1--Three-Month Dollar Libor Rises to 0.43%; Most Since August 2010, Bloomberg
Excerpt: The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level since August 2010.
The London interbank offered rate, or Libor, for three- month dollar loans climbed to 0.43167 percent from 0.42944 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since Aug. 3, 2010...
The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, was little changed at 34.72 basis points at 11:55 a.m. London time. It reached 34.74 basis points yesterday, the highest closing level since July 3, 2009, according to data compiled by Bloomberg.
The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, narrowed to 43.17 basis points from 44.47 basis points yesterday, the highest closing level since June 17, 2010.
2--Greek Exit From Euro Zone Just a 'Matter of Time', Der Speigel
Excerpt: Last week, it looked as though the euro had been saved. Now, in the wake of Greek Prime Minister Papandreou's announcement of a national referendum on the bailout package for his country, the common currency is even closer to the abyss. Still, say German commentators, it may have been the right move...
The center-left Süddeutsche Zeitung writes:
"As tough as it sounds, Greek politics is no longer just the business of the Greeks alone. ... Greece's fate also determines that of the other 16 euro-zone members. And if it's true that the future of the European Union hangs on the euro, then the entire project is in jeopardy. The summits in Brussels last week were an expression of the responsibility that Europe is willing to take on for Greece. But where then is Greece's responsibility for Europe?"
"With his unilateral decision to hold a referendum, Papandreou has tossed Europe back into the uncertainty of the days before the EU summit. Worse still, while it was at least possible to take steps forward in the last few weeks, now a complete standstill looms. What further steps could possibly be taken when no one will know for weeks, or perhaps months, how much longer Greece will remain part of the euro?"...
The left-leaning daily Die Tageszeitung writes:
"Predictions that the Greek voters will reject the debt haircut are too premature. Most know that their country would have been bankrupt in November without bailout measures. But they also know that the 'haircut' from Oct. 26 also won't protect them from being scalped in the end. It's clear to everyone that the rigorous austerity measures that are strangling their future prospects will continue."
"To mobilize the voters, Papandreou must emphasize what the EU debt haircut agreement has brought them -- the promise that their country won't be shut out of the euro zone. A return to the drachma is a nightmare scenario for two-thirds of the population. But even an affirmation in a referendum won't end the protests against the austerity measures. The prime minister's high-wire act will continue even if he's victorious."
3--Sheila Bair on regulatory capture, Credit Writedowns
Excerpt: Here is Sheila Bair making a stir in a Fortune article released today.
But debt restructuring will get you only so far because Europe's banks do not have sufficient capital to absorb future losses, which the IMF estimates will be $280 billion or higher. And why are Europe's banks so thinly capitalized? That responsibility rests squarely with European banks and their regulators.
…since the mid-1990s European banks have continually lowered their estimates of likely losses on their assets and now say their assets are twice as safe as those held by U.S. banks.
The Basel committee needs to move swiftly to adopt standardized measures of risk set by regulators, not banks, and to consistently apply them across all institutions… Bank capital standards should not be an insider's game. The public deserves better. Bank regulators should do their job, and it is their job, not the job of conflicted bank managers, to set minimum capital levels.
There is no need for me to add my own commentary. Bair’s statements speak for themselves. The full article is linked below.
4--Greece’s Choice — and Ours: Democracy or Finance?, Robert Reich's blog
Excerpt: Which do you trust more: democracy or financial markets?
Greek Prime Minister George Papandreou decided in favor of democracy yesterday when he announced a national referendum on the draconian budget cuts Europe and the IMF are demanding from Greece in return for bailing it out.
(Or, more accurately, the cuts Europe and the IMF are demanding for bailing out big European banks that have lent Greece lots of money and stand to lose big if Greece defaults on those loans – not to mention Wall Street banks that will also suffer because of their intertwined financial connections with European banks.)
If Greek voters accept the bailout terms, unemployment will rise even further in Greece, public services will be cut more than they have already, the Greek economy will contract, and the standard of living of most Greeks will deteriorate further.
If Greek voters reject the terms and the nation defaults, it will face far higher borrowing costs in the future. This may reduce the standard of living of most Greeks, too. But it doesn’t have to. Without the austerity measures the rest of Europe and the IMF are demanding, the Greek economy has a better chance of growing and more Greeks are likely to find jobs....
And with the worst economy since the Great Depression, we’re now embarking on fiscal austerity. Either Congress’s super-committee comes up with $1.2 trillion of federal budget cuts that Congress agrees to – going into effect a little over thirteen months from now – or $1.5 trillion of cuts are made across the board. Meanwhile, states and cities have been slashing public services for the past three years.
5--Why Europe matters for Emerging Markets, Macronomics
Excerpt: So now the ECB has a stark choice, similar to the one Pollux was given by Zeus, to save his dying brother Castor by sharing his immortality with his mortal brother (namely European peripheral countries) or spend his time in Olympus (letting Europe fail, one country after another). The ECB is the only institution that can step in and become the lender of last resort, effectively becoming in essence a FED like entity which should be backed by a central treasury (and we discussed this point in our last conversation), or doing nothing and our Greek swan might take us to another path...
the funding needs for 2012 are significant. According to Bloomberg article from Ben Martin and David Goodman from the 25th of October citing CreditSights, Europe Banks must find 900 billion dollars in 2012:
"Banks in Europe have to refinance 655 billion euros ($911 billion) of senior bonds next year and may need government backing if the debt crisis continues to block access to markets, according to CreditSights Inc.
