Germany calling for Greece's Indentured Service

Germany has made a request that is extraordinary. The Financial Times has a pair of articles on this:

German Government Calls for Greece to Cede Sovereignty to Eurozone "Budget Commissioner"

Please consider Call for EU to Control Greek Budget

The German government wants Greece to cede sovereignty over tax and spending decisions to a eurozone “budget commissioner” to secure a second €130bn bail-out, according to a copy of the proposal obtained by the Financial Times.

In what would amount to an extraordinary extension of European Union control over a member state, the new commissioner would have the power to veto budget decisions taken by the Greek government if they were not in line with targets set by international lenders. The new administrator, appointed by other eurozone finance ministers, would take responsibility for overseeing “all major blocks of expenditure” by the Greek government.

Even before Germany circulated its proposal, the EU and International Monetary Fund had presented a 10-page list of “prior actions” Athens must implement before the new bail-out is agreed. According to a copy of the document, also obtained by the FT, Greece must cut an additional 150,000 government jobs within three years.

Actual Text of Proposal

The Financial Times posted on its website the complete text of the proposal. Here are snips from Assurance of Compliance in the 2nd GRC Programme

1. Absolute priority to debt service
Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its comittments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

2. Transfer of national budgetary sovereignty
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.

If Greece agrees to this proposal is indentured service if not it is broke in a matter of weeks.

Sovereign Defaults Stats

According to a Wikipedia article on sovereign defaults, here a few examples of major European sovereigns that have defaulted over the years:

• Spain - 15 times! (1557, 1575, 1596, 1607, 1627, 1647, 1809, 1820, 1831, 1834, 1851, 1867, 1872, 1882, 1936-1939)
• England - a modest 3 times (1340, 1472, 1596)
• France - 9 times. (1558, 1624, 1648, 1661, 1701, 1715, 1770, 1788, 1812)
• Greece (1826, 1843, 1860, 1893, 1932)
• Brazil - 10 times inside the last 115 years (1898, 1902, 1914, 1931, 1937, 1961, 1964, 1983, 1986-1987, 1990)
• Russia (1839, 1885, 1918, 1947, 1957, 1991, 1998)
• India (1958, 1969, 1972)
• China (1921, 1932, 1939)

The complete list in the above link includes a list of 39 African sovereign defaults, 26 Asian sovereign defaults, a whopping 91 European sovereign defaults, and for the Americas, a stunning 154 sovereign defaults.

Systemic collapse brewing after MF Global Collapse

For those not yet appreciating the gravity of the situation worth reading:

BCM Has Ceased Operations (source)

Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.
The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.
Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.
And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.
Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.
Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.
To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.
As for me, I can only echo the words of David:
“This is the Lord’s doing; and it is wonderful in our eyes.”
With Best Regards-
Ann Barnhardt

Student loan debt explained

Student loan debt, now at $830 billion, has surpassed credit card debt—a statement unheard of 20 years ago. Student loans, unlike any other form of debt, CANNOT be forgiven via bankruptcy—these loans MUST be repaid. 



Via: HealthcareAdministration.com

The men who crashed the world

The new series on Al Jazeera explores in 4 episodes  how greed and recklessness led to financial collapse.

In the first episode of Meltdown, we hear about four men who brought down the global economy: a billionaire mortgage-seller who fooled millions; a high-rolling banker with a fatal weakness; a ferocious Wall Street predator; and the power behind the throne.
The crash of September 2008 brought the largest bankruptcies in world history, pushing more than 30 million people into unemployment and bringing many countries to the edge of insolvency. Wall Street turned back the clock to 1929.
But how did it all go so wrong?
Lack of government regulation; easy lending in the US housing market meant anyone could qualify for a home loan with no government regulations in place.
Also, London was competing with New York as the banking capital of the world. Gordon Brown, the British finance minister at the time, introduced 'light touch regulation' - giving bankers a free hand in the marketplace.
All this, and with key players making the wrong financial decisions, saw the world's biggest financial collapse.

Breaking News: Greece to default after October

And just minutes after my last post wondering when to let Greece go, Sky News is anticipating the EU make up their minds in letting Greece default after October.

