Thursday, May 24, 2012

Today's links

1--Yanis Varoufakis, on Greece

Excerpt:  Our listeners must grasp something very, very simple. This is not a recession, it’s not just the recession we had to have as Keating said once here in Australia. This is a calamity.

It’s one thing to have a recession, it’s quite another to have a complete and utter breakdown in the circuits of credit. No one trusts anyone with their money anymore. We are talking about wholesale implosion and this is what Greece is going through now.....

Greece is almost finished. Greece is in a state that – it’s very hard to imagine how we can actually escape that mire in the next few years with any modicum of respectability and hope.

But my great worry is that if we bring down with us the rest of Europe, then the chances of Greece ever climbing out of its hole diminishes substantially.....When things get bad, people forget that they can get worse. Things can get worse in Greece at the moment, things can get far, far worse. People are still not starving on the streets.

That’s perfectly possible. Remember the 1930s.

2--EZ manufacturing contracts, FT Alphaville

Excerpt: The survey is broadly consistent with gross domestic product falling by at least 0.5% across the region in the second quarter, as an increasingly steep downturn in the periphery infects both France and Germany.

The underperformance of manufacturing relative to services has not been as extreme since the low point of the recession in early 2009, with a key driver then as now being a steep downturn in export sales. May’s drop in manufacturing production was the steepest in nearly three years, and the current period of falling new orders now almost matches the length, though not the depth, of the contraction in 2008/09.

3--EZ manufacturing points towards deeper recession, credit writedowns

4--Euro zone slump deepens, China falters, Reuters

Excerpt:  The shadows being cast over the global economy darkened this month as the euro zone's private sector declined further and China's once-booming factories faltered, business surveys showed on Thursday.

Worryingly for European policymakers, a downturn that started in smaller euro zone periphery members is now taking root in the core countries of Germany and France, whose tepid combined growth had been keeping the troubled bloc afloat.

"We are very much in a period of weakening global growth. It doesn't quite feel like 2008 yet but the danger is we could get there quicker than we think," said Peter Dixon at Commerzbank

The data sent German Bund futures to a record high as investors sought relative safety, and the euro fell to a near two-year low against the dollar.

The moves were also exacerbated by Wednesday's news that European Union leaders have been advised by senior officials to prepare contingency plans in case Greece quits the single currency - a once seen unthinkable event.

The euro zone composite PMI, a combination of the services and manufacturing sectors and seen as a guide to growth, fell to 45.9 this month from April's 46.7, its lowest reading since June 2009 and its ninth month below the 50-mark that divides growth from contraction

5--DERIVATIVES: Fed data expose US$100bn JP Morgan blunder, IFR

Excerpt:  Official data from the US Federal Reserve have laid bare the eye-watering size of trading positions built up by JP Morgan’s chief investment office in synthetic credit indices, raising further questions about risk management standards at the bank.

According to the figures, JP Morgan’s position in investment-grade credit default swaps jumped eightfold from a net long of US$10bn notional at the end of 2011 to US$84bn at the end of the first quarter this year.

The Fed data support previous reports about the nature of the trading strategy that has led to the losses. In investment-grade CDS with a maturity of one-year or less, JP Morgan’s net short position rocketed from US$3.6bn notional at the end of September 2011 to US$54bn at the end of the first quarter. Over the same period, JP Morgan’s long position in investment grade CDS with a maturity of more than five years leapt five times from US$24bn to US$102bn (see chart).

“I don’t care how big a bank you are, that’s still a big move,” said one seasoned credit analyst.

6--Mother and son jump to their deaths, Athens News

Excerpt: A mother and son have jumped to their death from the roof of a five-floor building in an apparent suicide.
7--Euro Zone Developing Grexit Contingency Plan, Der Speigel

8--EU banks still hoarding at ECB, Reuters

Excerpt:  High excess liquidity in the banking system has led to heavy use of the ECB's overnight deposit facility, where banks parked 762 billion euros overnight. In normal times the amounts are minimal.

Tensions were further highlighted on Thursday as borrowing of costly ECB overnight loans rose to almost 4 billion euros, the highest since mid-March

9--California bank repossessions continue to plummet, squatters rejoice, OC Housing News

Excerpt:  The precipitous declines in REO were not due to improving borrower delinquency. Far too many people are not paying their mortgages, and banks haven’t made significant progress in reducing shadow inventory. In short, they didn’t stop foreclosing because they ran out of people to foreclose on. So why did they?

10--Germany won't change stance on euro bonds, Athens News

Excerpt:  Germany does not believe that jointly issued eurozone bonds offer a solution to the bloc's debt crisis and will not change its stance despite calls from France and other countries to consider such a step, a senior German official said on Tuesday.