“Unless funding access eases, we might see banks having to use government guarantees again, and it will add to the pressure on them to reduce assets in order to lower refinancing needs,” said Simon...
If banks cannot access term funding, given the deleveraging they ambition to do, it could put additional pressure on bank lending, in effect reducing access to credit for the economy, namely triggering another credit crunch in the process.
6--Some 15% of U.S. Uses Food Stamps, WSJ
Excerpt: Nearly 15% of the U.S. population relied on food stamps in August, as the number of recipients hit 45.8 million.
Food stamp rolls have risen 8.1% in the past year, the Department of Agriculture reported, though the pace of growth has slowed from the depths of the recession.
The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), may continue to rise in coming months as families continue to struggle with high unemployment and September’s data will likely include disaster assistance tied to the destruction and flooding caused by Hurricane Irene.
Mississippi reported the largest share of its population relying on food stamps, more than 21%. One in five residents in New Mexico, Tennessee, Oregon and Louisiana also were food stamp recipients.
Food stamp rolls exploded during the downturn, which began in late 2007. Even after the recession came to its official end in June 2009, families continued to tap into food assistance as unemployment remained high and those lucky enough to find jobs were often met with lower wages.
7--Big Global Banks Boost Pressure on ECB, Wall Street Journal
Excerpt: The banking sector’s international lobbying group on Wednesday joined the campaign to boost the European Central Bank‘s role in the euro-zone rescue, calling for the ECB to backstop struggling bond markets while the currency bloc implements its latest debt deal.
The comments by the Washington-based Institute of International Finance, which represents more than 450 financial institutions in 70 countries, add another major voice for a heightened ECB role despite concerns from some European officials — particularly in Germany — about the central bank’s bond purchases.
As Europe develops details around its new debt deal, “it is essential that all parties come together behind the continued active role of the ECB in the secondary government bond market,” IIF Managing Director Charles Dallara wrote in a letter to officials from the Group of 20 industrial and developing economies meeting in Cannes, France, this week. “This will allow time for national authorities’ adjustment efforts to take hold, and help stabilize markets at this crucial juncture.”
The ECB’s new president, Mario Draghi, who took his post Tuesday, faces the question of whether to continue or increase ECB purchases of Italian government debt to push yields lower. The ECB has bought an estimated 70 billion euros in Italian debt since August, but that hasn’t been enough to keep the 10-year yield on Italian debt below 6%.
Critics say the bond purchases are outside the ECB’s purview and should be handled through fiscal policy by euro-zone governments, not the central bank. But officials from the U.S., the International Monetary Fund and numerous other countries inside and outside Europe have pressed for a heightened ECB role to keep borrowing costs down — and prevent the euro-zone crisis from spreading — while governments establish a viable plan to deploy their €440 billion rescue fund.
8--World-Wide Factory Activity, by Country, WSJ
Excerpt: Global manufacturing was stagnant in October, with a global index produced by J.P. Morgan and Markit stuck at the break-even level of 50, up just slightly from a month earlier.
The euro zone was the main laggard, falling into contractionary territory last month, while the U.K. also notched shrinking factory activity.
“Underlying the lackluster performance of global manufacturing was a reduced inflow of new business. The level of new work received contracted for the third month running in October, although the rate of decline eased over the month. The reduction was largely centered on the European economies,” J.P. Morgan and Markit said in a release.
The U.S. and China remained in expansionary territory and saw new business increase.
9--More Bad News from the Housing Market: The Ticker, Bloomberg
Excerpt: The vicious cycle in the U.S. housing market may be gaining momentum again. That's a troubling sign for the economy.
With the unemployment rate holding stubbornly above 9 percent, jobless benefits running out and home prices still in the doldrums, previously reliable U.S. homeowners are falling behind on their mortgage payments at an increasing rate. As of September, 1.6 percent of borrowers who were paid up six months ago were already at least 90 days delinquent, according to data provider LPS Applied Analytics. That's up from 1.3 percent in June. Delinquencies tend to rise in the latter part of the year, but the increase looks particularly sharp.
The delinquencies will ultimately add to banks' inventory of foreclosed homes, which will weigh on house prices if and when they are brought to market. Falling house prices would boost the number of Americans who owe more on their mortgages than their homes are worth, further increasing the chances that they'll fall behind on their payments.
The housing market has been the biggest missing piece in the U.S. economic recovery. In a recent research report, economists at Goldman Sachs noted that housing -- through direct construction spending, wealth effects and consumption of complementary goods such as furniture -- can add more than 1.25 percentage points to annualized, inflation-adjusted growth during boom times. Over the past year, the sector has subtracted 0.15 percentage point.
As Bloomberg View has noted, President Barack Obama's latest plan to reduce mortgage payments for struggling homeowners won't do much to solve the problem. Only more radical action, such as principal reductions, can clear the market and stem the flow of delinquencies.