Friday, November 18, 2011

Weekend links

1--France Clashes With Germany on ECB’s Rescue, Bloomberg

Excerpt: German Chancellor Angela Merkel rejected French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil.

As the crisis sent borrowing costs in core economies outside Germany to euro-era records, Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

“I’m convinced that none of these approaches, if applied right now, would bring about a solution of this crisis,” Merkel said in a speech in Berlin today. “If politicians believe the ECB can solve the problem of the euro’s weakness, then they’re trying to convince themselves of something that won’t happen.”

Merkel’s comments underscore German reluctance to assume more liability for taming the debt crisis even as it moves on to France, the euro region’s second-largest economy, and threatens to trigger a global recession. Merkel said that “political action” to tighten budget rules is needed to solve the turmoil.

2--Italian students protest "bankers Government", Reuters

Excerpt: Hundreds of students protested in Italy's financial capital Milan against what they called the "bankers' government" led by economist Mario Monti and scuffles broke out with police, witnesses said.

The students threw firecrackers at police trying to prevent them from approaching the Bocconi university, which is chaired by Monti and has become a symbol for his new executive of technocrats, formed to tackle Italy's debt crisis.

Police responded by charging the students with batons. One journalist was injured by a firecracker, police sources said.

The students also threw eggs and fake dollar banknotes at the building of the Italian banking association, AGI news agency reported.

Monti's government, sworn in on Wednesday, was due to lay out austerity measures before seeking a confidence vote in the Senate later on Thursday.


3--Spanish, French borrowing costs raise contagion alarm,. Reuters

Excerpt: - Spain and France faced sharply higher borrowing costs on Thursday, struggling with bond auctions that highlighted the threat of larger euro zone economies succumbing to the debt crisis that began in Greece and is now threatening Italy.

Thousands of Greeks took to the streets of Athens in a major protest rally that will be the first public test for a new national unity government that must impose painful spending cuts and tax rises if the country is to escape bankruptcy.

Italy's new Prime Minister Mario Monti unveiled sweeping reforms to dig the country out of crisis and said Italians were confronting a major emergency. Opinion polls show Monti enjoys 75 percent support but there were street clashes in the business capital of Milan and in Turin.

The Spanish government was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields a steep 1.5 points above the average paid at similar tenders this year, drawing descriptions from the market ranging from "pretty awful" to "dreadful."...

But no amount of austerity in Greece, Italy, Spain, Ireland and France is likely to convince the markets without some dramatic action in the shorter-term, probably involving the European Central Bank....

The ECB's policy of buying Italian and Spanish bonds in limited amounts is barely holding the line, with the former's borrowing costs above the 7 percent level widely seen as unsustainable and the latter's homing in on that level.

"It keeps contagion intact not just for the peripherals but also for the core countries and increases the pressure on the ECB to do something," Nick Stamenkovic, bond strategist at RIA Capital Markets said of the Spanish and French auctions.

"Clearly at the moment the ECB is reluctant to do anything."

BANKS UNDER THE COSH

With turmoil reaching a crescendo, euro zone banks are finding it harder to obtain funding. While the stresses are not yet at the levels of the 2008 financial crisis, they have continued to mount despite ECB moves to provide unlimited liquidity to banks.

Fitch Ratings warned it might lower its "stable" rating outlook for U.S. banks because of contagion from problems in troubled European markets

4--Monti names unelected government of technocrats and bankers, eu.observer

Excerpt: - Incoming Italian Prime Minister Mario Monti has named a government entirely composed of unelected figures, just days after a technocratic government was installed in Greece, where the presence of far-right figures linked to the military junta are raising hackles.

Monti, an ex-EU-commissioner, was appointed officially on Wednesday by the president of the republic.

The new leader has in turn also appointed himself finance minister and, in a move likely to amplify criticisms that a regime of bankers has been imposed on Europe’s southern flank, Corrado Passero, the CEO of Intesa Sanpaolo, the country’s largest high-street bank, has been awarded the industry and infrastructure dossier.

