The public-to-private sector “revolving door” has crossed into the macabre twilight zone.
Moments ago an announcement by giant bond manager (technically, these days “merely above average height” bond manager, considering the collapse in the TRF’s AUM since Bill Gross’ departure over a year ago) revealed that public service cronyism is not only alive, but has never been better, when in a press release it reported that former Fed Chairman Ben Bernanke, ex-U.K. Prime Minister Gordon Brown, and former ECB president Jean-Claude Trichet will form the backbone of a “global advisory board” at Pimco.
YouTube Added: 03.05.2013
– The Joke’s On Cyprus After All (ZeroHedge, March 21, 2013):
Oh the irony:
18/01/2008, Trichet: “For a small, open economy like Cyprus, Euro adoption provides protection from international financial turmoil.”
– Eurogroup Head Confirms “It Has Become Serious”, As He Is Back To Lying (ZeroHedge, July 30, 2012):
The insolvent banana continent is back. Recall back in May 2011:
“When it becomes serious, you have to lie.” –Jean Claude Juncker
Ergo, things in Europe are very serious again because the Eurogroup’s head, who until recently promised he was quitting his post because “he had gotten tired of the Franco-German interference in managing the region’s debt crisis”, only to spoil the fun and say he was lying about that too, is back to doing what he does best – lying. To wit: “the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries.” And now cue Schauble: “Federal Finance Minister Wolfgang Schaeuble has rejected speculation about impending purchases of government bonds by Spanish EFSF and ECB.”
From Suddeutsche Zeitung:
“No time to lose”: The chairman of the €-group sees a crucial point of the debt crisis has arrived. Jean-Claude Juncker supports plans by ECB chief Draghi for the purchase of government bonds – and Germany are partly to blame for the crisis. Berlin treats the euro area “as a branch.” Also called “chatter on the withdrawal of Greece” is not helpful.
Juncker confirmed that the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries. Because there is no doubt, he said. “It is still necessary to decide exactly what we will do and when.” This depended “on the developments of the next few days and from reacting as fast as we need.”
And to think only yesterday the only person whose opinion matters, Germany’s Finance Minister, “denied plans for a new aid program for Spain, according to newspaper Welt am Sonntag, after the media reported European Union leaders aim for Spanish government bond purchases by the European rescue fund and the European Central Bank.”
We leave it up to readers to figure out which of the above two is telling the truth, but in the meantime, here are some other soundbites from the man who is back to desperation pleading with markets:
– This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – The Sequel (ZeroHedge, July 19, 2012):
Two years ago, in January 2010, Zero Hedge wrote “This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied” which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to “suspend redemptions to allow for the orderly liquidation of fund assets.” In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don’t believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing “The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds“. Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners – who never can accurately predict a rational response – is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?
Here is how the Fed frames the problem in the abstract:
– ECB Purchases €22 Billion Of Italian, Spanish Bonds In Past Week, Highest Weekly Amount Ever (ZeroHedge, Aug 15, 2011):
The ECB just disclosed its much anticipated weekly purchases under the SMP (or direct monetization) program, which at €22 billion came well above expectations of €15 billion, and represents the biggest weekly total in the 66 weeks of purchases under the program, more than the previous record €16.5 billion purchased in the inaugural week of the SMP. Furthermore, as has been disclosed before on Zero Hedge, with a regular (T+3) settlement on SMP purchases, this means that the full weekly total will not be clear until next week’s number is announced, and the presented number is only indicative of the pre-settled purchases of Italian and Spanish bonds. As before, what happens under the SMP is irrelevant (although is occurring as predicted by Zero Hedge back in November, when we said the SMP total is about to double as the crisis spreads) since the only thing that matters is when and how big the EFSF will become. Continuing monetizations at this rate under the SMP is political suicide (because make no mistake: the ECB is nothing but a political player now) for JC Trichet and his Italian soon to be replacement. We can’t wait to hear Germany’s reaction to the fact that cumulative SMP purchases (and thus “Weimar” risk) increased by 30% in one week.