More from Sky News correspondent Ed Conway (via Twitter):

• G20 now preparing itself for Greek default after October - Sky sources. Will be on Sky News imminently with more
• G20 sources: all efforts behind the scenes (by G20 members) are now going into recapitalising banks, preparing economies for default.
• G20 sources: default not expected until after Cannes G20 early November. Emergency funding should still keep Greece afloat thru October
• G20 sources: No suggestion Greek default need imply country leaving the euro
• G20 sources: @ Washington summit marked difference in attitude. Confident euro members edging closer to recapitalising banks, expanding EFSF

Spain crisis: local authorities approaching default

After Castilla today is the turn of Navarra being on the edge of default:

Navarra has no money to pay for commitments made this year.
The Vice President of the Government of Navarra, Roberto Jimenez, said that "the situation is dramatic provincial coffers are empty and there is no money to pay for commitments made this year."
"There is money to pay public workers but no money to continue to provide quality public services"
Navarra has a deficit of 600 million euros," added Jimenez.

It is not an isolated problem since local councils and regions all over Spain are facing a breakdown after massive spending cuts are turning a severe recession even more harmful.

The Telegraph reports Electricity cut off to Spanish town over unpaid bills

Coin, near Malaga in southern Spain, is, like many towns across the crisis-hit nation, on the verge of bankruptcy with an estimated debt of nearly 30 million euros (£26m) owed by the town council.

For more than a week there has been no lighting in public areas after power company Endesa cut services because of an outstanding bill of 280,000 euros (£240,000).

Meanwhile some 500 council employees in the town have not yet been paid their August wages, it was reported.

The town of 22,000 residents has been ordered to make an urgent payment of 400,000 euros (£346,000) to the Treasury in monthly instalments to cover its debts but the mayor has said the town will be forced to file for bankruptcy.

It is a problem repeated in municipalities across Spain. In some towns, police officers have been ordered to walk to crime scenes in a bid to save costs on patrol cars.

On Tuesday rating agency Moody's warned that Spain's regions could fail to meet their deficit-cutting targets, a move considered necessary for the nation to meet the EU-agreed public deficit ceiling of 3 per cent of GDP by 2013.

EU is morally bankrupt and financially insolvent

Breaking news on Italian newspapers are quoting a decision of Brazil, Russia, India and China to coordinate massive purchase of Euro bonds to save Europe from assured disaster.
Although international newspapers are more sceptical of this possibility as reported by Reuters below.


From Reuters:

BRIC major emerging markets are considering ramping up holdings of euro-denominated bonds in a bid to help European countries mired in a sovereign debt crisis, newspaper Valor Economico reported on Tuesday, citing a monetary official.

Valor reported a decision could be made at a Sept. 22 meeting of finance ministers and central bank presidents from Brazil, Russia, India, China and South Africa in Washington.

Brazil's central bank declined to comment on the story. The source in the report was not identified.

It could be a trick to avoid stock collapse and earn some time as it was a trick yesterday's news of Chinese intervention on the Italian sovereign market.
True or not, this is an historic event, for the first time since Middle Ages Western powers are the rescued and not the saviours just this idea is destined to change the arrogant and obsolete mindset of the European population at last.
If BRIC countries will rescue Europe they will try to capitalize on this emergency as much as possible, they will try and pull concessions and strategic industries and infrastructure control in exchange for their money, the fire-sale of Europe will start and in a matter of few years the geography of power will be completely upturned with Europe finding itself under debt indentured service.
Interesting how Europe is getting back to the same debt dynamics of World War II, this time though not due to bombardments, war and destructions, we went into debt for villas, sport cars and luxury items we could not afford but we wanted just the same, for greed and arrogance, for short-sightedness and stupidity.
BRIC countries are aware as the ECB is aware that it is impossible to go on buying Italian, Spanish, Greek, Irish and Portuguese bond indefinitely to keep alive zombie economies and profligrate populations unwilling to pay the price of their recklessness.
Europe can posticipate the inevitable default but will be faced with an hefty bill for selling its soul in exchange for few years of mitigated decrease of standards of living.
The default will arrive maybe not this year but in 1-2 years if BRIC countries keep this insanity alive but when it will unleash Europe will be just a shadow of what is now, voided of power, wealth, dignity and prestige, just a leech.
There is another risk though which is worth consideration, as Chinese sources mentioned yesterday we do not trust buying Italian bonds if the ECB is unwilling to do it.
Effectively when the central European bank in unwilling to risk why those countries should?
The reality is that the EU has surrendered and it has effectively declared the breakup of the Euro, for the EU to leave the shielding of its periphery to external actors is an effective declaration of surrender.
It means that BRIC countries will sustain those economies until an orderly breakup can be arranged or other events will unfold.
Either way BRIC countries get access to a strategic European periphery.
Let us not forget that only 1 year ago for the EU it was a shame even to consider an assistance from the IMF on the Greek crisis, now with Italy and Spain at stake the IMF with Lagarde is silent, IMF does not even meddle anymore in this issue which gives us 1 or 2 thoughts on why Strauss-Kahn was liquidated.
With half of the developing world coming to rescue of Europe there is no embarrassment at all, either the situation is so desperate that shame is no longer in the equation or a trap is being set for the developing world to bleed assets in Europe before orderly default will occur just for strategic considerations.
Probably it is both but one thing is sure the degeneration of the EU is set to leave a very painful mark in the years to come.

