knock-on effects are spreading to the European periphery, and to the euro currency:

The extra yield investors demand to hold Portuguese 10-year bonds instead of benchmark German bunds climbed to a record 473 basis points.

The bonds of Greece and Spain declined, sending spreads over bunds wider. The gap between Greek 10-year bonds and similar-maturity German debt increased 16 basis points to 927 basis points, with the Spanish-German spread expanding six basis points to 212 basis points.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on debt of 15 governments including Germany, Italy and Spain climbed 2.5 basis points to a record 179, according to data provider CMA.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aCF8YzZzecWc&pos=2

Meanwhile the euro is near $1.37 this morning, down from over $1.40 last week, while the US dollar index is up for the fifth day in a row.

Greece can borrow from the European rescue facility at 5%, while Ireland's government borrowing (under current assumptions, which don't include nationalizing more banks) is funded through next spring.

But the crushing interest rates being imposed on Greece, Ireland and Portugal (11.70%, 8.94% and 7.16% respectively) represent an unbearable real interest rate on economies which are flat to shrinking. These interest rates, if actually paid, would bury them in debt deflation. In practice, the high prevailing rates have cut off these three governments from any more market-based borrowing.

Ms. Market's message is simple: BAILOUT NOW, OR CRASH NOW!

 

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Re: Irish Margin Call vs. Bernanke Super Put
agitating prop wrote:

Charles Forelle David Enrich --Ireland's Fate Tied to Doomed Banks--WSJ:

Two weeks later, the estimate came in: Up to €50 billion—nearly $50,000 for every household in the Emerald Isle.

I see your 50, and raise you to 85:

Irish and international banks’ loan losses in the country may total least 85 billion euros ($117 billion), central bank Governor Patrick Honohan said in Dublin yesterday.

How about we just do a 'Congressional compromise' and call it an even hundred? Undecided

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Re: Irish Margin Call vs. Bernanke Super Put
agitating prop wrote:

Charles Forelle David Enrich --Ireland's Fate Tied to Doomed Banks--WSJ:

Two weeks later, the estimate came in: Up to €50 billion—nearly $50,000 for every household in the Emerald Isle.

I see your 50, and raise you to 85:

Irish and international banks’ loan losses in the country may total least 85 billion euros ($117 billion), central bank Governor Patrick Honohan said in Dublin yesterday.

How about we just do a 'Congressional compromise' and call it an even hundred? Undecided

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Re: Irish Margin Call vs. Bernanke Super Put
machinehead wrote:

But the crushing interest rates being imposed on Greece, Ireland and Portugal (11.70%, 8.94% and 7.16% respectively) represent an unbearable real interest rate on economies which are flat to shrinking. These interest rates, if actually paid, would bury them in debt deflation. In practice, the high prevailing rates have cut off these three governments from any more market-based borrowing.

Ms. Market's message is simple: BAILOUT NOW, OR CRASH NOW!

Coming soon to a theater near you.  The ugly truth is that the US and Japan are in as bad shape if not worse.  Right now we have capital out there playing the game seeking relative safety, sloshing back and forth, but the difficulty is that there is no safe place.  A lot of debt is not going to be paid back in current money.  Either it enters default (unlikely, but possible) or it's paid back in depreciated currency (likely).  

Couple all this to the energy story and you've got a real cliff-hanger on your hands.

Working title:  The end of money.

 

 

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Re: Irish Margin Call vs. Bernanke Super Put

Astonishing figures on the depth of the Irish depression -- this would be considered a flat-out apocalypse in a larger economy:

The end of a decade-long property boom, fanned by reckless bank lending to developers and home buyers, plunged Ireland into the worst recession since at least 1947.

The economy shrank 3.5 percent in 2008 and 7.6 percent more last year, and is expected to contract by 0.3 percent this year, according to the International Monetary Fund. The unemployment rate shot up to 13.6 percent in October from 4.7 percent three years earlier, Ireland’s Central Statistics Officereported.

Commercial property prices have fallen 59 percent since September 2007, according to an index compiled by London-based Investment Property Databank.

http://noir.bloomberg.com/apps/news?pid=20601010&sid=aEzBmzzOjxE8

If I read the data correctly, markets do not believe that Irish and Greek GDP have magically bottomed out and started growing again.

All evidence suggests that both economies' power dive to hell continues, and may even be accelerating as market panic takes hold.