"That's a firm conviction which will not change in June," the official said at a German government briefing before an informal summit of EU leaders on Wednesday. A second summit will be held at the end of June.

11--Germany got bailed out too!, Bloomberg

Excerpt:  Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure

12--The real origins of the EU debt crisis, Macronomyblogspot

Excerpt:  In a note published today by French broker Oddo, Bruno Cavalier indicates clearly the many mistakes taken since the Sovereign debt crisis broke out in 2010:

"The first error was the diagnosis in 2010, namely that the crisis of the euro had its main source, if not unique, in loose fiscal policies. If this point is not debatable in the case of Greece, it is not true for Ireland and Spain. Before 2008, both countries had scrupulously respected the public deficit criteria. Their current difficulties were not caused by an excessive public debt; they appeared when foreign capital financing their housing bubble ended abruptly. In fact, current problems in the euro area therefore reflect as much a fiscal crisis than a balance of payments crisis.

However, the policy prescriptions are not necessarily the same in one case or another. Faced with a budget crisis, as in Greece, it is essential to run a thorough reform of the state, forcing us to rethink the tax system to make it more efficient and reduce public funds waste. Faced with a crisis of balance of payments, jeopardizing the banking system, the priority is different. There is an urgent need to recapitalize institutions in big trouble, if any, by nationalizing them, it should be the priority in Spain. In this country, controlling public deficits cannot obviously be ignored, but it is secondary to the need of cleaning up the banking system.

13--German Press: "The Greek Exit Is A Done Deal",  zero hedge

14--US government panel calls for halt to prostate cancer screening, WSWS

Excerpt:  While the panel’s summary for patients states that “the USPSTF realized that some men may continue requesting the PSA test and some physicians may continue offering it,” the implications of the new advisory are that cancers will go undetected and untreated, resulting in preventable deaths.

By the panel’s own admission, one of the two studies used as the basis of their recommendation showed that of every 1,000 men receiving the PSA test, one life could possibly be saved, a not insignificant statistical finding. They conclude, however, that “screening may benefit a small number of men but will result in harm to many others.”

According to the Task Force, “Good evidence shows that PSA-based screening can cause harms, including pain and complications from prostate biopsy and worry about test results,” and that “screening puts men at risk for unnecessary worry and adverse effects of treatment with surgery, hormones, or radiation therapy” (emphasis added). They add, “The side effects of prostate cancer treatments include sexual dysfunction, bowel and bladder incontinence, and even death.”

Plainly stated, these are sweepingly false statements that equate the test itself with the potential outcomes of subsequent treatment. The screening—a simple blood test that measures prostate-specific antigen (PSA) levels—poses no risk to the patient. What is done on the basis of the test results should be the subject of careful research and consideration within the medical community and discussion between the patient and his doctor. Instead, the government panel has issued a blanket recommendation that no one should get the test.

15--Canada criminalizes dissent, WSWS

Excerpt: More than 100,000 people took to the streets of Montreal yesterday to mark the 100th day since the beginning of the Quebec student strike and to denounce the Quebec Liberal government’s Bill 78.

Adopted in less than 24 hours late last week, Bill 78 criminalizes the student strike by outlawing picket lines anywhere in the vicinity of the province’s universities and CEGEPs (pre-university and technical colleges) and by threatening teachers with criminal prosecution and massive fines if they make any accommodations to striking students or fail to perform all of their normal functions.

Bill 78 also places sweeping restrictions on the right to demonstrate anywhere—and over any issue—in Canada’s second most populous province. Any demonstration of more than 50 people is illegal unless demonstration organizers submit to police in writing more than eight hours in advance the route and duration of the protest and abide by any changes requested by the police. Demonstration organizers are also legally compelled to assist the authorities in ensuring that protesters do not transgress the police-prescribed protest route.

16--Time for bank bond write-downs, IFR

Excerpt:  the now five-year-old global financial crisis, writing down bank debt when banks are insolvent is a step that policy-makers have been almost universally unwilling to take.

Fearing a rolling line of bank failures if the weak were allowed to go down, policy-makers have generally followed the following three-point script:

First, make abundant liquidity available to banks, ensuring that they don’t fall over in a panic. The European Central Bank’s unlimited LTRO is the logical extension of this.

Second, create conditions where banks can profit, hoping they rebuild their own capital. JP Morgan’s recent speculative losses are a good example of how this doesn’t always work, while the US mortgage market, where lower interest rates from quantitative easing don’t always make it through to borrowers, is a good example of how when it does work the gains are unequally distributed between Wall Street and Main Street.