All ministerial posts will be held by technocrats, soldiers and diplomats...


The Monti government rather than working as a temporary administration as many MPs originally believed, now intends to hold on to power until the next scheduled general election in 2013...

Far-right MPs with links to the Greek Junta appointed ministers
The imposition of the technocrats in Rome comes just days after former vice-president of the European Central Bank, Lucas Papademos, was placed in the top office in Greece, where he too has appointed an administration of technocrats, complimented by members of the far right - the first time Athens has seen such figures in government since the fall of the military junta in 1974.

Four individuals from the Popular Orthodox Rally, a religious and and anti-immigrant grouping whose leadership is normally more commonly seen in the company of France’s National Front or the UK’s British National Party, have been named ministers.

Two in particular who have links to the military junta are raising hackles amongst critics of the new government.

Georgios Georgiou, a Laos member that has been appointed alternate defence minister, was the representative of the junta to Nato’s Naples command in 1973.

Meanwhile Makis Voridis, who has been named infrastructure and transport minister, was appointed the head of the youth wing of now-defunct neo-nazi grouping Epen, by the ex-dictator of Greece, Georgios Papadopoulos, while he was in prison in 1984.

Deputy development, competitiveness and shipping minister Adonis Georgiadis, has endorsed a Greek book called "Jews: The Whole Truth" on his television show broadcast the TV channel owned by Laos.

The presence of the far-right in the government has fightened Jewish groups across the Atlantic. "We urge the new Greek leadership, understandably preoccupied with the economic crisis, not to permit any such expression of outright bigotry or anti-Semitism to emerge from its ranks," the American Jewish Committee said in a statement..

5--Italy's crashing money supply, marginal revolution

Excerpt: (one graph says it all)

6--Federal Prosecution Of Financial Fraud Falls To 20-Year Low, New Report Shows, Huffington Post

Excerpt: Public mistrust for banks may be at an all-time high, but federal prosecution for certain financial crimes is down to a 20-year low.
The federal government is on track to file just 1,365 prosecutions for financial institution fraud in fiscal year 2011, according to a new report from a watchdog group. That would be the lowest number of such prosecutions in at least two decades.

The report, from the Transactional Records Access Clearinghouse at Syracuse University, comes at a time when the protest movement known as Occupy Wall Street has gained nationwide visibility -- and no small degree of public support -- by criticizing what its members see as a close relationship between big banks and the federal government.

The falling number of fraud prosecutions is striking given what many claim is a strong pattern of financial-sector misconduct in recent years, culminating in a housing crisis characterized by alleged rampant mortgage fraud and improper foreclosure, as well as the weakening of the national and global economy.

The TRAC report, which compiles Justice Department data obtained through the Freedom of Information Act, notes that 2011's relatively low number of financial fraud prosecutions is only the continuation of a trend spanning more than a decade.

Every year since 1999, the number of such prosecutions has gotten smaller and smaller, the report states. This means, for example, that there were more prosecutions in any given year during the presidency of George W. Bush than in any year during the presidency of Barack Obama.

7--A Short History of Elite Responses To Political-Economic Crisis, How The Oligarchy Gets Politicized, Counterpunch

Excerpt: It is as if acknowledging elites’ political activism gives credence to class analysis, which is thought to be too Marxian for our own good. Talk of corporate dominance of the State opens the door to unacceptably subversive reconceptualizations of matters we have been trained to understand in safer, less seditious terms. Seeing a recession as a strike of capital, for example, forces us to make the appropriate readjustments in a range of related economic and political understandings. Indeed, as Galbraith recognized, Beyond the Waste Land requires us to think and to act very differently regarding what political power is all about. It is less unsettling to imagine that “irrelevant ideology” and political ignorance lie at the heart of the current economic debacle, than it is to see the depression as the outcome of a deliberate assault on working people by the oligarchs.

