October 5, 2011
October 4, 2011
Banking liquidity update
This chart from an Espirito Santo report shows a 2-D matrix of liquidity (i.e. liquid assets as a % of wholesale funding assets), versus reliance on wholesale funding - the one component in European interbank markets which is now completely dead. Needless to say red is bad. And if Dexia is in trouble then it is time to call a priest for Soc Gen, BNP, Raiffeisen, and DnB Nor.
October 3, 2011
Dexia's nationalization and Greece de-nationalization
On many occasions in the last two years when it should have been time to let Greece go to greener pastures, Euro bureaucrats had cold feet and decided to keep the circus rolling for another show.
This time although it could be finally the right time to unload the burden and let Greece default.
Judging from today's comments the giant Euro Ponzi scheme is reaching the limits of manipulation and it could have been decided to start the end game.
ECB head Draghi says the bank in Europe have funding problems (aka a liquidity crisis), the Finland Finance Minister has said he does not want an expansion of the EFSF nor does he expect a solution on the collateral "row", saying a Deal on EFSF Collateral is uncertain, and lastly, Spain's Salgado has said there is no need of "quantitative amplification" of the EFSF.
In other words, with the EFSF meeting imminent, it appears that pretty much nobody aside from France, and some Economical PhDs, are any longer concerned about the domino effect, the Euro project or marginally of the necessity to keep Greece afloat.
This could have something to do with the fact that banks which were supposed to be in real danger with a collapse of Greece are already falling with or without a Greek default.
Dexia CDS is skyrocketing and the Sunday Times announced an imminent nationalization of the bank which hold assets amounting to 180% of Belgium's GDP. It appears Belgium will have to intervene soon with a bailout or total nationalization to prevent the institute premature demise.
At this point to avoid throwing away more money to a lost cause such as Greece it is retrenchment time for the ECB, with all the ideals of European unity being thrown out of the window.
This time although it could be finally the right time to unload the burden and let Greece default.
Judging from today's comments the giant Euro Ponzi scheme is reaching the limits of manipulation and it could have been decided to start the end game.
ECB head Draghi says the bank in Europe have funding problems (aka a liquidity crisis), the Finland Finance Minister has said he does not want an expansion of the EFSF nor does he expect a solution on the collateral "row", saying a Deal on EFSF Collateral is uncertain, and lastly, Spain's Salgado has said there is no need of "quantitative amplification" of the EFSF.
In other words, with the EFSF meeting imminent, it appears that pretty much nobody aside from France, and some Economical PhDs, are any longer concerned about the domino effect, the Euro project or marginally of the necessity to keep Greece afloat.
This could have something to do with the fact that banks which were supposed to be in real danger with a collapse of Greece are already falling with or without a Greek default.
Dexia CDS is skyrocketing and the Sunday Times announced an imminent nationalization of the bank which hold assets amounting to 180% of Belgium's GDP. It appears Belgium will have to intervene soon with a bailout or total nationalization to prevent the institute premature demise.
At this point to avoid throwing away more money to a lost cause such as Greece it is retrenchment time for the ECB, with all the ideals of European unity being thrown out of the window.
October 2, 2011
Best of TED: Misha Glenny: Hire the hackers!
Despite multibillion-dollar investments in cybersecurity, one of its
root problems has been largely ignored: who are the people who write
malicious code? Underworld investigator Misha Glenny profiles several
convicted coders from around the world and reaches a startling
conclusion.
A global financial tsunami
In the second episode of Meltdown, we look at how the financial tsunami swept the world. We hear about a renegade executive who nearly destroyed the global financial system and the US treasury secretary who bailed out his friends.
Henry 'Hank' Paulson, the former CEO of Goldman Sachs and later an economic advisor to the US government; refused to bail out global financial services firm - the Lehman Brothers. Paulson said it was not the role of government to save private businesses.
Lehman's failure had repercussions around the world. Millions of people lost their life savings. Pension plans were decimated.
Christine Lagarde, the French finance minister at the time and a close friend of Paulson's, publicly described Paulson's decision on Lehman "horrendous".
Markets from London and Paris to Shanghai fell. An epidemic of fear caused the world's major banks to stop lending, ending the year in protests and industrial action.
Henry 'Hank' Paulson, the former CEO of Goldman Sachs and later an economic advisor to the US government; refused to bail out global financial services firm - the Lehman Brothers. Paulson said it was not the role of government to save private businesses.
Lehman's failure had repercussions around the world. Millions of people lost their life savings. Pension plans were decimated.
Christine Lagarde, the French finance minister at the time and a close friend of Paulson's, publicly described Paulson's decision on Lehman "horrendous".
Markets from London and Paris to Shanghai fell. An epidemic of fear caused the world's major banks to stop lending, ending the year in protests and industrial action.
October 1, 2011
Portfolio: Preparing for Greece's Failure
Portfolio: Preparing for Greece's Failure
The financial news of the week again is about the eurozone and we are seeing lots of entities come up with lots of possible solutions about how to solve the eurozone problem. They all of course rest on what to do about Greece. The problem is, they are coming from the wrong angle. From STRATFOR’s point of view, Greece does not have a particularly bright future as a state before the eurozone crisis is taken into account.