Greece agony goes on

It appears Greece will inflict more torture on its population in exchange for a delayed but inevitable default.
What is starting again is though the usual brawl between Germany and Greece.

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets.
An “orderly insolvency” for Greece must not be ruled out for the sake of stabilizing the euro, Die Welt reported, citing German Economy Minister Philipp Roesler.
While the headlines in the Greek press have been "Unconditional Capitulation", and "Terrorization of Greeks", and even “Fourth Reich”. Mr Schauble said there would be no more money for Athens under the EU-IMF rescue package until the Greeks "do what they agreed to do" and comply with every demand of `Troika' inspectors. 
Even if the Papandreou government met every Troika demand at this point, it would not make any material difference. Greek citizens already understand this, and they understand that EU loan packages are merely being recycled to northern banks.
We have never been so close to an Euro breakdown. Friday's resignation of Jurgen Stark at the European Central Bank is literally a disaster, a German vote of no confidence in EMU management.
The vehemence of his protest against ECB bond purchases confirm what markets suspect: that the ECB cannot shore up Italian and Spanish debt markets for long without losing Germany.
An exit from the Euro is although no solution as well.
If a debtor such as Greece left, the new drachma would crash by 60pc. Its banks would collapse. Switching sovereign debt into drachma would be a default, shutting the country out of capital markets. Exit would cost 50pc of GDP in the first year.
If creditors such as Germany left, the new mark would jump 40pc to 50pc against the rump euro. Banks would face big haircuts on euro debt, and would need recapitalization. Trade would shrink by a fifth. Exit would cost 20pc to 25pc of GDP.
The scariest part is the entrenchment of both sides on their positions which is making impossible to find a definitive solution to this mess. Either the EU push toward further integration with harmonization of fiscal policies and loss of sovereignty toward a central EU government or we are facing an inevitable collapse.

Greece could default and leave the euro by March

Both the WSJ and Reuters reports that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed.

"I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation.

"The chances for a second program are slim."

It is not only Greece - Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be cancelled, sending the second most indebted country in the world into a toxic debt tailspin.
From the WSJ:

Talks over new bailout funds for Greece were suspended Friday amid disagreements over how to fill a government-deficit gap that once again is veering off track, raising doubts about the country's future access to finance and triggering renewed nervousness in financial markets across Europe.
The suspension pushed yields on Greek government debt to levels indicating that investors see a default by Athens soon as a near certainty: Interest rates on one-year paper blew out past 70% and two-year yields rose close to 50%.
The continent's stock markets also retreated, with the French market down 3.6% and the German market down 3.4%.
The suspension of the talks in Athens between the government and a group of officials representing the providers of Greece's bailout cash came, officials said, amid a dispute about how to address new gaps opening up in the government budget deficit.
"The Greek side insisted the missed targets are the result of the recession. The troika said recession played a part, but Greece basically didn't keep up with its commitments, so more measures will be needed to make up for the lost ground," said a person with direct knowledge of the talks.
"There is a clear disagreement that can't be bridged today," the person added.
"I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim."
Failure of Greece to meet its targets, growing reluctance by some euro members to continue lending and the fact that private-sector participation in a second bailout won't significantly alter Greece's debt profile are the primary factors, the IMF official said.

It gets worse: as Reuters confirms, the political turmoil has already spread to Germany, where all that is needed for wholesale conflagration that will sweep Merkel out of the cabinet is a tiny spark. This may just have been it:

Christian Lindner, general secretary of the Free Democrats, (FDP) junior coalition partners in Chancellor Angela Merkel's center-right government, said Athens was endangering European solidarity.
"The breakdown of talks between the Troika and Greece is a blow to the stability of the euro," he said at a news conference in Berlin.
Referring to Greece's failure to meet deficit targets set in exchange for a second bailout package, Lindner said Athens was shirking responsibilities to which it had agreed.
"This is not about non-binding statements of intent, but contractually secured reciprocity for the emergency loans," he said. "We insist these agreements are observed."
Separately, senior FDP official Hermann Otto Solms, a vice-president of the Bundestag and an economy committee member in parliament said since Greece could not handle its debt problem and it should consider leaving the euro.
"It should be considered whether a restructuring and exit from the euro would offer better perspectives for the currency union and Greece itself," he told Frankfurter Allgemeine Sonntagszeitung.
The pro-business FDP styles itself as a defender of the German taxpayer, a stance Lindner reiterated in his statement over Greece.
"Taxpayers in Northern Europe and especially Germany cannot accept inability or reluctance. In the eyes of the FDP, Greece must reaffirm its will for stability and reform."

