European Financials report for August 23, 2011
1) … Tyler Durden reports on the rise of European Bank counterparty risk and the soon coming regime change that will feature a sacrifice of fiscal authority by European nations as well as a foreiture of institutional holdings. Seven Charts Showing The Lock Out Of European Capital Markets And The Surge In Counterparty Risk. It is not 2008. It is far worse. Unlike 3 years ago, the central banks were not all in on "bailing out the world" and thus actually had dry powder to do so, as they eventually did: where will the status quo go for a global bail out this time? Below we present 7 Bloomberg charts, following yesterday's indication of a liquidity lock out, showing all too well the surge in counterparty risk, but more importantly the lock out in European capital markets. To all those who thought that transferring ever more peripheral risk to the European core would have no consequences (sorry, it did: German CDS is wider than the UK for the first time ever),
And Mr Durden adds Vice Chairman Of Germany's CDU Party Demands Gold As Collateral From European Bailout Recipients. Yesterday we had the Bundesbank making a very strong case for why a pan-European bailout (funded by Germany), would need a "fundamental change of regime occurs involving an extensive surrender of national fiscal sovereignty" (beneficial for Germany), today we see the next and final stage of the proposed annexation of Europe by Germany - that which focuses on procuring that which is really important. Hint: not spam. From Spiegel: "Minister Ursula von der Leyen pushes the hard line: any financial aid for euro countries should only come against collateral, as gold reserves or industrial holdings." More googletranslated conditionality: "The CDU politician wants to ensure future aid allocations from the rescue fund through extensive security of the country. The ARD Berlin Studios said the minister, who is also vice-chairman of the CDU party, many of these countries had large reserves of gold and industrial holdings, which they could use for such collateral." And now we know the next steps: i) Eurobonds will come after there is a change to the European constitution which make Germany supreme ruler, and ii) at that point Germany will have all the gold in Europe pledging its bailout. Yes, gold, not spam
2) … Between The Hedges relates the serious nature of the European Sovereign Debt Crisis as Bloomberg reports European Failure to Solve Region's Banking Crisis Returns to Haunt Markets. Four years to the month since the global credit crisis began, European lenders remain dependent on central bank aid, plaguing markets and economies worldwide. Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and greasing the lending of others, while low interest rates and debt-buying are containing borrowing costs. Such aid is needed as concerns about slowing economic growth and sovereign debt prompt banks to curb lending, stockpile dollars and hoard cash in safe havens. “I’m not sleeping at night,” said Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.” The signs of distress are widespread and mounting: Banks deposited 105.9 billion euros with the ECB overnight on Aug. 19, almost three times this year’s average, rather than lending the money to other lenders.
The premium European banks pay to borrow in dollars through the swaps market increased yesterday for a fourth straight day. European bank stocks have sunk 22% this month, led by Royal Bank of Scotland Group Plc (NYSE:RBS) and Societe Generale (GLE) SA. Edinburgh-based RBS, Britain’s biggest government-controlled lender, has tumbled 45 percent, and Paris-based Societe Generale, France’s second-largest bank, dropped 39 percent. The extra yield investors demand to buy bank bonds instead of benchmark government debt surged to 298 basis points on Aug. 19, or 2.98 percentage points, the highest since July 2009, data compiled by Bank of America Merrill Lynch show. The cost of insuring that debt against default surged to a record yesterday. The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers rose to 250 basis points, compared with 149 when Lehman collapsed. “The debt has been transferred from the banks to the sovereign, but it hasn’t actually been eradicated,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool. “Until the sovereigns get their balance sheets in order, then these concerns are going to remain.” Funding markets have seized up as investors speculate that sovereign debt writedowns are inevitable. Banks in the region hold 98.2 billion euros of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data. The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.67 percentage point on Aug. 22, within 3 basis points of the widest spread since May 2009. “The central bank is the only clearer left to settle funds between banks,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG (NYSE:CBK) in Frankfurt. “There is a mistrust between banks in general, between regions and with dollar providers overall.”