Modern Greece has traditionally been supported by three pillars. First is shipping. As a culture that is mostly coastal it makes sense they would be very good at sailing; however, in the age of modern transport and super container ships, Greece simply can’t compete, and most of its ship building industry has long ago left for greener pastures in places such as Norway, China or Korea. The second pillar is tourism and this continues to be an option, but tourism by itself cannot support a modern state. The final option and the one that the Greeks have gotten the most mileage out of is leveraging Greece’s position. Typically to allow some external power a means of battling somebody in Greece’s neighborhood. When Greece achieved independence in the early 1800’s that external power was the United Kingdom who used Greece as a foil against the Turks. Later, the Americans played a similar role supporting Greece against the Soviets. In both cases massive volumes of capital came in to support Greece. However, in the post-Cold War era Turkey is a member of NATO, and while the Greeks might not get along with the Turks, nobody is looking to use Greece as a military foil against them. Greece no longer has a regional foe that it shares with anyone else. The closest might be the Turks again, but only if the Turks miscalculate their ongoing relationship with Israel or Cyprus and miscalculate very very badly.
Bottom-line, the various supports that have allow the Greek state to exist since the 1820’s simply aren’t there anymore and so the path forward goes like this: Greece is not salvageable. Greece simply can’t compete unless it is being given a constant, steady supply of capital from abroad that it doesn’t necessarily have to pay back. And even if that could be restarted, Greece can not emerge from its own debt load. It is simply too large. Greece has to be kicked out of the eurozone if the euro is to survive, but between here and there, first, a firebreak fund. The EFSF expansion has to happen because if you cannot sequester the 280 billion euro of Greek government debt that exists outside of Greece, then you’re going to trigger a massive financial catastrophe that the eurozone simply can’t survive. And so to prepare for a Greek ejection, you have to prepare a fund that can handle three things more or less simultaneously. First, you need about 400 billion euro to firebreak Greece off from the rest of eurozone. Second, you need about 800 billion euro in order to prevent a wide-scale banking meltdown, because the day that Greece defaults on that debt, the day that it’s ejected from eurozone, there will be catastrophic banking collapses in Portugal, Italy, Spain and France, probably in that order.
Third, the markets will go wild and the state that is in the most danger of falling after Greece is Italy. Using the bailouts that have happened to date as a template, any bailout of Italy would have to provide enough financing to cover all Italian needs for three years. That comes out to about another 800 billion euro. So until the Europeans have 2 trillion euro in funding stashed away, they can’t kick Greece out of the system.
The financial news of the week again is about the eurozone and we are seeing lots of entities come up with lots of possible solutions about how to solve the eurozone problem. They all of course rest on what to do about Greece. The problem is, they are coming from the wrong angle. From STRATFOR’s point of view, Greece does not have a particularly bright future as a state before the eurozone crisis is taken into account.
Modern Greece has traditionally been supported by three pillars. First is shipping. As a culture that is mostly coastal it makes sense they would be very good at sailing; however, in the age of modern transport and super container ships, Greece simply can’t compete, and most of its ship building industry has long ago left for greener pastures in places such as Norway, China or Korea. The second pillar is tourism and this continues to be an option, but tourism by itself cannot support a modern state. The final option and the one that the Greeks have gotten the most mileage out of is leveraging Greece’s position. Typically to allow some external power a means of battling somebody in Greece’s neighborhood. When Greece achieved independence in the early 1800’s that external power was the United Kingdom who used Greece as a foil against the Turks. Later, the Americans played a similar role supporting Greece against the Soviets. In both cases massive volumes of capital came in to support Greece. However, in the post-Cold War era Turkey is a member of NATO, and while the Greeks might not get along with the Turks, nobody is looking to use Greece as a military foil against them. Greece no longer has a regional foe that it shares with anyone else. The closest might be the Turks again, but only if the Turks miscalculate their ongoing relationship with Israel or Cyprus and miscalculate very very badly.
Bottom-line, the various supports that have allow the Greek state to exist since the 1820’s simply aren’t there anymore and so the path forward goes like this: Greece is not salvageable. Greece simply can’t compete unless it is being given a constant, steady supply of capital from abroad that it doesn’t necessarily have to pay back. And even if that could be restarted, Greece can not emerge from its own debt load. It is simply too large. Greece has to be kicked out of the eurozone if the euro is to survive, but between here and there, first, a firebreak fund. The EFSF expansion has to happen because if you cannot sequester the 280 billion euro of Greek government debt that exists outside of Greece, then you’re going to trigger a massive financial catastrophe that the eurozone simply can’t survive. And so to prepare for a Greek ejection, you have to prepare a fund that can handle three things more or less simultaneously. First, you need about 400 billion euro to firebreak Greece off from the rest of eurozone. Second, you need about 800 billion euro in order to prevent a wide-scale banking meltdown, because the day that Greece defaults on that debt, the day that it’s ejected from eurozone, there will be catastrophic banking collapses in Portugal, Italy, Spain and France, probably in that order.
Third, the markets will go wild and the state that is in the most danger of falling after Greece is Italy. Using the bailouts that have happened to date as a template, any bailout of Italy would have to provide enough financing to cover all Italian needs for three years. That comes out to about another 800 billion euro. So until the Europeans have 2 trillion euro in funding stashed away, they can’t kick Greece out of the system.
September 30, 2011
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