These liberal objections are far less believable now than they were 28 years ago. Elites are not philosophers seeking to be guided by the most intellectually cogent theories. Political power is not about upholding this or that ideology; it is about legislating in this or that group’s interest. Political power is exercised most successfully by those whose interests are most consistently served by the exercise of State power.Cui bono? remains the best test of who matters most to the State managers. The latter govern; the former rule.

By this test only the blind fail to see that Wall Street is now running the show. The blind abound among liberal intellectuals. In his New York Times column on Nov. 23, 2009, Paul Krugman confesses that “It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.” You don’t say.

8--The Left and the Debate Over Non-Violence, Lessons from the Crackdown, Counterpunch

Excerpt: First, as Mike King and others have pointed out, the belief that so-called non-violence works and that it is the legitimating feature of a protest, is part of a delusion that afflicts the more privileged- which often means more white- members of the occupy movement. I myself have fallen prey to this in the past. “Protest non-violently and everything will be ok. Remember Dr. King and all he accomplished. If you work with the system it will bend to your needs.” This is all part of the ideology of a privileged though often well intentioned group of people who simply don’t have to deal with the violence that ensures the domestic order of the US-led capitalist-imperialist machine. Are the unemployed, homeless, under-paid and overworked, imprisoned, and dispossessed masses not subject to brutal levels of violence on a daily basis? Is the American capitalist system not propped up by imperialist adventures that tally their casualties in the millions? Indeed, have the nonviolent protest movements of the past actually brought to fruition a free and equal society? Adhering blindly to the rhetoric of violence/nonviolence is a de facto denial of the brutality suffered by literally billions throughout history, and it unfortunately does little to bring about historical justice.


Second, there is a fundamental misrecognition of the role of the state in a capitalist society at work in the ideology of nonviolence. The state, as Marx once said, is the bourgeoisie’s internal committee for the handling of its own affairs. One of the biggest affairs to be handled in a capitalist society is, of course, the fundamentally unjust and unequal class-relationship between capital and labor. Capital, by its very nature, relies on this unequal relationship; and history, by all accounts, has shown that the owners of capital, and its managers and representatives within the state, will consistently apply the most brutal levels of force to maintain this class relationship. What could be clearer than the fact that this power will not be relinquished without a fight?


Finally, non-violence could never be more than one tactic amongst a variety of tactics for the Left to employ in pursuit of broader strategic goals. In American protest politics, however, it often appears as an end in itself. This is a fallacy, which mistakes means for ends, and it needs to be rooted out aggressively as a hindrance to the ultimate goal, which, for revolutionaries, is the end of an oppressive, class-based, racist, sexist, violent system that has its roots deep in the capitalist mode of production. This is where the real violence is, and it is the collective desire to see this system confined to the dustbin of history- not the adherence to an empty ideology, come what may- that is the true litmus test for any revolutionary struggle.

9---Spanish Bonds Decline Before Debt Auction After ECB Rally Fails to Hold, Bloomberg

Excerpt: Spanish 10-year bonds fell for a third day amid speculation yields will surge at tomorrow’s auction of up to 4 billion euros ($5.4 billion) of securities due in January 2022. German bonds declined after the nation got fewer bids than the maximum sales target in an auction of two-year notes, and Chancellor Angela Merkel said the country is ready to cede some sovereignty to strengthen the euro area.

“There’s still no credible backstop for Italy and Spain and the ECB buying on the current scale is just far too small to have any impact,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “There’s a Spanish auction tomorrow, which will be a pretty clear test of appetite. The yield level is likely to be pretty punitive.”...

“The European bond market is becoming very binary, and ECB-dependent,” said Mohit Kumar, head of European interest- rate strategy at Deutsche Bank AG in London. “Whenever the ECB steps in, the market likes it, when it steps back, you see pressure. There are no real buyers.”