European Banks Must Pay Up to Borrow $100 Billion Amid Crisis: Euro Credit. European banks with more than $100 billion of cash to raise by year-end will have to pay up because investors perceive them as the worst credits they’ve ever been. The cost of insuring the senior and junior bonds of 25 banks and insurers doubled since April, according to the Markit iTraxx Financial indexes of credit-default swaps. The Euribor- OIS spread, a gauge of banks’ reluctance to lend to each other, reached the widest since April 2009 this month, while the cost for European banks to fund in dollars matched a 2 1/2-year high. “This return of generalized banking risk marks a new phase in the unfolding European drama,” said Lisa Hintz, an analyst in New York at Capital Markets Research Group, a unit of ratings firm Moody’s Investors Service. “Investors have heightened concerns about sovereign and financial institution risk.” Morgan Stanley’s estimate of the 80 billion euros ($115 billion) banks need until year-end doesn’t include the extra capital that regulators have ordered many to raise to protect against a re-run of the 2007 global financial meltdown. With the bond market shut to all but the strongest banks, weaker lenders, particularly those from the euro region’s so-called peripheral nations, are relying on the European Central Bank for its unlimited six-month loans. “The banks seem to prefer to deposit cash with the ECB rather than lend it out to others that need it,” said John Raymond, an analyst at the financial-research firm in London. “In itself, that’s a sign of stress in the interbank market” and means companies must also pay more to borrow, he said. The extra yield investors demand to hold bank bonds rather than benchmark government debt surged to 298 basis points, or 2.98 percentage points, according to Bank of America Merrill Lynch index data. That’s the widest spread since July 2009 and up from 220 at the end of last month. Average yields jumped to an almost two-year high of 4.46 percent on Aug. 12, before dropping back to 4.38 percent, the data show.
Merkel Never Holding Hands With Sarkozy Betrays European Leadership Crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy have never held hands like Helmut Kohl and Francois Mitterrand once did at a World War I battlefield. Merkel worries they don’t even talk enough. After no fewer than seven one-on-one meetings the past 18 months -- in addition to parleys at summits -- the leaders of the biggest European economies have yet to hit on an effective solution to the crisis stalking the euro, Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in an interview. “Poor relations between Merkel and Sarkozy are one of the big problems of dealing with the debt crisis because it’s up to European Union leaders to handle this,” Erixon said. “It’s not a personal relationship that can deliver grand things because the trust isn’t there.”
3) … Neoliberalism featured the Spirit of the Cat In The Hat and The Spirit Of The Tooth Fairy.
Bernanke's No 'Tooth Fairy,' Fed's Fisher Says - FBN. U.S. Federal Reserve Chairman Ben Bernanke is "not the tooth fairy," a top Fed official told Fox Business Network on Monday, suggesting the Fed chief won't use a speech later this week to extend new monetary stimulus. "His job is not to leave presents under the pillow of people who have desires that may not be easily fulfilled," Dallas Federal Reserve Bank President Richard Fisher said, according to a partial transcript provided by the network. "Our job is to put things right in the long term." Asked what Bernanke will say at a highly-anticipated speech on Friday at an annual central bank conference in Jackson Hole, Wyoming, Fisher said "You'll learn when you hear him speak. Ben Bernanke's not the tooth fairy."