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Re: Irish Margin Call vs. Bernanke Super Put

I have a gut feeling that while most are fixated on watching Bernanke the Magnificent pull $600b out of his hat, this situation in Europe will grow to the point where it catches most of them by surprise (again).  And I half expect QE2 will be largely forgotten (for the moment) as everyone worries about the new crisis, possibly repeating the old flight-to-safety demand for the dollar.  However.... it appears that every time we go through this the cycles get shorter and shorter in duration, and the dollar comprises less and less of the overall flight-to-safety.  Perhaps this next time the dollar's popularity will be quite short-lived (a few months? less?), and will have to share more of that short-term spotlight with gold, silver, a few other currencies, and possibly a few specific commodities.  And then at some point either that crisis subsides somewhat or another one in the US emerges (like the foreclosure mess reaching critical mass), and we start the cycle all over again at a more accelerated rate as beforeUndecided

Or maybe not?.... maybe that'll be the point where the rubber band snaps and confidence is lost in most financial paper assets and stays that way.  Or as MH put it, the irresistable force meets the immovable object.  So far that hasn't happened yet, and it's not surprising since most of us really want to believe in the system because it's hard to imagine any other life.  But it's bound to happen eventually given the unsustainability of the system, and each time we go through these cycles of fear this possibility of permanent loss of confidence grows.  I just have no idea when that magic time will finally happen, all I know is the chances are higher now (maybe 20%?) than they were a year ago (10%?), which in turn was higher than the year before (5%?) etc etc.

As you said Chris, it's hard to firmly grasp the exponential nature of the times we live in. 

/rant Smile

- Nickbert 

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Re: Irish Margin Call vs. Bernanke Super Put

If you were observing our little blue planet from afar and removed from our noise of "local" news it should be fairly obvious that we are experiencing a global fiat fractional reserve system running in reverse.  Our modern knee-jerk reaction based on deeply flawed economic theory has been to supplant the shrinking private sector with expansion of the public sector in various guises such as quantitative easing, China's force fed lending and an endless stream of bail-outs.  Under some circumstances it might have worked and reignited the private sector enough to allow a return to expansion of private debt which is the mother's milk of a fractional reserve system.  Alas the private sector is loaded to the gills with both capacity and debt preventing the sparks from starting a fire.  This leaves the public sector not as an aid to recovery, but as a hindrance.  The recognition of natural economic law has flickered on and the movement is afoot to reduce the expansion rate of public debt.

While China seems to be in a better position, I have to view their loose lending which ended up flooding their financial markets and building more crap they didn't need, as a type of QE.  A great deal of money that was lent into their system will never be repaid and they will once again be forced to clean up their banking system by writing off huge amounts of bad loans - something they did about 10 years ago. If there is an energy crisis (IMO not on a global basis by any means) it exists in China where a combination of price controls and outrageous construction levels have conspired to cause China to be energy short - mostly in power generation.  They constantly are shutting things down (they curbed the power hungry aluminum smelters by 20% recently) to attempt to provide adequate power.  Otherwise there is no evidence that we are short on fossil fuels or generated power (at least in the US).  To the contrary the evidence strongly suggests a relative glut in oil, an almost unquestionable glut in NG (again here in the US) and peak capacity margins in generation well above any "danger level". The current high price of oil (and commodities in general) is purely speculative and IMO to some degree being manipulated by producers and govt for the benefit of the bankers butt deep in ME debt.

I have long viewed the EU as dead meat.  It was a system poorly contrived during happier times.  From the outset it was doomed by not having a central govt with direct taxing authority or any real control over the taxing and spending of the member states.  It is further complicated by a population that speaks many different languages with a very long history of countries not playing well together,  All it will take to drive a stake through the heart of the Euro is one or more countries returning to a sovereign currency to shed themselves of the shared death of the failing states. 

And that leaves us with the Dollar.  A fiat doomed like all fiats that must die eventually.  A sudden demise of the Dollar would pretty much kill the entire fiat system as it is a primary asset in every corner of the planet.  It would be akin to someone coming along and taking half your gold so safely stored under your pillow - you're suddenly poorer.  I doubt the dollar dies first - more likely last.  That death is likely going to precipitate a revolution and a period of great turmoil.  I don't expect to see that in my lifetime.  I do expect to see a very prolonged period of global contraction caused by our maxing out of our Visa card (again the fractional reserve system running in reverse) complicated by a mostly global demographic upheaval where social contracts long thought sacrosanct are torn asunder.  Rightfully so as those schemes were primarily Ponzi schemes based on never ending growth.  This time it really will be about the children who cannot support a system that was created by and for the benefit of their parents and their parents' parents, etc. Just wish we could keep the villagers from raising so many idiots.