“Thanks to the fantastic work of Bilderberg activists, journalists and the Swiss media, we have now been able to obtain the full official list of 2011 Bilderberg attendees. Routinely, some members request that their names be kept off the roster so there will be additional Bilderbergers in attendance.
- Coene, Luc, Governor, National Bank of Belgium
- Davignon, Etienne, Minister of State
- Leysen, Thomas, Chairman, Umicore
- Fu, Ying, Vice Minister of Foreign Affairs
- Huang, Yiping, Professor of Economics, China Center for Economic Research, Peking University
- Eldrup, Anders, CEO, DONG Energy
- Federspiel, Ulrik, Vice President, Global Affairs, Haldor Topsøe A/S
- Schütze, Peter, Member of the Executive Management, Nordea Bank AB
- Ackermann, Josef, Chairman of the Management Board and the Group Executive Committee, Deutsche Bank
- Enders, Thomas, CEO, Airbus SAS
- Löscher, Peter, President and CEO, Siemens AG
- Nass, Matthias, Chief International Correspondent, Die Zeit
- Steinbrück, Peer, Member of the Bundestag; Former Minister of Finance
James Turk’s presentation on the gold price and the US dollar
James Turk of the GoldMoney Foundation speaks about currency devaluation and the rising gold price. How the gold price is rising against all major currencies and monetary policy is political, having abandoned all pretence of seeking monetary stability. He warns of the dangers of a hyperinflationary crisis. James also explains why gold should be considered money and not an investment.
He also talks of the coming dollar collapse and the waterfall decline in the dollar, especially since Ben Bernanke’s words on QE. He talks of different examples of hyperinflation from paper money hyperinflation in Weimar Germany to deposit currency hyperinflation in Argentina. The presentation was held on 29 April 2011 in Munich, Germany.
However, Prof. Nouriel Roubini said neighboring Spain, Europe’s fourth-largest economy, is “too big to bail out.”
Prepare for collapse, because it’s coming.
True Finns party chairman, Timo Soini launched the most scathing and accurate attack yet against Jean-Claude Trichet, Jean-Claude Junker, and the ECB for its policy raping taxpayers of various countries to pay back German, French, UK, and US banks that made stupid loans for stupid reasons.
Please read the Wall Street Journal article Why I Won’t Support More Bailouts by Timo Soini. There is much more than this somewhat lengthy snip that follows.
When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.
• Spike in borrowing from emergency fund highest for 20 months
• No details given of bank or banks involved
• Possibility that request was due to short-term liquidity problem
European Central Bank headquarters in Frankfurt. Photograph: Thomas Lohnes/AFP/Getty Images
Fears are swirling around Europe’s debt markets that a eurozone bank is in trouble after figures showed one or more lenders had borrowed €16bn (£13.4bn) from the European Central Bank’s emergency overnight cash facility.
The increase in borrowing intensified speculation that one of the eurozone’s many ailing banks was in a worse than expected position and needed to tap cash set aside by the ECB for banks unable to borrow on the open market.
The last time overnight borrowing exceeded €10bn was in June 2009, when it climbed to €28.7bn, the highest ever. This year, emergency overnight borrowing has risen above €1bn only twice.
The bailouts have damaged the basis of Europe’s currency union?
Yes, but look who’s talking:
Bundesbank President Axel Weber has dished out €338 billion!!!
The bankster bailouts bankrupted several countries, that already needed bailouts themselves to survive, other countries will need them later on.
Spain is already too big to bail out. Then the next stage is a currency crisis and a currency reform.
You have just witnessed the biggest bank robbery and the biggest looting of entire nations (incl. the US) in history, perfectly planned by the elitists.
DUESSELDORF, Germany (Dow Jones)–The financial rescues of Greece and Ireland have damaged the foundations of Europe’s currency union, Deutsche Bundesbank President Axel Weber said Monday.