4) … Neoauthoritarianism features Wildcat Governance with government leaders tearing and clawing one another. The New York Times reports Members of Merkel's Party Emphasize Opposition to Euro Bonds. Chancellor Angela Merkel of Germany has faced harsh criticism for being too passive in the face of Europe’s debt crisis. But on Monday, members of her own party and the Bundesbank made it clear just how hard it would be for her to pursue any solution that asked German taxpayers to sacrifice for the sake of European unity. With many economists calling for Europe to expand the euro zone’s bailout fund or start issuing bonds guaranteed by all 17 of the countries that share governance of the common currency, German politicians at home struck back. “Euro bonds would push up German interest rates,” Philipp Missfelder, the foreign affairs spokesman for Mrs. Merkel’s Christian Democratic Union, said Monday after a meeting of the center-right party’s board. “The cost of servicing the debt would be enormous.” Meanwhile, the Bundesbank, representing the views of Germany’s monetary authorities within the European Central Bank, complained Monday that liabilities acquired by weaker countries were being offloaded onto the stronger ones. “A major step is being taken toward common assumption of risks from weak national finances and economic missteps,” the Bundesbank said in its monthly bulletin. “This weakens the foundation of fiscal responsibility and self-discipline.”
5) … Neoauthoritarianism is replacing Neoliberalism. The Milton Friedman Free To Choose floating currency regime, which came with the US going off the gold standard in 1971 died in May 2011, as world stocks, ACWI, turned lower. Tbe Beast Regime of Neoauthoritarianism is now starting to rule economically and politically in all of mankind’s seven institutions and the world’s regions ten regions. Its nature is state corporatism, that is statism, with government, rating agencies, and business intertwined as EconomicPolicy Journal reports S&P Prez Taken Down; To Be Replaced by Bankster!!
6) … Stocks rose today as Reuters reports Bernanke to aid recovery with gradual boost in dosage.
XOM 5.0 Exxon led the Dow, DIA, on rise of the price of oil, USO.
7) … A fierce leader, The Sovereign, will be called to lead a One Euro Government; his Seignior, a European Banker, will provide a new seigniorage based upon their word, will and way.
Minister Ursula von der Leyen has heard and heeded the 1974 Clarion Call of the Club of Rome and spoke with its Authoritarian Imperative communicating that the the European Economic Government, envisioned by Chancellor Merkel and President Sarkozy will require the sacrifice of Fiscal Authority as well as the forfeiture of Institutional holdings. The coming European Leader, the Sovereign, very possibly Herman Van Rompuy, will rise to lead the Eurozone. This President of the EU, will be a New Charlemagne, whose power will rival that of the former Charlemagne, as he governs what will essential be a Revived Roman Empire. Minister Ursula von der Leyen, Chancellor Merkel, and President Sarkozy are simply the Club of Rome’s Apostles heralding the Ten Toed Kingdom of Global Economic Government.
Herman Van Rompuy is a European Federalist and an Authoritarian. He spoke with the Authoritarian Imperative of the Clarion Call of the Club of Rome for regional economic governance in Bloomberg article EU President Van Rompuy Opposes Common Euro Bonds stating “We could have euro bonds on the day when there is genuine budgetary convergence, the day when everyone is in balance or virtually in balance.” Soon, the stock values of the European Financials, EUFN, will be worthless as investors flee from the European sovereign debt crisis. Then the European Treasuries will be equivalent, that is all in balance, having no value. At that time, out of global financial collapse, a New Seigniorage, that is a new moneyness. will come forth from the word, will and way of the European Sovereign, and his Banker, The Seignior, who will be appointed by European Leaders such as Angela Merkel and Nicolas Sarkozy. Diktat, not Liberty will carry Neoauthoritarianism’s moneyness, and the people will marvel, and be amazed and follow after it, giving their full allegiance to it.
August 27, 2011 is scheduled as DC Full Democracy Day with a rally at Freedom Plaza, and a march from the Lincoln Memorial to the Martin Luther King Memorial. Volkswagen Group of America has donated one million to he MLK Memorial, which includes the “Mountain of Despair” and the “Stone of Hope,” and which features a 30-foot sculpture of Dr. King, Jr. who stood for hope, freedom and justice. Yet as as Minister Ursula von der Leyen’s statement evidences, national sovereignty and freedom are part of the bygone era of Neoliberalism. Freedom, Liberty, and Choice are placards, posters and tombstones to a prior era of leverage and democracy that came through carry trade investing and securitization of sovereign debt.