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Re: Irish Margin Call vs. Bernanke Super Put

A Bloomberg article today explores the exquisite institutional bind Europe's peripheral countries find themselves in. The ECB, which could support their debt by purchasing it, is ideologically split:

Nov. 12 (Bloomberg) -- European Central Bank President Jean-Claude Trichet is the buyer of only resort as the euro area’s bond market melts down.

Just six months after he threw out his rule book to prevent Greece’s debt crisis from splintering the euro area, the 67-year old Frenchman may again be the only policy maker able to prevent the collapse in Irish and Portuguese bonds from spreading. That may require him to ignore opposition from Bundesbank President Axel Weber to the ECB’s bond-buying program and expand purchases of sovereign assets.

After reporting no settled transactions for three weeks, the ECB last week completed 711 million euros ($973 million) of purchases. Traders familiar with the transactions said it acted again this week by buying Irish assets under an emergency program set up to support the euro during the Greek rescue.

One potential obstacle is Axel Weber, a contender to replace Trichet as ECB president next year, who said last month that the central bank should terminate its purchase program. ECB Executive Board member Juergen Stark yesterday said the central bank intends to proceed with its exit strategy and its bond-purchase program is “temporary.”

http://noir.bloomberg.com/apps/news?pid=20601087&sid=agKOC2e1auf4&pos=7

From a PIIGS point of view, the ECB's caution in supporting their bonds could be compared to the Federal Reserve's passivity in the 1930s, when its asset purchases were far lower than the level of assets lost in bank failures.

In the absence of ECB action, the alternative for the PIIGS is to formally sign up for the European Stabilization Fund, which would officially tar them with the brush of 'accepting a bailout.'

Trichet may ultimately lobby Ireland and Portugal to tap the EU rescue fund for fear volatile markets will derail the ECB’s plan to keep withdrawing liquidity, or even impinge on its ability to set monetary policy for 16 nations, said James Nixon, co-chief European economist at Societe Generale SA in London.

“It is only a matter of time before the ECB is privately advising Portugal and Ireland to accept a bailout,” said Nixon, a former ECB forecaster. 

While the Irish government says it’s fully funded through the middle of next year, economists including Julian Callow of Barclays Capital still identify it as the most likely to seek EU support, although it may try to wait until after the Dec. 7 announcement of its 2011 budget in the hope that measures to reduce the deficit by 6 billion euros will placate markets. The question then is whether use of the EU stabilization fund is enough to end the crisis.

The awful possibility -- alluded to by Professor Emeritus Yobob above -- is that neither of these alternatives constitutes a durable solution. Greece is already a beneficiary of the stabilization fund, yet its sovereign bonds trade at a ruinous yields which effectively cut off its access to market-rate borrowing. 

So what is the exit plan, if the stabilization fund merely leaves the ailing patient bed-bound and comatose? 'DEFAULT,' suggests Ms. Market, twisting her thin cruel lips into a sneer.

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Re: Irish Margin Call vs. Bernanke Super Put

It appears as though I should have backed further away so that I could view the galaxy as a whole (some snootier galaxies think the Milky Way is a "hole').

As you can clearly see the debt bubbles that have the astronomers and physicists confounded could readily be explained by economic science. I'm not sure whether that's Grrenspan's on top and Bernanke's on the bottom or the other way around.  Hard to say who should be on top though in space the concept of a top and a bottom are less of an issue.

"Giant space bubbles baffle astronomers"

http://www.telegraph.co.uk/science/space/8125127/Giant-space-bubbles-baf...

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Re: Irish Margin Call vs. Bernanke Super Put
yobob1 wrote:

I'm not sure whether that's Grrenspan's on top and Bernanke's on the bottom or the other way around.  Hard to say who should be on top though in space the concept of a top and a bottom are less of an issue.

I'd say Greenspan's too old for such acrobatics, even with pharmaceutical assistance. Wink

Meanwhile, the Irish King Kong has knocked down the world's tallest building in Chicago. Where is Superman when we need him?

WASHINGTON (MarketWatch) — The grand plan to build the hemisphere’s tallest building in Chicago is dead, a victim of the great recession and Ireland’s financial crisis.

Financing for what was to be the 150-story Chicago Spire came from Anglo Irish Bank, which is on life support and now owned by Irish taxpayers. Last month, Anglo Irish initiated court proceedings against the spire’s builder, Dublin developer Garrett Kelleher, saying he was in default on his loan and owes the bank $77 million.