In a speech to an audience of academics and business representatives, Weber said it was essential not to let the deals that have been made to keep financial stability in the euro zone become the norm.
“We have to strengthen the foundations again,” he said. He highlighted the risk that highly indebted countries in the euro zone might try to put pressure on the European Central Bank not to raise interest rates, as this would raise the cost of their debt servicing to unsustainable levels. Weber has indicated he has no desire to be subjected to that kind of pressure and has said he will step down from the Bundesbank at the end of April, instead of allowing himself to be put forward as successor to Jean-Claude Trichet, whose term at the head of the ECB ends in October.
Now the ECB wants to resort to the ‘nuclear option’ like the Federal Reserve banksters and only Germany objects to the QE (quantitative easing) madness?
The fallout from the ‘nuclear option’ is called inflation!
All those bankster bailouts and deficit spending have bankrupted Greece, Ireland, Portugal, Spain, Italy etc.
On deficit spending and the ‘nuclear option’ (= QE = printing money = creating money out of thin air = increasing the money supply = inflation = hidden tax on monetary assets = theft):
“By a continuing process of inflation , governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
– John Maynard Keynes
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
– Alan Greenspan
“When a country embarks on deficit financing and inflationism you wipe out the middle class and wealth is transferred from the middle class and the poor to the rich.”
– Ron Paul
The real intend behind those policies is to destroy the middle class and the poor, making the rich even richer.
Germany just doesn’t want to burn in the hell of Weimar again.
The European Central Bank has rebuffed calls for mass purchases of southern European bonds, despite growing pressure from Spain and Italy for dramatic action to buttress monetary union.
Jean-Claude Trichet, the ECB’s president, said emergency lending support for eurozone banks would be extended until at least April next year
Jean-Claude Trichet, the ECB’s president, said emergency lending support for eurozone banks would be extended until at least April next year, citing “acute tensions” in the market.
The delay removes the risk that Frankurt might soon pull away the prop holding up the Irish and Greek banking systems, as well as the Spanish cajas – or savings banks – and the sovereign states behind them. Traders say the ECB intervened directly in the weakest bond markets on Thursday to drive down yields and calm nerves.
However, Mr Trichet said there had been no decision to step up purchases of peripheral bonds to a whole new level – the so-called “nuclear option” – despite the potentially dangerous rise in Spanish, Italian, Belgian and even French yields over the past three weeks.
Some credit market analysts had speculated that the ECB might launch a blitz of €1 trillion to €2 trillion of debt purchases, but this was never likely at this stage. Such action is anathema to Germany.
Rainer Bruderle, the German economy minister, spelled out Berlin’s objections on Thursday just hours before the ECB meeting, insisting that “the permanent printing of money is not a solution”.
A chorus of influential voices in Germany has warned that any attempt by the ECB to prop up Club Med with loose money would be a grave error, undermining German political support for monetary union.
“It would be fatal if the ECB was to squander its credibility,” said Klaus Zimmerman, head of the DIW German Economic Research Institute. He said the bank is the last bastion of credibility after the serial breach of EU fiscal and debt rules.
“Broader purchases of the distressed eurozone debt would calm speculation for a short time, but would just invite risk-taking by investors in general,” he said.
Dec 1 (Bloomberg) — Investors’ no-confidence vote in the aid package for Ireland may force European policy makers to expand their arsenal to fight the debt crisis threatening to tear the euro apart.
Options outlined by economists at Societe Generale SA and Barclays Capital include: Boosting the 750 billion-euro ($975 billion) temporary rescue fund or turning it into an asset- buying program; cutting interest rates on bailout loans; issuing joint bonds for the 16 euro nations or flooding the economy with cash from the European Central Bank.
All would be unprecedented, and none of Europe’s political leaders — dominated by German Chancellor Angela Merkel — has indicated the steps are being considered. Earlier this year, they struggled to cobble together the measures that investors and economists now say are proving inadequate to safeguard the euro and keep speculators at bay.