The ECB was said by two people with knowledge of the trades to have bought larger-than-usual sizes and quantities of Italian debt under its Securities Market Program today. It also bought Spanish bonds, the people said. A spokesman for the ECB in Frankfurt declined to comment.

10--The US is Now a Corporate Monarchy, Barry Ritholtz, The Big Picture

Excerpt: I did an interview with a print reporter yesterday about what has been going on with lack of prosecutions, the banks, and Wall Street in general. We discussed the corrupt exchanges and HFT.

I dropped lots of F-Bombs, called out cowards and crooks and held nothing back. (“That fucker belongs in prison; this son of a bitch should hang“)

Afterwards, she commented that I seemed angry.

I wrote back suggesting that I am a happy dude, and its not Anger — its closer to an ineffable sadness that comes once you realize you have lost something dear. I am old enough to have grown up when this nation was a Democracy, but that era has passed. We now live in a nation no longer run by the citizens — it is a Corporatocracy — and that makes me sadder than angry . . .

She suggests perhaps a better word is outraged.

I wonder: Why have the Europeans figured out they are getting screwed, and we haven’t? Why are they taking to the streets en masse, while we seem to be watching our own control over our own futures slip from our hands almost as if from afar?

In America, we are too busy dropping the kids off at soccer, running around looking for sales and bargains, racing to keep our heads above water. We seem to forget to get outraged. Our control over our once Democracy — the one we had a revolution against a monarchy dictating decisions from afar — slips away from us. Not with a bang, not even with a whimper, but with a 1000s acts of gradual ceding of power to the new Monarch. We have given up hard won rights to a coordinated attack from all three branches of government; Our Congress has become the legislative branch of eBay — Congressmen are auctioned off to the highest bidder; they even have a Buy It Now button to get specific legislation passed. The executive branch has fallen under the sunk cost fallacy, afraid to prosecute banks because we spent so many billions bailing them out. It turns out that even our once venerable Supreme Court is just as corrupted, with lobbyists partying with Justices and backdooring ethics by hiring their wives.

In short, our new overlords are enormously well funded, well connected, relentless and perhaps most of all, patient. This new King was not appointed by primogeniture, or even Divine Right, but by acquiring enough profits in the free market that they can buy control over society, even as they thwart that free market ideal for their own ends. We have become, in short, a Corporate Monarchy.

The right question isn’t why am I angry, sad and outraged. The proper question is, why aren’t you?

11--Is Bank of America Gambling on Resurrection (or Is BoA Holding the US Hostage)?, credit slips

Excerpt: . If BoA isn't a zombie, it's the next thing to it.
The smart move for BoA, then, would be to gamble on resurrection. And it seems that is exactly what BoA is doing. What's the most obvious high risk/high rewards strategy available presently? Writing CDS on European sovereign debt. Going long on Greece (or all the PIIGS). This is exactly what BoA (and other US banks) have been doing.

Here's what's really scarry. BoA just moved its derivatives business (where it does its CDS) from Merrill into its insured depository. BoA's immediate motivation might have been to reduce collateral requirements following itsSeptember ratings downgrade. But there's also a huge political benefit to the move. Remember that CDS are qualified financial contracts that will come before FDIC claims. So it looks like BoA is gambling on resurrection at the expense of the US taxpayer. If things work out in Europe, BoA makes a bundle. And if not, the US taxpayer picks up the tab.

This means that BoA has the US government over a barrell. BoA can basically tell Treasury that it had better make everything good in Europe or it will be paying the bill. By strapping a financial bomb to itself, BoA is in a position to dictate terms to the US government regarding international financial policy. The difficulty for BoA, however, is that the Administration understands that intervening to help the Europeans will probably cost them the election (never mind that we already did this when we bailed out AIG and protected its regulatory capital arbitrage swap counterparties).

But here we are, a year after Dodd-Frank and three years after the financial crisis, and a too-big-to-fail bank is in a position to hold the US government hostage. If this doesn't underscore that too-big-to-fail is a threat not just to the US economy, but to the US political system, I'm not sure what does.


