The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Declan]

Can I presume that's from some English paper?

Naturellement - Telegraph

http://www.bbc.co.uk/news/business-15748696

click on each country and see what the debt per person is for each – Cmon Ireland

[Billys Boots]

If there's one sure way for the Tories/Telegraph to get its electorate wound-up, it's a suggestion that the Germans are getting too big for their britches.  Again.

[muppet]

Can I presume that's from some English paper?

Naturellement - Telegraph

http://www.bbc.co.uk/news/business-15748696

click on each country and see what the debt per person is for each – Cmon Ireland

That is a very good link.

[magpie seanie]

Can I presume that's from some English paper?

Naturellement - Telegraph

http://www.bbc.co.uk/news/business-15748696

click on each country and see what the debt per person is for each – Cmon Ireland

Ha ha! We kick the rest of the worlds asses at debt per person. In your face world!

[fearglasmor]

So we owe 104bn to the UK as much as we owe to Germany and France put together.
But the UK owe us 113bn................

An they were making a big deal about giving us a lend of 7m or something like that.

[Hardy]

So we owe 104bn to the UK as much as we owe to Germany and France put together.
But the UK owe us 113bn................

Y'see this is the stuff I just don't get. How come the other side of the balance sheet is never netted off our national debt?

Presumably this 113Bn the UK owes "us" is owed to Irish banks - which, since we now own them, really is us. So our balance with the UK is 9Bn positive. Or else the 113Bn we owe them is after we net off the 104Bn they owe us.

Could somebody who understands this tell me how it works?

[muppet]

So we owe 104bn to the UK as much as we owe to Germany and France put together.
But the UK owe us 113bn................

Y'see this is the stuff I just don't get. How come the other side of the balance sheet is never netted off our national debt?

Presumably this 113Bn the UK owes "us" is owed to Irish banks - which, since we now own them, really is us. So our balance with the UK is 9Bn positive. Or else the 113Bn we owe them is after we net off the 104Bn they owe us.

Could somebody who understands this tell me how it works?

Here is one article which helps although I recall a better one. I'll keep looking.

http://www.guardian.co.uk/business/dan-roberts-on-business-blog/interactive/2009/jan/29/financial-pyramid

[Evil Genius]

Nigel Farage telling the hoors a few home truths

http://www.youtube.com/watch?v=bdob6QRLRJU&feature=player_embedded

You know, that could be the most frightening moment of this whole crisis so far. Why? Because Nigel Farrage comes across as totally reasonable and rational in every word he says there. In fact, everything he says is true. That's how Hitler sounded to the German voters who elected him in 1933. We are in real trouble when the extremists start to make sense. Merkel, if she's serious about the importance of this crisis for the future of Europe, must bite the bullet and direct the ECB to act as the Central Bank of Europe. It's a straight choice now between the fear of the financial inconvenience of inflation and the fear of the collapse of the political consensus that has underpinned peace in Europe for 65 years.

I hold no brief for Farage, accept that UKIP has its share of cranks and loonies etc and do not agree with my country withdrawing from the EU.

But I feel it unfair to label him an "extremist", especially in the same paragraph as Hitler. In fact, if you read UKIP's manifesto, it is hardly any more "extreme" than eg that of the Lib Dems:
http://www.ukip.org/media/pdf/UKIPManifesto2010.pdf

Imo you might have been better advised to post that: "We are in real trouble when our (supposedly) democratic leaders cease to make sense..."


P.S. Farage was being accused today of being "anti-German", until he pointed out that he is married to one...

[Evil Genius]

So we owe 104bn to the UK as much as we owe to Germany and France put together.
But the UK owe us 113bn................

The ROI's net balance with the UK is only a small part of the overall picture of the former's finances.
And when looking at the bigger picture, the markets have concluded that the ROI is in a much worse overall position than the UK.

An they [UK] were making a big deal about giving us a lend of 7m or something like that.

Not so big a deal as, say, to insist on setting the ROI's next budget in return...

Anyhow, the point is that regardless of the ROI's overall position, at the time of the UK loan, the ROI desperately needed cash to service their current deficit - the Minimum Monthly Payment on the nation's Credit Card, if you like.

Except that the cost of short-term borrowing by the Irish Government to make that payment would have been at such a high interest rate as to make the deficit unsustainable.

Whereas the UK's credit with the money markets was better, so they (UK) borrowed the money from the markets at a much lower rate and passed it on to ROI, taking a "turn" (and the risk of Irish default) for themselves.

[Evil Genius]

So we owe 104bn to the UK as much as we owe to Germany and France put together.
But the UK owe us 113bn................

Y'see this is the stuff I just don't get. How come the other side of the balance sheet is never netted off our national debt?