“You’ve had repeated interventions, but the markets are still selling in response,” said Andrew Balls, London-based head of European portfolio management at Pacific Investment Management Co., which runs the world’s biggest bond fund. “Policy makers have to move beyond a country-by-country approach and think about the system-wide challenges.”
The reason for this secrecy is very simple. The elite puppet ECB shields the elite puppet banksters and the elite puppet governments, so that the people may not understand that they have just been robbed by an elite criminal operation, that intentionally caused the entire financial crisis worldwide. The truth is not bad for you, but for them! The people may start thinking like financial analyst Max Keiser:
Max is already well known in Greece for exposing the bankster, government and IMF agenda:
ECB President Jean-Claude Trichet wrote, “The information contained in the two documents would undermine the public confidence as regards the effective conduct of economic policy.” Photographer: Hannelore Foerster/Bloomberg
The European Central Bank refused to disclose internal documents showing how Greece used derivatives to hide its government debt because of the “acute” risk of roiling markets, President Jean-Claude Trichet said.
The ECB turned down a request and an appeal by Bloomberg News to release two briefing documents officials drafted for the central bank’s six-member Executive Board in Frankfurt this year. The notes outline how Greece used the swaps to hide its borrowings, according to a March 3 note attached to the papers and obtained by Bloomberg News.
“The information contained in the two documents would undermine the public confidence as regards the effective conduct of economic policy,” Trichet wrote in an Oct. 21 letter in which he rejected the appeal. Disclosure “bears, in the current very vulnerable market environment, the substantial and acute risk of adding to volatility and instability.”
The ECB is withholding the information six months after the European Union and International Monetary Fund led a 110 billion-euro bailout ($154 billion) for Greece. The government didn’t originally disclose the swaps, which were designed to help it comply with the deficit and debt rules it agreed to meet when it joined the euro in 2001. Eurostat, the EU’s statistics agency, is still trying to work out how Greece hid the deficit.
The Greek swaps fueled a financial crisis that threatened the breakup of the region’s currency. The government now says the swaps, some of which were arranged by Goldman Sachs Group Inc., may have caused “long-term damage” for taxpayers.
If the European climate turns nasty, the ECB could suffer from exposure
Here’s an interesting statistic which brings home the rather tricky state of Europe’s finances, not to mention its politics.
The European Central Bank (ECB), that one-time paragon of sound money, has capital and reserves of €77.3bn (£66bn).
But thanks to events in Greece, it is now supporting lending to Hellenic banks of €88.4bn, or at least it was at the end of April. Quite where that has got to by now is anybody’s guess. And that April figure is a €17.8bn increase on the March total, according to Simon Ward, chief economist at Henderson Global Investors.
On top of that exposure, the ECB has also taken on an extra €25bn through its buying of Greek government bonds.
So the ECB’s Greek exposure is bigger, by some margin, than its own capital and reserves. You will be reassured to learn that the Frankfurt-based central bank has taken Greek collateral to back these loans and insisted that collateral suffers a suitable discount, or haircut, in value to reflect the risk of default.
The bailout for Greece was never about helping the people. Instead it was a bailout for the banksters with taxpayer money, looting the people.
And the ECB buying up Greek bonds is pure quantitative easing (=printing money=inflation=tax on monetary assets), which will not stabilize, but devalue the euro.
In this case things are a little more complicated because the credit line for the ECB quantitative easing policy comes directly from the US Federal Reserve.
The European Central Bank has been buying up Greek bonds by the bucketload, even though Athens is already getting money from an EU rescue fund. German central bankers suspect a French plot behind the massive buy-up — after all, it gives French banks the perfect opportunity to get rid of their Greek assets.
The senior members of the German central bank, the Bundesbank, regarded Axel Weber with a look of anticipation. What would Weber, the Bundesbank president, say about the serious crisis that had them all so worried, they wondered? And what did he intend to do about it?