Famed architect Santiago Calatrava — who designed the slender twisting tower that was dubbed a drill bit and worse by detractors — has also filed suit, claiming he is owed $11 million. Other creditors have piled on, bringing total claims to $118 million.

Kelleher, a dentist’s son ...

http://www.marketwatch.com/story/irish-folly-leaves-gaping-hole-in-chicago-2010-11-12?dist=bigcharts

Oh, my -- a dentist's son, developing a tower that looked like a drill bit? Sounds like another Oedipal tale in which somebody got screwed.

Laughing

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Re: Irish Margin Call vs. Bernanke Super Put

How inspirational to have the comedy team of Machinehead and Yobob sprinkling levity into our daily dose of grim news!  I wonder what “pharmaceutical assistance” Machinehead employs?  And what planet does Yobob live on where he can take that nice picture?

A clown to the left of me, a joker on the right, and here we are stuck in the middle of goo*.  Cool

Travlin

 

* Substitute your word of choice for goo. 

 

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Irish crisis demands new EU response

Mohamed El-Erian, PIMCO CEO, had a piece in the FT today on the Irish problem where he suggests that some new approach is needed to accomplish more than kick the can a few months down the road.

http://www.ft.com/cms/s/0/11ad1ab8-ee49-11df-8b90-00144feab49a.html#axzz155o9erm0

He also appeared this morning on BNN (Business News Network, Canada) discussing Ireland and Euro problems, QE2 and the general global siuation.

http://watch.bnn.ca/friday#clip374292

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Re: Irish Margin Call vs. Bernanke Super Put

From the Irish Independent:

Irish-based lenders’ borrowings from the European Central Bank rose 7.3pc last month as the yield investors demanded to hold the state’s debt surged on concerns about its budget deficit and mounting bank losses.

ECB funds used by lenders including international and domestic companies climbed to €130bn as of October 29, from €121.1bn at the end of September, according to statistics published on the central bank’s website today.

http://www.independent.ie/business/irish/irish-banksrsquo-ecb-borrowings-rise-to-euro130bn-2418023.html

 

€130bn!! Cor blimey and begorrah, man! That's more than a hundred freaking percent of Irish GDP (€120bn)!

LaughingFoot in mouthSurprised

Wake me up when the restructuring is announced, laddies!

* pops another Guinness for breakfast *

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Re: Irish Margin Call vs. Bernanke Super Put

No restructuring, but the lads admit (euphemistically) to bailout talks:

Nov. 14 (Bloomberg) -- Ireland said it’s in talks with European officials about “market conditions” as Germany pushes it to accept a bailout before a meeting Nov. 16 of finance ministers that aims to reverse a bond sell-off across the euro- region’s periphery.

“Ongoing contacts continue at official level with international colleagues in light of current market conditions,” a Finance Ministry spokesman said in an email tonight. The confirmation of talks followed remarks by officials as recently as today that a bailout wasn’t being considered.

A request for aid may total about 80 billion euros ($110 billion) between 2011 and 2013, according to Barclays Capital.

While Ireland says it doesn’t need to raise money until mid-2011, its shattered banks, which have grown increasingly reliant on the European Central Bank, may be the focus of policy makers. Borrowing from the ECB by lenders in Ireland rose 7.3 percent to 130 billion euros as of Oct. 29, about 80 percent of gross domestic product.

In a Nov. 12 conference call of ECB officials, Ireland was pressed to seek outside help within days, a person briefed on the discussions said on condition of anonymity.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aKBBpfFTbwpE&pos=1

'It's not official until it's officially denied,' goes the old saying pertaining to weekend crisis negotiations over currency and debt crises. The British papers are still reporting Irish denials, but Bloomberg says they've euphemistically fessed up.

It's stone obvious, with the ECB alone extending credit equal to 80 percent of Irish GDP, that push has come to shove. Expect an announcement on Monday -- the cat's out of the bag; the genie's out of the bottle; and there's no turning back.

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Re: Irish Margin Call vs. Bernanke Super Put

So I wonder what all this edge-of-Euro-crisis-ness will do to the dollar this week.  And PMs.  

And as I typed that, the lights went out at Meadowlands Stadium, leaving the Giants and the Cowboys in the dark.  (Football is just about my last remaining mainstream media habit -- although as you can see, I'm not actually in fronta the tube right now [smile]).  That's an eloquent synchronicity, methinks...

Could be quite an exciting week.

Thanks as always for the learned commentary!