12--The ECB-IMF-Italy roundabout switchero, FT.Alphaville

Excerpt: The idea that the ECB could lend money to the IMF, which in turn would lend to Italy (and/or Spain), is no longer idle speculation. US markets are abuzz with the possibility, and officials at the two institutions are mulling it over, according to Reuters.

This switcharoo was doing the rounds last week among IMF-types, as the FT’s Alan Beattie noted on The World blog. We chatted about it on Markets Live, too.

Lending to the IMF would allow the ECB to overcome the legal restrictions placed on its bond buying programme — or as some would have it, the German interpretation of those restrictions. The treaty allows open market operations but not “monetary financing” through the direct purchasing of government debt.

Under section 23 of its protocol, however, the ECB can conduct the following “external operations”:

The ECB and national central banks may:

— establish relations with central banks and financial institutions in other countries and, where appropriate, with international organizations;

— acquire and sell spot and forward all types of foreign exchange assets and precious metals; the term ‘foreign exchange asset’ shall include securities and all other assets in the currency of any country or units of account and in whatever form held;

— hold and manage the assets referred to in this Article;

— conduct all types of banking transactions in relations with third countries and international organizations, including borrowing and lending operations

13--ECB could lend to IMF for euro zone rescue: officials, Reuters

Excerpt: Euro zone and International Monetary Fund officials have discussed the idea of the European Central Bank lending to the IMF, to provide the fund with sufficient resources for bailing out even the biggest euro zone sovereigns, officials said.

"Some discussions on this have taken place... It could be one way of getting around the legal restrictions on the ECB," one official with knowledge of the talks said. A second official said ECB lending to the IMF was being explored.

The idea appears as the rising severity of the euro zone debt crisis, which now threatens to engulf Italy, or even France, makes policymakers desperate to get the ECB, with its limitless resources as a central bank, more involved in the rescue efforts to buy governments time for reforms.

Economists say only the ECB now can offer a credible guarantee to markets, as plans to leverage the firepower of the euro zone bailout fund EFSF to 1 trillion euros were unlikely to fully materialize or, even if they do, to be sufficient.

But EU law forbids the ECB to finance government borrowing. The bank has repeatedly said it would not become the lender of last resort to euro zone governments, which should first of all change policies that created large public debt and slow growth.

France has openly called for the ECB to get more involved by issuing the euro zone bailout fund -- the European Financial Stability Facility (EFSF) -- a banking license that would allow it to refinance itself with the ECB liquidity operations.

Yet Germany fiercely opposes such an idea, fearing it would lead to financing government deficits, endanger the ECB's independence and in the end lead to higher inflation, which would make all euro zone citizens poorer.....

Article 23 of the ECB statute says that "the ECB may conduct all types of banking transactions in relations with third countries and international organizations, including borrowing and lending operations".

The IMF could then use the ECB money to finance various rescue operations in the euro zone like bailouts, precautionary credit lines, on its own, or in cooperation with the EFSF.

"It is doable," a second euro zone official said. Two further euro zone officials said they had heard of the idea.

Money from the ECB to the IMF would also help alleviate criticism from non-euro zone IMF member countries that all of the fund's resources -- which come from all IMF members -- are being used up for the relatively rich euro zone.

To prevent a collapse of the euro zone debt market, the ECB has been buying government bonds on the secondary market, saying it was doing so to improve the transmission of its monetary policy, which highly volatile bond markets were distorting.

It has stressed however, that such purchases were limited in scope and were also temporary -- a half-hearted approach in the eyes of the market.

While it may be designed to keep the pressure on governments to implement reforms, euro zone policymakers privately say it is also the costliest possible way of dealing with the crisis.

"If the ECB told the market it would buy euro zone bonds for as long as it takes, or up to some big limit, who in the market would want to test that? But if they do it bit by bit, markets keep coming back," a third euro zone official said.

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