Weber said nothing and, as some who attended the meeting report, even his facial expression was inscrutable. The Bundesbank president remained stone-faced as he acknowledged the latest figures, which indicated that by the end of last week the European Central Bank (ECB) had already spent close to €40 billion ($50 billion) on buying up government bonds from Spain, Portugal, Ireland and, in particular, Greece.
The ECB already has about €25 billion of Greece’s mountain of debt on its books, and it is adding another €2 billion a day, on average. The Bundesbank, which has a 27 percent stake in the ECB, is responsible for €7 billion of the ECB’s Greek government bonds.
Many Bundesbank members are wondering why the ECB is buying Greek bonds in the first place, particularly on this scale, now that the euro-zone countries’ €110 billion bailout package for Greece has been approved, and the first tranche of the funds has already been disbursed.
The general €750 billion rescue fund for the remaining highly indebted countries has been approved but not yet set up. For this reason, it certainly makes sense to stabilize the prices of Spanish, Portuguese and Irish bonds. Nevertheless, some of the central bankers have a sneaking suspicion that there is a French conspiracy at work.
Helping French Banks
– European Central Bank Sleds The Slippery Slope (Forbes):
Despite the optimism in markets, the European Central Bank’s latest moves put it on a slippery slope, raising doubt about its credibility.
“I see that the European Central Bank will start buying Eurozone government bonds,” writes Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. “This is total, undiluted quantitative easing.”
It also represents backpedaling by the European Central Bank. “I recall Trichet saying he would never go down the route followed by the Fed and the Bank of England,” says Pope. “Of course events can always force a change of mind but does JCT have any credibility left?”
What worries Pope is a question that is nagging many veteran market pundits: Where is the money going to come from? In the quantitative easing followed by the Federal Reserve and the Bank of England the money was created by simply expanding the balance sheets and literally printing money.
Pope says that the European Central Bank quantitative easing bond purchases will be “sterilized” so there will be no expansion of the monetary base and the ECB balance sheet.
Pope, quite understandably, says, “I still want to know where the money will come from.”
The ECB does not want to call it quantitative easing (= printing money = creating money out of thin air = increasing the money supply = inflation = tax on monetary assets = looting of the people) yet.
Interesting how the Federal Reserve, the Bank of England and the ECB (with the corresponding governments creating record deficits) are all using policies that rob the middle class and the poor:
“When a country embarks on deficit financing and inflationism (quantitative easing) you wipe out the middle class and wealth is transferred from the middle class and the poor to the rich.”
– Ron Paul
“The Federal Reserve System is nothing more than legalized counterfeit.”
– Ron Paul
The market is not ‘dysfunctional’, but all those stimulus packages, bailouts and quantitative easing make it totally dysfunctional.
The goal of the elite criminals is the New World Order:
The European Central Bank (ECB) headquarters in Frankfurt. (Bloomberg)
May 10 (Bloomberg) — The European Central Bank said it will buy government and private bonds as part of an historic bid to stave off a sovereign-debt crisis that threatens to destroy the euro.
The ECB wants “to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy,” the central bank said in a statement at 3:15 a.m. in Frankfurt. The announcement came less than an hour after European finance ministers unveiled a loan package worth almost $1 trillion to staunch the market turmoil.
Resorting to what some economists have called the “nuclear option,” the ECB may open itself to the charge it’s undermining its independence by helping governments plug budget holes. Four days ago, ECB President Jean-Claude Trichet said bond purchases hadn’t been discussed when members of the bank’s 22-member Governing Council met to set interest rates in Lisbon.
By deciding to “go in and buy sovereign and corporate debt, they crossed a line,” said David Kotok, chairman and chief investment officer at Cumberland Advisors Inc., which manages about $1.4 billion in Vineland, New Jersey. “The line between fiscal and monetary policy gets blurred.”