Viva -- Sager

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Re: Irish Margin Call vs. Bernanke Super Put

Irish politicians said the current terms for taking EU aid were hardly ideal for Ireland. They noted that the loans would require repayment or refinancing within three years, and simultaneously would cripple Ireland's ability to borrow money on the bond market.

"If you take a bailout, you lose control of your economic policy for three to five years, and the bailout fund is three-year money," said Joan Burton, finance spokeswoman for the opposition Labour Party. "If you're on three-year money, you keep reaching cliffs over and over again."

 

And the crowd below keeps yelling "JUMP!,  JUMP!, JUMP!"

http://finance.yahoo.com/news/Irish-in-crisis-talks-with-EU-apf-20080728...

He also underscored a number of areas for improvements and said bail-in instruments, such as contingent convertible (CoCo) bonds which can convert to equity if a bank gets into trouble, were one option for large banks that play a key role in global finance.

"Even though there are a number of open questions these alternatives seem worth considering," Weber said.

He also said banks need to be allowed to fold to avoid complacency and so-called 'moral hazard' developing among bankers.

"The relevant instrument in this context is a restructuring mechanism that allows for a wind-down of systemically-relevant banks without overburdening markets, Weber said."

 

Systemically relevant banks - those must be the ones that are butt deep in EU sovereign debt.  We have a global banking system ruled by Economic Emperors that get to give a thumbs up or a thumbs down.  And what of this moral hazard?  They have done such a wonderful job of reinforcing the fact that consequences are for the little people or part of the name for an old game show as well as a small town in New Mexico - it certainly has no bearing on big banks that have sufficiently screwed up.

http://finance.yahoo.com/news/ECBs-Weber-backs-orderly-bank-rb-396917882...

And finally the fat is back in the fire -  or oops we don't know how to add.

BRUSSELS (AP) -- Greece's 2009 budget deficit and debt levels were much higher than previously estimated, the European Union statistics agency said Monday, making it unlikely the country will reach targets set out in its bailout agreement.

Greece's 2009 budget deficit reached 15.4 percent of gross domestic product, significantly above its previous estimate of a 13.6 percent deficit, Eurostat said in a statement.

Public debt stood at 126.8 percent of GDP at the end of last year, higher than that of any other EU state. In April, Eurostat had estimated the figure at 115.1 percent of GDP.

The revisions are likely to mean Greece will not achieve its initial target of lowering the deficit to 8.1 percent of GDP by the end of this year.

Prime Minister George Papandreou insisted last week that his government would still be able to reduce the deficit by at least 5.5 percentage points by the end of the year, as promised.

But in a weekend newspaper interview, he conceded the deficit revision would add pressure on his government to cut costs, and said Greece could seek an extension for repaying its rescue loans.

"Can we get some more money and extend the terms to "never"?

http://finance.yahoo.com/news/EU-lifts-Greek-debt-estimate-apf-660140197...

 

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Re: Irish Margin Call vs. Bernanke Super Put

A Portuguese government minister openly speculated over the weekend that his country's economic frailties could lead to its expulsion from the euro zone, underscoring the growing fear in Europe that the continent's debt woes may force leaders to restructure the currency bloc.

In an interview with the Portuguese weekly Expresso published Saturday, Foreign Affairs Minister Luis Amado said Portugal faces "a scenario of exit from the euro zone" if it fails to tackle its economic challenges.

"There has to be an effort by all political groups, by the institutions, to understand the gravity of the situation we're facing," he said.

I'm more wondering when Germany will call it quits when it tires of the "rich" bailing out the "poor".  As things get worse, the whole Euro experiment will implode.  No one stopped to consider how it would work amidst a global depression.  Of course they didn't need to - it was well documented that Keynesian madness would prevent a depression for ever and ever, Amen.

http://online.wsj.com/article/SB1000142405274870439360457561444140396894...

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Re: Irish Margin Call vs. Bernanke Super Put

The redoubtable Ambrose E-P weighs in, invoking '1931,' 'Credit Anstalt' and 'Götterdämmerung.' Fasten your seatbelts, CMers, this is gonna be some bumpy reading:

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt - the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.

The eurozone’s fiscal fund (European Financial Stability Facility) is fatally flawed. Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them. This lacks political credibility and may be tested to destruction if – as seems likely – Ireland is forced to ask for help. At which moment the chain-reaction begins in earnest, starting with Iberia.

Portugal is in worse shape than Ireland. Total debt is 330pc of GDP. The current account deficit is near 12pc of GDP (while Ireland is moving into surplus). Portuguese banks rely on foreign wholesale funding to cover 40pc of assets. It is hard to see how Portugal could avoid being sucked into the vortex alongside Ireland. Europe and the IMF would then face a cumulative bail-out bill of €200bn or so. That stretches the EFSF to its credible limits.