Presumably this 113Bn the UK owes "us" is owed to Irish banks - which, since we now own them, really is us. So our balance with the UK is 9Bn positive. Or else the 113Bn we owe them is after we net off the 104Bn they owe us.

Could somebody who understands this tell me how it works?

I don't pretend to understand how it all works, but I suspect that the ROI/UK deal is as follows.

If the ROI owes the UK a net amount, there is presently no way the ROI can pay it. But it is still vital to know the overall (pre-net) figures, since it tells so much more about the relationship between the two eg how much of it is trade-related, investment-related or simple borrowing. Also, the age of the debt is important i.e. the bulk of the Irish debt might eg be short-term (5 years?), whereas the UK debt to ROI might eg be longer term (10 years?).

Whereas if the UK owes the ROI a net amount, there is no advantage in the latter calling it in, since their [ROI's] other creditors will only demand it for themselves.

And in any case the ROI's debt levels, whether bi-lateral with the UK, or multi-lateral with other countries, are only part of the picture.

For example, according to the DT chart, the UK's overall debt is just over four times its GDP, whereas the ROI's debt is 8 1/2 times its GDP. And not only that, but the UK is currently paying less than half the interest rate on its debt, compared to what the ROI is being forced to pay.

Moreover, none of the above takes into account each countries assets and reserves etc - I suspect that in these respects, the UK position is regarded as being healthier than that of ROI.

Finally, I was listening to some US Pension Fund manager who correctly anticipated the US sub-prime mortgage collapse etc, and was now looking outside the US to international sovereign risk etc. Of course just because he predicted the last one doesn't mean he must be right this time, but he was specifically far less worried about the US/UK than he was about France/Japan, on the basis that despite the pain/political unpopularity it caused, the former had recapitalised their banks, whereas the latter had not, and so were extremely vulnerable to another Lehman-type collapse. (This also explains in part why the UK is paying lower interest rates than France, with the USA paying less again) Anyhow, I dunno whether he was correct, but his case seemed very persuasive to me.

P.S. Another comment I saw the other day was that whilst everyone agrees that the German economy is currently reasonably sound, we should not take that as a "given" forever, since their demographics, whereby the population is getting older but no longer growing in numbers, augar severe problems in another 20 or 30 years time.

[muppet]

http://www.abc.net.au/foreign/default.htm

[muppet]

Reading this and I am thinking Merkel might be right.

My emphasis for anyone who doesn't have time to read the whole article.

http://www.golemxiv.co.uk/2011/11/buckle-up-credit-crunch-2/

Buckle up – Credit Crunch 2

by Golem XIV on NOVEMBER 17, 2011 in LATEST
I am sorry this is such a lengthy article. But I offer it as an explanation and understanding of what is going on that the bankers DO NOT want you to have.


I think it may now be time to buckle up and read that little card that tells you how to assume the crash position.

In a nut shell we are already in the midst of another  credit and bank funding crunch. Of course all the talk from the bankers, such as Buiter at Citi  and the tin hat brigade at Deutsche Bank is all about how it is all the fault of nations. But it's not quite so wonderfully simple as that.

Already one multi billion dollar brokerage, MF Global, has collapsed. One Trillion dollar bank, UniCredit, is teetering on the edge of collapse, and two European nations each with enough debt to bring down Europe, Italy and Spain are desperately trying to borrow euros from the ECB and dollars from the Fed. Just this morning Spanish bond yields are shooting up well in to unsustainable territory. And French yields are also in motion. Like a train sliding backwards over a precipice, as each carriage goes over so the weight pulling down grows and the weight resisting decreases. And the engine at the front, the ECB/Germany has to think can I still pull all this back up or should I cut the coupling and save myself at least.

There is a crisis and it is in Europe , but the 'contagion' is not at all what our cretinous media and brain rotted politicians are telling us it is. The contagion the markets are worried about is bank contagion. Nations' borrowing woes are the radioactive material, but the banks built the bomb.

Here's what I mean. What I want to show is that what is happening is almost a carbon copy of what the banks did in the lead up to Credit Crunch 1. They have done the same again only this time with sovereign bonds instead of American mortgages. This is another sub prime and once again it has been engineered by the banks.

To understand why the rise in borrowing costs in Italy and Spain, as well as worries about Greece, have suddenly become a 'contagion' that the bankers speak of in apocalyptic terms we have to understand why and how MF Global imploded. This might seem like a sideways diversion but it's not. The collapse of MF Global is our window in to what is actually frightening the bankers.

MF Global was not only a huge brokerage it was one of the gilded Primary Dealers. That is, the largest and most trusted banks or brokerages chosen to for their size and stability, to deal everyday with the Fed to help it sell America's trillions of debt. MF Global was run by Jon Corzine former head of Investment Banking at Goldman Sachs and one time governor of New Jersey. But please don't get any ideas that there is a revolving door between finance and government.