The euro jumped to $1.2982 at 8:30 a.m. in Frankfurt from $1.2755 at the end of last week.
The ECB said it will intervene in “those market segments which are dysfunctional,” suggesting it views the surge in some of the region’s bond yields as unjustified and that it’s acting to stabilize markets and protect the 16-nation economy.
May 2 (Bloomberg) — German Chancellor Angela Merkel said she was right to demand International Monetary Fund involvement in the Greek bailout over the objections of her European peers, saying it resulted in previously “unthinkable” budget cuts by Greece.
“This is an ambitious program which contains tough savings measures and on the other hand seeks to improve the efficiency of the Greek economy,” Merkel told reporters in Bonn today. “Three months ago it would have been unthinkable that Greece would accept such tough conditions.”
The elitist solution for the financial crisis:
Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Cuts
Olli Rehn, European Union economic and monetary affairs commissioner, right, holds a chart shows which reads ‘ Greece: reducing deficit, restoring growth’, as Jean-Claude Trichet, president of the European Central Bank (ECB), left, looks on as European Union finance ministers gather for an extraordinary meeting in Brussels today. (Bloomberg)
May 2 (Bloomberg) — Greece accepted an unprecedented bailout from the European Union and International Monetary Fund valued at more than 100 billion euros ($133 billion) to prevent default, agreeing to budget cuts that unions called “savage.”
The measures are worth 30 billion euros, or 13 percent of gross domestic product, and include wage cuts and a three-year freeze on pensions, Finance Minister George Papaconstantinou said in Athens today. Greece’s main sales tax rate will rise to 23 percent from 21 percent. The exact bailout amount will be agreed by euro-region finance ministers currently meeting in Brussels. Germany will provide 28 percent of the euro region contribution.
“Greece will be shielded from the international markets and will be able to put its house in order,” Papaconstantinou said in Athens. Prime Minister George Papandreou said “avoiding bankruptcy is a national red line” and the agreement will demand “big sacrifices” from Greeks to avoid “catastrophe.”
The elitists have created the entire financial crisis to manifest their dream of world government – the “New World Order” – and now they present global governance as the solution to the problems that they have created!
At the end of the following article famous investor Marc Faber had to say this:
“The best would be to kick out Greece and the countries that abuse the system,” Faber said in an interview. “They didn’t have the fiscal discipline that was essentially imposed by EU.”
It seems that there are more important things for ECB President Jean-Claude Trichet to do right now than to speak at the Council on Foreign Relations in New York, unless you know that those elitists at Bilderberg, CFR and the Trilateral Commission, that rule the governments, the central banks, the corporations and the media have created this entire financial crisis.
The elite is looting the people in the US, Europe and everywhere else.
The elite is bankrupting the people until they beg for world government and the New World Order.
What could Greece do?
Message to the people of Greece: Avoid the IMF like hell, because the IMF is hell.
The people in Greece seem to have a much better understanding of what is happening to them than the people in the US and the UK.
Greek Junk Contagion Presses EU to Broaden Bailout (Update2)
April 28 (Bloomberg) — Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland.
As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds remained near yesterday’s 10-month high.
Market Turmoil Hits The Euro And Adds to Fears of Economic Collapse in Greece
The Greek debt crisis deepened today, despite reassurances from European Union officials that the country was not on the brink of default.
Financial markets ignored European Central Bank President Jean-Claude Trichet’s comments that “a default is not an issue for Greece,” and continued their bond sell-off for a third day.
The yield on Greek bonds – which the country needs to pay to fund its schools, hospitals and other public spending – rose to 7.35%, almost twice as much as Britain’s. This puts more pressure on Greece, making its financing practically unsustainable. Investors want more details about a potential bailout package, something that the EU has so far failed to provide, dragging the crisis into its fourth month.