Bundesbank chief Axel Weber might fairly conclude that it is impossible at this stage to reconcile the needs of Germany and the big debtors. If the ECB prints money on the scale required to underpin the South, it would set off German inflation, destroy German faith in monetary union, and perhaps run afoul of Germany’s constitutional court. If EMU must split in two, it might as well be done on Teutonic terms.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8132689/Europe-stumbles-blindly-towards-its-1931-moment.html

Richard Smith speculates this morning that Ireland, seeing all of Europe on board with its need for a bailout, is holding out for sweeter terms. Kind of like two high-wire bicyclists racing toward each other in a game of no-net chicken. Somebody's gonna get hurt ...

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machinehead
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Re: Irish Margin Call vs. Bernanke Super Put

An eye-popping statistic ... followed by the understatement of the year:

Ireland’s five-member ISEQ Financial Index of banking stocks is now worth 2 percent of the peak valuation reached in February 2007. 

Irish banks “have issues,” Justice Minister Dermot Ahern said. 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aoxQW.30U44w&pos=1

 

Those aren't bank stocks, Dermot -- they're call options. Smile

 

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Re: Irish Margin Call vs. Bernanke Super Put

Well, there's a third way, isn't there -- 'ave a wee nip with the laddies and think it over?  Wink

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Re: Irish Margin Call vs. Bernanke Super Put

The Guardian story headlined above:

An increasingly isolated Irish government was coming under mounting pressure tonight to seek an EU or International Monetary Fund bailout within 24 hours amid fears that contagion from its crippled banking sector might spread through the weaker eurozone countries.

PortugalSpain, the European central bank and opposition parties urged Brian Cowen's coalition government to remove the threat of a second crisis in six months by putting a firewall between Ireland and its 15 partners in the single currency.

With finance ministers from the eurozone due to hold emergency talks tomorrow night, financial markets were expecting Dublin to finalise negotiations with the EU over the terms of a deal to allow Ireland to rescue banks laid low by the collapse of the country's construction boom.

http://www.guardian.co.uk/business/2010/nov/15/ireland-portugal-spain-european-debt-crisis

An Irish bailout is inevitable. Once it was admitted over the weekend that talks were underway, the water was already over the dam.

Now the big question is the C-word. No, not consp ... consp ... I can't say it! But I can spell it: C-O-N-T-A-G-I-O-N.

Ambrose E-P claims that no sooner Ireland is bailed out, the hedgehogs, vultures and bond vigilantes will have at the scrawny carcass of Portugal, ripping it limb from limb!

Let's hit the history books:

The Asian crisis started in Thailand in July 1997 with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven.

At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis

Oh, dear -- does any of this sound familiar, starting with the real estate bubble and the debt burden? Asian countries were only informally linked by dollar pegs and geography; Europe shares a common currency, a central bank, and a supranational government. 

And for the E-wavers [E= Elliott, not Euro], it's been a Fibonacci 13 years since the Asian crisis, not to mention a Fibo 8 years since the 2002 stock market low, and a Fibo 21 years since the collapse of eastern Europe's communist regimes in November 1989.

Read the message in the stars: RESTRUCTURE!

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Re: Irish Margin Call vs. Bernanke Super Put

Escudo me, I hate to be a Pesta, but Francly I'm a bit Lira of your Drachmanian suggestion of a restructuring.  I think its way off the Mark. But this may better be discussed after Dinar.

It used to be said that all real estate was "local".  Thanks to global finance it is now local only in the sense that so far the collective insanity has been confined to our planet.  True, we do have Venetian Condos in Florida and there is Jupiter estates in Michigan, but those are just toeholds of interplanetary investment as opposed to a runaway building boom on Mars.

Real estate for centuries has represented the cornerstone of the world's asset base.  While not liquid in any sense, it has been considered a sound store of value by most.  Obviously that myth has been shattered - ans so has a tremendous amount of theoretical wealth.  Unfortunately instead of just losing equity much of the planet now finds that the debt incurred is far above the current value. 

The global sovereign debt (not including unfunded liabilities) alone is 40 Trillion dollars.  Now add the state and local public debts.  Don't stop yet, toss in all personal debt, mortgages, corporate and financial debt and it is patently obvious that the total debt is far beyond the liquidation value of all assets on the planet.

If they repossess the planet, where do we go?  is this covered in the Crash Course?