And yet MF Global collapsed. According to The Guardian it did so because of lax oversight which had not noticed or been bothered by the fact that at the time of its demise,

...MF Global had liabilities at the end of June of $44.4bn against only $1.4bn in equity.

The familiar trope of 'lax oversight' goes along with 'rogue trader' as the explanation the  bankers can live with and are happy for you to accept. 'Lax oversight' like 'rogue trader' scape-goats one or two people and deflects any questions of whether what happened was a direct consequence of what the banks do and how they chose to do it as a group and profession.

What is undeniable is the massive leverage. Now we need to ask what underpinned this leverage. For that we turn to a report from AP which I picked up at The Business Insider With the Headline, "MF Global Is The First Big US Victim Of The Europe Crisis". This article began the – It's a crisis of European nations' story-line. It begins with the statement,

"The European debt crisis has claimed its first big casualty on Wall Street..."

But how exactly? Much later in the article comes this,

MF had amassed net exposure of $6.29 billion in debt issued by Italy, Spain, Belgium, Portugal and Ireland. Of that, $1.37 billion was from Portugal and Ireland, which already were bailed out by European authorities. More than half was from Italy, whose borrowing costs increased in recent days as investors grew concerned about its finances. (My emphasis)

Now no one had forced MF Global to buy these bonds. MF Global could just as easily have bought German bonds. Only they would have given far less of a return. What MF Global had been doing was buying up dodgy bonds on the secondary market that other people were selling. Picking them up cheap and expecting them to be bailed out.

So now we have massive leverage resting on sub-prime assets, this time bonds not mortgages,  which the company had specifically sought out. And it sought them out for the same reasons sub prime mortgages had been sought after – their high risk made them more lucrative than safe ones. Same greed, same idiocy. Same people.

But Corzine wasn't done yet. Oh no, not by a long way.

MF Global was also following the exact same finding model as Bear Stearns did, as Lehman's did, as Northern Rock did and as countless others did. They relied for a huge part of their day to day funding on short term borrowing. Why go for short term borrowing which in retrospect seems so unstable – in that as soon as you have a problem you have so little time to sort it before you run out of money? Why, because it's cheap. Of course. So you buy risky because it's cheap to buy and offers high return (until it explodes that is) and then you borrow short also because its cheap but unstable. Banking genius at work having 'learned those lessons' from 08!

But wait there's more as explained here by professional accountants in forensic detail. I will give you the short version.

MF Global was borrowing to finance itself but with what collateral? Remember Lehman bothers and their infamous repo 105? For those who don't, repo is where you 'sell' as asset but with a fixed agreement to buy it back at an agreed slightly higher price at a set time. So although it is 'sold' it is actually a loan because the asset comes back and the money is returned with interest. All banks use repo for overnight and short term funding.

Lehman's was using repo but exaggerating the worth of its assets to 'borrow' more than they were worth. They came unstuck when creditors would no longer accept their valuations of their assets or, in fact, accept them at all. MF Global was using its dodgy European bonds as collateral. It was marking them to mythic – sorry – model valuations and repo-ing them. But it gets better. The particular type of repo it was using was 'repo to maturity'. Which simply means the agreement was that the short term repo was to be rolled over and renewed all the way until the bond matured. This is legal. But I should  point out the the law was written by the financial firms themselves. The key fact is that repo to maturity is supposed to be done ONLY with absolutely AAA rated bonds like American bonds. MF Global was using it with Italian, Greek and Spanish bonds. Pretending they were AAA even as it was buying them up at prices which recognized they were very far from AAA. And the international accounting standards boards and regulators either didn't 'notice' or did and sanctioned it.

Now what this meant was that MF Global was showing the repo's as actual sales. Naughty, yes, but terrible? Well, yes. Terrible enough that much of it was hidden off balance sheet. You see by booking them as a sale the company was claiming that the risk associated with them (remember they are dodgy bonds from struggling countries) was also gone. Sold to the 'buyer'. But there was no buyer. They were only repo'd.

I say  'only' but in fact MF Global was happy they were only repo'd. It was more lucrative than selling them. And in fact this is in may ways the point of the deal MF was doing. You see the 'interest' MF was getting on the bonds, because they were dodgy, was quite high. This was the whole reason for buying them. Whereas the interest charged on short term repo is quite low. So MF Global was buying dodgy bonds which gave high interest and using them to borrow at a lower rate. Not only did this borrowing enable it to leverage itself more and more, but it was even making money on the deal; from the fact that the interest it was getting on the bond was higher than it was paying to borrow, using them as collateral. It seems convoluted and it is. But this is what the bankers call arbitrage and is why they think they are so clever. Understand it and you too could be a proper banker.