Third, inject capital or buy illiquid assets from banks, some of which you may need to take on to national balance sheets. Europe is in this phase now, as shown in Spain where Bankia has been nationalised and now requires a capital injection of at least €9bn. It is worth noting that in the only place where this script was not followed, Iceland, growth has now returned and the banking system is on a reasonably sound footing.

There are a number of serious problems with the extend, pretend and then underwrite approach...

The more liquidity and aid banks are given, the worse the balance sheet of the country looks. The greatest threat out of Greece may not be its exit, but what this does to Spain’s banking system, which is to say, what it does to Spain...

Ben Lord, fund manager at M&G Investments in London, argues that it is time for this cycle of dependency to end. Bail-ins, where senior and subordinated bondholders make a contribution, in some cases of 100%, may be in order in some cases where the bank is weak and the sovereign weakening. This is a rapid way to create capital and deleverage the system.

It won’t, of course, be necessary in every country, or even in every bank in the weaker countries.

“If this doesn’t work, then nationalisation is the last resort, and the taxpayer must step in one last time,” Lord wrote in a note to clients.

“But this situation of creeping nationalisation where taxpayers provide 24-hour life support in European banks through emergency policy response after emergency policy response, at the expense of much higher tax and lower quality of life across all citizens for a very long time feels wrong, at least before the risk-takers have suffered.”

While this proposal has logic and justice on its side, it probably is unlikely to be put into place. If a strong and extremely stable state like the US had difficulty grasping the politically toxic nettle of imposing losses on bondholders, it will be that much harder in Spain or Portugal, which are struggling not just with recession but with uncertainty about their role in the eurozone and about the eurozone itself.

If Europe chooses bailouts over bail-ins, growth will be suppressed and the fruits of growth will be unfairly distributed; in other words, more of the same.

17--Obama hails police state methods in Chicago, WSWS
Are you surpirised?

18--China Is Stimulused Out, WSJ

Excerpt:  There is no longer any doubt that China is facing a rough economic patch. Last month's data showed almost zero growth in imports and electricity use. Industrial production grew just 4.3% on a month-on-month annualized basis. On a broad range of growth indicators, China has fallen to 2009 levels.

Three years ago, the government responded with one of the largest stimulus programs the world has ever seen, totaling 15% of GDP. It included $580 billion in government spending, but the bulk was in the form of new bank lending, most of it for investment in infrastructure and industrial capacity. Some analysts estimate half of those loans will eventually go bad. Beijing can't afford to do that again...

Only it isn't working this time. The People's Bank of China has loosened credit, but companies don't want to borrow when they are already having trouble making profits. New bank loans contracted by 8% in April, and the percentage of long-term business loans in the banks' asset portfolios is falling.

The lack of confidence is due to the overhang from the last blowout. All of that investment in industrial capacity and real estate is now coming on line. Companies and local governments are finding it difficult to make their new assets generate enough revenue to service the debt. Inventories are piling up, and China is seeing capital flight for the first time in decades.

In other words, much to the surprise of some investment bank analysts, China is not immune to the business cycle after all. It is overdue for a bout of creative destruction to clear out inefficient enterprises such as the builders of empty "ghost cities."

The worry is that China has gone more than a decade without a painful slowdown. During that time, the government held down interest rates at artificially low levels to encourage investment. Such conditions often precede particularly long and painful contractions, a phenomenon the Depression-era economist Irving Fisher called debt deflation, otherwise known as a liquidity trap. One symptom is the lack of demand for credit that China is experiencing.

It's possible that Beijing pulled the monetary punch bowl away in time. Yet in recent months we have learned that hidden debts in corners of the economy such as credit-guarantee companies and local government financing vehicles were huge, and the true extent of their liabilities is still not fully revealed. Now is not the time to try to reinflate the economy with more wasteful spending and investment. That would only ensure the trap is sprung at a later date, at an even higher cost.



Witnesses say the two leapt while holding hands, a little after 8am in the small neighbourhood of Vathi square in Metaxourgeio, in central Athens. The mother was 90 years old and her son, musician Antonis Perris, was 60 years old. They lived on the first floor of the building....

According to reports, neighbours say the pair had economic difficulties.

The son recently wrote a blog post describing his current situation:

"I have been taking care of my 90 year old mother for 20 years now … Three or four years ago she was diagnosed with Alzheimer's and recently she has been subject to schizophrenic fits and other health problems. Nursing homes don’t accept patients who are such a burden. The problem is that I was not prepared … when the economic crisis hit."

The blog message also contained some verses he had written regarding the economic and social crisis.

Last month, 77-year old-man Dimitris Christoulas took his life in Syntagma Square in a incident that captured international attention.

Studies have shown a marked increase sharp increase in the suicide rate in Greece recent years.

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