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Re: Irish Margin Call vs. Bernanke Super Put
yobob1 wrote:

Escudo me, I hate to be a Pesta, but Francly I'm a bit Lira of your Drachmanian suggestion of a restructuring.  I think its way off the Mark. But this may better be discussed after Dinar.

If they repossess the planet, where do we go?  is this covered in the Crash Course?

AH HA HA HA!  BEST PUN EVER! I present you with a Guildered Krona for your re-Markka-ble achievement. Smile

Meanwhile, the managers of the EuroDisneyZone are talking about lights out on the Magic Kingdom -- oh, my!

The president of the European Union has warned that the EU could collapse unless the debt crisis that is gripping the region is resolved.

Herman Van Rompuy, president of the European Council, raised the stakes ahead of this evening's showdown talks between finance ministers in Brussels. With Ireland and Portugal both on the brink of seeking a bailout, Van Rompuy warned that there is a serious risk of contagion spreading across the continent.

"We're in a survival crisis," Van Rompuy said in a speech in Brussels. "We all have to work together in order to survive with the eurozone, because if we don't survive with the eurozone we will not survive with the European Union."

http://www.guardian.co.uk/business/2010/nov/16/ireland-bailout-government-says-no-need-to-panic

Ever heard of government panic? Van Rompuy is frightened out of his wits, warning of an apocalyptic Boomergeddon.

Save the sovereign whales! SmileSurprised

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Re: Irish Margin Call vs. Bernanke Super Put

Contagion hits Portugal as Ireland dithers on rescue

The EU authorities have begun to vent their fury against Ireland over its refusal to accept a financial rescue, fearing that the crisis will engulf Portugal and Spain unless confidence is restored immediately to eurozone bond markets.

Spain's central bank governor, Miguel Angel Ordonez, lashed out at Dublin on Monday, calling on the Irish government to halt the panic and take the "proper decision" of activating the EU-IMF bail-out mechanism.

"The situation in the markets has been very negative due to the lack of a final decision by Ireland. It is up to Ireland to take that decision, and I hope it does," he said.

The outburst reflected suspicion at the European Central Bank that Dublin is holding the eurozone to ransom, allowing the crisis to fester until it extracts a pledge from EU officials that it will not suffer a loss of economic sovereignty or be forced to give up its 12.5pc corporate tax rate under any deal.

Confused reports continued to swirl as Irish finance minister Brian Lenihan prepared to meet eurozone colleagues over dinner in Brussels on Tuesday night. Dublin has so far admitted to holding talks over "market conditions" with EU partners but insists that it is fully-funded until June and hopes to calm nerves with €6bn (£5.1bn )of budget cuts in early December.

Simon Derrick from the Bank of New York Mellon said the negotiations over Ireland's bail-out have been astonishing. "The creditors say please take the money, and the debtor says 'we don't want it'. It's very odd."

"Still, the EU is doing the right thing to try to create a fire-wall as quickly as possible. They learned from Greece that once bond yields reach this level they have 10 trading days left to avoid a self-feeding crisis. They cannot allow this to spread to a large country because at that point contagion would become uncontainable," he said.

Contagion has already pushed Portugal to the brink, pushing yields on 10-year bonds to the danger level above 6.5pc. Finance minister Fernado Teixeira dos Santos said the country was at the mercy of global forces and may be forced to call for help.

"The risk is high because we are not only facing a national or country problem. It is the problems of Greece, Portugal, and Ireland. Markets look at these economies because we are all in this together in the eurozone. Suppose we were not in the eurozone, the risk of contagion could be lower," he told the Financial Times.

Mr Teixeira made a thinly veiled attack on Germany's Angela Merkel and France's Nicolas Sarkozy, who precipitated the latest crisis by opening the door to sovereign defaults and bondholder "haircuts" for eurozone states in trouble.

"We were like the soccer player running to the goal and ready to kick for the goal, and then someone fouls us, but this time there was no penalty."

A simultaneous bail-out for both Ireland and Portugal might run to €200bn, depleting much of the EU rescue line. The European Financial Stability Facility (EFSF) can raise up to €440bn on the bond markets but only two thirds of this would be available. The IMF is expected to loan a further €3 for every €8 from the EU under the bail-out formula.

The great concern is that the crisis could spread to Spain, which has a far bigger economy that Greece, Portugal, and Ireland combined. Foreign banks have €850bn of exposure to Spanish debt.

David Schautz, credit strategist at Commerzbank, said the EU bail-out fund would come under "severe strain" if Spain needed a rescue. Yet this remains a serious risk since Spain must roll over or raise €175bn of debt next year.