However, they ignored one thing. The same thing as Lehman's ignored. No matter what accounting trickery they got up to, the bonds were not sold they were repo's which meant that the risk (of the bonds declining in value) remained with MF Global. In fact the risk was now much greater. Not only was there the original risk of the dodgy bonds losing value, they now had an additional, greater risk because they had taken out further loans using the dodgy bonds as collateral. And from the leverage we looked at earlier know just how much MF Global had multiplied the risk.

So when the value of Italy's and Spain's bonds began to decline, their value as collateral declined and MF Global was asked to provide additional capital/cash to make up the difference. This is what is called a 'margin call'. And these margin calls killed MF Global. They couldn't come up with any more cash because they had none (they'd spent it all buying dodgy bonds) and couldn't borrow any more because all they had were those bonds whose value was going down not up and a simply insane leverage which geared those losses up till they had the power to crush.

So now we have almost every aspect of the original sub-prime credit crunch reproduced by the same people who did it the first time and were never punished or even rebuked but instead were allowed to reward themselves with millions in bonuses.

So to summarize, MF Global invested in sub prime. Only this time sub prime bonds not mortgages. It leveraged them hideously, pretended it had off-loaded the risk when it hadn't and then got caught when the value of the bonds went down and counldn't pay the debts it had taken on using the bonds as collateral. Sorry to belabour the point but I want you to see how this really is subrpime all over again.

And like the original sub prime it means when one bank goes down it leaves all those to whom it owes money, with their own losses.

So now let's move on from MF Global, because as some wag commented, you never find just one cockroach in a dirty kitchen. Which logic nearly killed a second brokerage, Jeffries. Its stock collapsed on the rumour that it too had bought up lots of European bonds. Jeffries had to take the amazing step of publishing every single position in bonds that it had. Only then did its stock recover.

Since then other banks have been less forthcoming about their exposure, namely Goldman Sachs and JP Morgan. Only they are not so much suspected of having lots of European bonds themselves as having perhaps provided the one part of the whole sub prime crisis we have not so far mentioned, CDS insurance. Goldman and JP Morgan are among the world's largest derivatives traders. And they revealed that between them they have sold 'protection' on over $5 trillion globally. No one knows how much of this is on dodgy European debt and neither Goldman nor JP Morgan is saying.

In sub prime credit crunch 1 it was AIG that provided much of the short term funding and much of the CDS protection. This time who knows who are the main providers. But one thing you can be sure of, there will have been a great deal of it sold. Because it would have been sold using the same logic which inspired MF Global to buy the debt. The logic which said, these are countries too big to fail so in the end they will be bailed out even if democracy has to be  suspended to ensure it.  If you believed that logic then you wold have sold CDS protection and pocketed the premium.

So that, I believe is all aspects of sub prime accounted for. You can now see that while sovereign bonds and debts may be the fissile material the bomb itself and its explosive potential was constructed by the banks just as they did last time following the same blue-print and same greed.

And how soon might it go off. For that we end with UniCredit. Last quarter the trillion euro bank suddenly posted a 'surprise' 10.6 billion euro loss in just this last quarter! It's bonds are now trading as junk while it faces having to raise another 51 billion euros to re-finance its debt in just the next year. That, to me spells BOOOOM! It is only the first. It certainly won't be the last.  There will be others and they may be along fairly soon.

Why did UniCredit suddenly make such a loss? What was happening during the last quarter? Well Spanish and Italian bonds have lost a lot of value. what do you think, might UniCredit have been holding a lot of them? Surely not I hear you cry. Who would be so stupid. UniCredit blames the loss on its Kazakhstan and Ukraine units. What would those units have been doing to wrack up such monumental losses? UniCredit is now trying desperately to sell bits of itself.

The banks know what is going on. They each know the risks and losses they are hiding and know if they have them then so do the others. Exactly as in Credit crunch1 interbank lending is frozen with both libor  and repo markets in disarray.

I suggest these are the real reasons the banks are in an absolute panic and are shrieking about how the ECB MUST print and print now and why elections and  voting of any kind at all must NOT be allowed to upset the smooth imposition of the bank's required plan. There is contagion but it is bank contagion, its sub prime greed and failure all over again.

[muppet]

Jebus!

http://www.zerohedge.com/contributed/capital-flight-and-forced-repatriation

[Declan]

Unbelievable reading there muppet - We are well and truly FUBARed   

[seafoid]

Meanwhile in London John Major says that any attempt to impose a tax on financial transactions would be a disaster for the UK.
The banks have bought politics.