A Greek departure from the Eurozone, which now seems inevitable, will have a major impact on Europe's financial institutions.

Italian emergency budget could trigger run on Italian banks

Today the Italian Finance Minister has informed the Parliament of the measures he is going to enact to stabilize the budget.
The proposals were foggy enough to allow for last minute fixing should the political or public rage get out of control.
Aside from all the other proposals which are grave enough and risk enacting the same downward spiral we have witnessed in Greece, the most scary and controversial one was the famigerate "patrimoniale" which is a flat tax on all bank accounts and share earnings that is collected by the Italian government directly from the accounts of every bank operating in Italy.
It was expected that due to high savings rates among the Italian population the first piggy bank to be broken if needed would have been private savings accounts.
This is now coming true and the draft is proposing to tax every income above 90.000 euro with a flat tax of 5-10 percent of the total amount of assets, details are not clear yet and in typical Italian style susceptible to change till the last minute, but it is clear that this proposal could trigger a run on Italian banks in the following weeks.
To enact this kind of law would clearly send a message of  desperation, since they would be using a tax that is guaranteed to accelerate cash bleeding of Italian banks.
Those who have savings will do their best to bring them out of the country and those who were planning to invest in Italy will cheerfully stay away.
No other European country has considered regardless of the severity of the crisis this tax for a simple reason, it ignites a cascading  run on banks and a disastrous outflow of capitals!
The last time it was enacted in Italy was before the Euro and was used once only as a special Euro Tax to raise capitals in order to satisfy requirements for entry into the Euro. Lira was then still the Italian currency and movements of capitals were monitored and restricted.
This time though it is a different story within a single common currency there are no restrictions to movements of capitals within the Eurozone and at large within the EU, thus allowing anyone unwilling to be taxed 10% of their capital to open a bank account anywhere else in the Eurozone and escape taxation.
Greece experienced the same dilemma when a simple lack of confidence in Greek banks caused massive outflows of private capitals from Greece to Cyprus and England.
Should they go forward with this plan be prepared to see capitalization of Italian banks to dry up with massive outflows to safer havens.

Bank of America, Societe Generale and Unicredit on the brink

Just back from hiking in the remote Irish forests, from the forest to the jungle of today's events.
No need to add again that we are at a turning point in history and this turn does not look good at all.
If they do not invent something either a Federal Reserve QE3 an ECB Euro QE1 or an ECB Bond shopping spree we are not going to survive this summer. Needless to say that we are facing a situation potentially 10 times more dangerous than the Financial Crisis of 2008 (trying to be conservative), all the tricks have been used and failed. Latest news on the US banks could unleash a new major banking crisis in the US which would spread to the Derivatives market and at that point either we redesign how the new economy works by banning derivatives or we can say goodbye to the world economy.
All eyes are on Bank of America which today only has been hammered losing in one day 20%, this is turning ugly since at this point Federal Reserve and the US Government could intervene and bailout again Bank of America, aside from the political and public rage this will cause we still don't know if there is enough money to bailout Bank of America and should it default we are going to see an hurricane on the derivatives market and stock exchanges all over the world.


Going back to Europe, if the Daily Mail is correct, Societe Generale and Italy's UniCredit are on the verge of collapse.

Fears are growing this weekend that two of Europe’s largest banks may require a bailout, having been hugely damaged by the worsening crisis across the eurozone.

In France, President Nicolas Sarkozy is having to confront the possibility that the country’s second-biggest bank, Societe Generale -commonly known as SocGen - is on the brink of disaster after huge losses over loans made to Greece.

The chilling possibility of the largest bank in Italy, UniCredit Banca, suffering a similar collapse if a bailout is not implemented comes as Silvio Berlusconi already faces an increasingly dangerous national economic situation.

The irony of all this is that we went into this mess to bailout failing banks back in 2008 and here we are now 3 years later with banks failing again together with those sovereign countries who were so stupid to support them.

Cyprus forced to ask bailout to EU

As forecasted in my previous post there is a new economy derailing in Europe and it is Cyprus.