“It’s like game theory,” said Michael Krautzberger, head of European fixed-income at Blackrock, whose team manages $50bn (£33bn) in bond funds. “At the beginning of the crisis, the EU didn’t want to give help too quickly because they wanted to pressure Greece to cut their budget, but now we have reached a point where it’s clear they need the help. For a few weeks, we thought maybe they don’t need the help, now we have passed that point, the yields are now too high to stay too long.”
The premium that investors demand to buy Greek bonds soared to 440 basis points over German bunds, the highest since the euro was created a decade ago. The cost of insuring $10m of Greek debt leapt to a record $470,000, from $410,000 on Wednesday, before settling back at about $435,000, according to Markit data. That is more than four times the price paid for Britain’s debt protection.
The turmoil sent the euro and European equity markets lower, as a collapse of the Greek economy could have a domino effect on other southern European countries, such as Portugal. The euro weakened to $1.328, although it recovered slightly after Trichet’s comments, trading near $1.334. All major European stock indexes lost about 1%.
“Greece continues to look like a slow-motion train crash,” Steve Barrow, analyst at Standard Bank, said. “The crash has not occurred yet but it is coming. Efforts to avoid a crash seem doomed to failure, whether it is emergency loans or some other initiative. As the crisis plays out, so bond spreads are likely to widen much further and the euro fall much more.”
Must-read! Don’t miss to take a close look at the members of the the Group of Thirty!
When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury’s recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable… plus we doubt it will be a major topic of discussion in Hank’s book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing “run on the electronic bank” was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity’s $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one’s money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.
Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to “suspend redemptions to allow for the orderly liquidation of fund assets.“ You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA’s latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was “absolutely” safe money, a back office person will get back to you saying, “Sorry – your money is now frozen. Bank runs have become illegal.“ This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous “extraordinary circumstances” arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well – sorry, you are out of luck. It’s the law.
A brief primer on money markets
A very succinct explanation of what money markets are was provided by none other than SEC’s Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:
Money market funds were founded nearly 40 years ago. And, as is well known, one of the hallmarks of money market funds is their ability to maintain a stable net asset value – typically at a dollar per share.
In the time they have been around, money market funds have grown enormously – from $180 billion in 1983 (when Rule 2a-7 was first adopted), to $1.4 trillion at the end of 1998, to approximately $3.8 trillion at the end of 2008, just ten years later. The Release in front of us sets forth a number of informative statistics but a few that are of particular interest are the following: today, money market funds account for approximately 39% of all investment company assets; about 80% of all U.S. companies use money market funds in managing their cash balances; and about 20% of the cash balances of all U.S. households are held in money market funds. Clearly, money market funds have become part of the fabric by which families, and companies manage their financial affairs.
Merkel: “We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.”
Only this time it will only take about one year until everything falls apart and “the same situation” will also be much worse than before. An economic/financial disaster of epic proportions: The Greatest Depression.
In a speech on Tuesday in Berlin, Chancellor Angela Merkel expressed ‘great skepticism’ over the clout of central banks and suggested their aggressive moves in Europe, the U.S. and the U.K. might backfire. She is shown here at a rally later in Saarbrücken, Germany, for European Parliamentary elections. AFP/Getty Images
German Chancellor Angela Merkel, in a rare public rebuke of central banks, suggested the European Central Bank and its counterparts in the U.S. and Britain have gone too far in fighting the financial crisis and may be laying the groundwork for another financial blowup.
“I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line,” Ms. Merkel said in a speech in Berlin. “We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.” (Read excerpts of the speech.)
Ms. Merkel also said the ECB “bowed somewhat to international pressure” when it said last month it plans to buy €60 billion ($85 billion) in corporate bonds — a move that is modest in comparison to asset-buying by its counterparts, the U.S. Federal Reserve and the Bank of England. Details are to be unveiled by the ECB’s president, Jean-Claude Trichet, Thursday.
The public criticism is unusual — and not only because German politicians rarely talk harshly about central banks in public. When politicians around the world do criticize their central banks, they almost always gripe that they are too tightfisted.