Mr Schautz said funds would become wary if yields on 10-year Spanish bonds rise much above 5pc, compared to 4.5pc at the moment. "Investors are nervous and panic can break out fast," he said.

Jose Manuel Campa, Spain's economy secretary, said his country is "neither Greece, nor Ireland, and never will be". Spain's economy has stalled again but public debt is still just 66pc of GDP, and both budget and current account deficits are falling fast.

Ambrose

http://www.telegraph.co.uk/finance/economics/8135582/Contagion-hits-Portugal-as-Ireland-dithers-on-rescue.html

Ireland's corporate tax rate has made it a stop off point for a lot of global corporate profit on its way to the Cayman Islands.  Lose that and a whole lot of revenue sails away.

10 days?  Are we mailing bid and ask exchanges by way of slow boats?  I'll see your ten days and raise that to 10 minutes for a full panic to develop.

Portugal already hs its fingers on the 911 button.

And what of Spain?  Over a million vacant homes and a 20% unemployment rate that rises to 40% when you look only at younger workers.  175 billion Zeros to roll over in the next year.  Hell call Benny, he can roll that amount in his sleep.

When the Greece fire erupted and was then seemingly extinguished, all thought problem solved.  All they did was put a lid on it.  Someone had the bright idea to lift the lid and poor cold water on it.  naturally as oon as the oxygen hit it the flames returned with a vengenace and the knee-jerk reaction of pouring water on it only has caused the Greece to erput and send shower of flaming Geece droplets about teh Continent.

It seems unlikely there will be remake of Eastwood's classic -  A Fistful of Euros.

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Re: Irish Margin Call vs. Bernanke Super Put
yobob1 wrote:

.

It seems unlikely there will be remake of Eastwood's classic -  A Fistful of Euros.

That was the movie about the Greek bailout in May.

The sequel, which opens tomorrow, is called For a Few Euros More.

"When the chimes finish, begin." LaughingSurprised

 

'Do ya feel lucky, europunks? Well, do ya?'

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Re: Irish Margin Call vs. Bernanke Super Put

Bloomberg's Matthew Lynn sees Ambrose E-P's bet in the Europocalypse Poker Tournament, and raises the ante:

Ireland had one of the most successful economies in the world over the last two decades. Its government was never profligate. When the crisis hit, it didn’t bury its head in the sand the way the Greeks did. It took every austerity measure imaginable to try and fix its problems by itself -- and without calling on outside assistance.

In short, the problem wasn’t Ireland. It was the euro. The logic of that is inescapable. If it is the single currency that is at the root of the crisis, it won’t stop here.

There is a domino effect at work, and, with each rescue, the fault lines within the euro grow wider and wider. This process isn’t going to stop until the euro is taken apart. 

The euro has turned into a bankruptcy machine. Once the markets have finished with Ireland, they will simply move on to Portugal and Spain, and after that to Italy and France.

This crisis will keep moving from country to country. The only permanent fix is splitting up the euro into more manageable currency areas. Until the euro-areas leaders recognize that simple truth, every bailout they come up with is only going to shift the attacks elsewhere.

http://noir.bloomberg.com/apps/news?pid=20601039&sid=aHg8UgWh.Jxs

 

Lordy, I thought Halloween was over. This is damned scary! Matthew Lynn says the euro is a dead man walking. It's only a question of when the ax falls.

Who would've thought it would come to this? Why now; why us? 

As Jim Rogers used to say to avaricious officials on his round-the-world motorcycle tour -- 'Isn't there some kind of fee we could pay to settle this matter?'

SmileCry

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Jim H
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Re: Irish Margin Call vs. Bernanke Super Put

The fallacy of monetary union without fiscal union is going to be exposed.  Breaking up into smaller parts where at least there is relative fiscal parity (or strength) is probably the only answer. 

The strong don't want to hit the ball and drag Greece and Ireland anymore;

http://www.zerohedge.com/article/confirmation-austria-witholding-%E2%82%...

http://www.zerohedge.com/article/finland-opposes-aid-ireland

Save the sovereign whales indeed!  (I liked that one Machinehead)

 

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Re: Irish Margin Call vs. Bernanke Super Put
yobob1- Post 24 wrote:

If they repossess the planet, where do we go?  is this covered in the Crash Course?

Yobob -- Can we come join you on the planet you live on?  You know, the one were you took this nice picture? How do you get there anyway?  Is is crowded?  Do you accept gold as money?  Smile

Travlin

 

yobob1- Post 11 wrote:

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