Today the Central Bank of Cyprus has clearly outlined that they will go and ask for a bailout to the EU.

A portion of the statement today:

The Bank of Cyprus, the island's largest financial institution, on Monday urged government action to prevent the eurozone country from having to seek a bailout from the European Union.
"With our inaction we are risking the ability of refinancing the state and the consequences will be instant and serious," a statement from the commercial bank said.
"There is an immediate threat of the country entering the European Union's support mechanism with everything bad that entails."
On Monday, the Bank of Cyprus said: "Time has run out. We are at that turning point at which history will judge us. It's time for immediate and effective action."

"Each day of inaction accelerates the problem and the risks, so we must act today and not tomorrow," the bank said.
"Markets move rapidly; indecision, disagreements or simply talking without taking action are punished, while courageous decisions are rewarded," it said.

In economic terms Cyprus is a nothing. 2010 GDP was only $25b but it is certainly another blow to the EU and the Euro even if the catalyst of this latest bailout is the explosion that destroyed the main power plant of Cyprus and 60% of its energy output, a lethal blow to a country who was already strongly indebted and exposed to the Greek tragedy.

Greece default: shutdown when needed

The grandiose plan to save Europe has been unveiled today and it is the same "kick-the-can-down-the-road" stuff this time designed to give Europe a little bit more time by allowing  Greece to default but just temporarily and selectively.
Even the ECB and Bank of Greece officers need an holiday in August so they decided to freeze the issue and the country just temporarily or selectively as they say.
So Greece is being allowed to selectively default, but this won’t harm Greek banks (nor their French owners) because the greek bonds will be guaranteed by an enhanced European Financial Stability Facility (EFSF) that can intervene in secondary markets amongst other new powers. Other debt-laden member states, including Ireland, will have access to cheaper funds from the uber-EFSF at longer maturities.

As for how to do it and what does it mean exactly well the cryptic EU bureaucracy managed again to be vague enough to allow lots of leeway should policy makers require it.

This is, after all, the tenth time EU leaders have met to sort the problems in Europe out once and for all.The composition of the new beefed up EFSF isn’t reported.
Is Italy, in its current fragile state, expected to keep its share of the EFSF up? If we look at the table on page 1 of this document from the EFSF showing the contributions of member states; Italy is expected to contribute up to 78 billion euros if required.
Italy just passed an 80 billion euros austerity package to cut its debt and stabilize its budget.
A useless austerity package then since the amount will not help the Italian economy at all but most probably will go straight to Greece in the following months.

Euro crisis: contagion talks ahead of EU meeting

Stock markets are up today, although given the following comments we can expect an interesting emergency meeting tomorrow:

The International Monetary Fund said there is now "serious risk" of eurozone contagion with "large" potential knock-on effects worldwide. "Market participants remain unconvinced that a sustainable solution is at hand," it said.

Suki Mann from Societe Generale caught the mood in a note to clients, asking whether it is "all over". "Eurozone politicians don't – or don't want to – understand that the eurozone as we know it is on the precipice. Greece appears beyond repair, Italy is on the brink, and the chances are that the euro might be no more very soon," he said.

RBS fears that Europe is on the cusp of "system-wide convulsion" after yields on Spanish 10-year bonds reached post-EMU records of 6.34pc this week, and Italian yields topped 6pc. "We believe that Spain has entered the danger zone for yield levels," said Harvender Sian, the bank's credit strategist, who fears the "point-of-no-return" may be 6.5pc. "Given that Spain [and likely soon Italy] has entered this territory, there is a growing risk that a large systemic risk event is plausible in the near term and if not then in a matter of weeks."

"We are approaching the endgame for this part of the European sovereign crises: the number of cans that now need kicking down the road would challenge the left foot of Lionel Messi," said Gary Jenkins from Evolution Securities. "The chances are that the EU will only take the step of fiscal union or common bond issuance at one minute to midnight on a weekend when it is clear that the system is close to collapse." 

The bond fund Pimco has its own idea of solving the Euro disaster: throwing Greece, Ireland and Portugal to the wolves, and concentrating €1 trillion in "overwhelming force" to defend Spain and Italy. That major players should utter such thoughts shows how fast events are moving.

US National Debt: who is to blame for?

A non-partisan chart of the US debt explosion in the last 10 years, two US Presidents, Bush Jr. and Obama have managed to in-debt the country to unprecedented levels in the history.
It is clear that none of this debt can be ever paid back, even if the debt ceiling is raised it does not matter, the debt bomb is fused and ready to explode.