Is Italy the Latest Failed Euro State?

[GGT]

This was an interesting commentary. Hazir, since you and I both love to lamblast ratings agencies like S & P, Fitch and Moody's, I wonder why everyone hasn't lost its AAA rating....other than for political reasons.

Rather than exhibiting enlightened leadership, Western policymakers have consistently lagged realities on the ground, with a bewildering mixture of denial, misdiagnosis, and bickering undermining their responses. Rather than proceeding in an orderly manner, today's global changes are being driven by the disorderly forces of de-leveraging emanating from a Europe in deep financial crisis and an America seemingly unable to restore sustained high rates of GDP growth and job creation.

Multilateral institutions, particularly the IMF, have responded by pumping an unfathomable amount of financing into Europe. But, instead of reversing the disorderly deleveraging and encouraging new private investments, this official financing has merely shifted liabilities from the private sector to the public sector. Moreover, many emerging-market countries have noted that the policy conditionality attached to the tens of billions of dollars that have been shipped to Europe pales in comparison with what was imposed on them in the 1990’s and early 2000’s.

http://www.project-syndicate.org/com...rian12/English

[Hazir]

I voted yes in the referendum. This however was not a signal I particularly liked the Constitution. Imperfect though as it was, the Constitution did improve the EU on some points, and for that reason I voted in favour of it. As such I think the Constitution and the subsequent Lisbon Treaty fall far short of what I think they should have been. The reason for that being of course that writing a Basic Law for a federation that may not even use that word is like squaring a circle.

I think we could have had a better document if the UK would have been left out of the negotiations, and from my memory, the main reason why France voted against the Constitution was that it was too anglo-saxon. Not because it was too federal.

[Flixy]

I lost my ballot and didn't vote

[Hazir]

I lost my ballot and didn't vote

Most people I talked with about the referendum didn't care much either way.

[Flixy]

Most people I talked with about the referendum didn't care much either way.

I really wanted to vote though, it was my first

[Loki]

http://www.nytimes.com/2011/12/22/bu...nks-do.html?hp

Looks like something is going right, at least in the short term.

[Hazir]

http://www.nytimes.com/2011/12/22/bu...nks-do.html?hp

Looks like something is going right, at least in the short term.

Interesting, qe that isn't really qe.

[GGT]

http://www.nytimes.com/2011/12/22/bu...nks-do.html?hp

Looks like something is going right, at least in the short term.

Interesting, qe that isn't really qe.

Nothing short term, that doesn't address structural faults, can be considered "going right". That's no better than jumping up and down when the NYSE sees gains based on yesterday or last month, or even last year.

When banks can consider themselves recapitalized by buying sovereign debt bonds, or swapping on interest or currency rates for their profits, with NO incentive to distinguish traditional banking from investment banking....nothing will change or improve. This looks like the US TARP and HAMP 'bail-outs' that meant freee money with no strings attached, and banks used their second chance to buy (and sell) gov't guaranteed Treasurys instead of making loans to small businesses or home buyers.

That doesn't fall within the technical definition of quantitative easing, does it?

[Loki]

Would you like a bottle of whine?

[RandBlade]

Nothing short term, that doesn't address structural faults, can be considered "going right". That's no better than jumping up and down when the NYSE sees gains based on yesterday or last month, or even last year.

When banks can consider themselves recapitalized by buying sovereign debt bonds, or swapping on interest or currency rates for their profits, with NO incentive to distinguish traditional banking from investment banking....nothing will change or improve. This looks like the US TARP and HAMP 'bail-outs' that meant freee money with no strings attached, and banks used their second chance to buy (and sell) gov't guaranteed Treasurys instead of making loans to small businesses or home buyers.

That doesn't fall within the technical definition of quantitative easing, does it?

If recapitalisation is what is necessary to secure the banks then that is a good thing if it happens, even if they don't make lots more loans. It was making bad loans to home buyers that sparked the banking crisis.

Back on Topic: Interesting factoids on the new version of the Spending and Growth Pact: The joint-first nation to break the old Spending and Growth Pact from 1999-2008 was Germany (and Italy), with France then breaking it. One of the nations most struggling now (Spain) never broke it in even a single year.

[Hazir]

If recapitalisation is what is necessary to secure the banks then that is a good thing if it happens, even if they don't make lots more loans. It was making bad loans to home buyers that sparked the banking crisis.

Back on Topic: Interesting factoids on the new version of the Spending and Growth Pact: The joint-first nation to break the old Spending and Growth Pact from 1999-2008 was Germany (and Italy), with France then breaking it. One of the nations most struggling now (Spain) never broke it in even a single year.

Which only goes to show that my consistent stance on this whole crisis is right; it never was about the euro, it was always and still is about countries clinging to soviet-style economic regulations. The worse the country is on that count, the deeper it is in the shit today. Greece would have made Stalin proud, for the deathly grip the (overal dysfunctional state) has on the economy.

[RandBlade]

But that's wrong, in Spain and Ireland it was the opposite problems.

In Spain it was a booming construction industry which was largely caused by 'free credit' from the Euro. When that industry collapsed due to the credit crunch it resulted in a massive black-hole in Spain's finances.
In Ireland it was even more the opposite - Ireland had one of the "healthiest" economies imagineable from a state-perspective, incredibly low (relatively) debt. But the banks grew mammothly in large part due to the euro and when they were at risk of collapsing the government guaranteed them - under pressure from their contagion-fearing euro colleagues. The collapse of the banks and related income exploded Ireland's finances.

[GGT]

If recapitalisation is what is necessary to secure the banks then that is a good thing if it happens, even if they don't make lots more loans. It was making bad loans to home buyers that sparked the banking crisis.

Back on Topic: Interesting factoids on the new version of the Spending and Growth Pact: The joint-first nation to break the old Spending and Growth Pact from 1999-2008 was Germany (and Italy), with France then breaking it. One of the nations most struggling now (Spain) never broke it in even a single year.

But that's wrong, in Spain and Ireland it was the opposite problems.

In Spain it was a booming construction industry which was largely caused by 'free credit' from the Euro. When that industry collapsed due to the credit crunch it resulted in a massive black-hole in Spain's finances.
In Ireland it was even more the opposite - Ireland had one of the "healthiest" economies imagineable from a state-perspective, incredibly low (relatively) debt. But the banks grew mammothly in large part due to the euro and when they were at risk of collapsing the government guaranteed them - under pressure from their contagion-fearing euro colleagues. The collapse of the banks and related income exploded Ireland's finances.

I disagree with the part I bolded. The spark was investment firms and big banks being exposed as over-leveraged and insolvent---with AIG being the shared link to so many counterparties and contracts that couldn't be paid, let alone unwound.

I'm surprised you're still seeing US sub-prime home loans as the cause for the global banking crisis. Spain and Ireland had mortgage bubbles too (and I wouldn't say Ireland had a "healthy" economy at all, since it was based on a crazy building expansion, with banks making too many risky loans without collateral). No idea how you can say the US problem was banks making bad home loans, Spain's problem was 'free credit' from the Euro, and Ireland's problem was the Euro itself...

In all cases, the culprits were in the financial industry (and gov'ts that weren't paying attention until it was too late). Banks mixed their retail/commercial and investment arms, 'monetized debt' by creating all those synthetic derivatives with loans at the base, and sold it around the planet as AAA rated. Remember Iceland? The credit default swaps and CDO market is thought to be around $600 TRILLION, but no one really knows exact figures.

'Back on Topic': Like it or not, if any of the euro states fail, or they're not "propped up" somehow, or debt restructured, the global contagion and domino effect would be unimaginable.

[Hazir]

But that's wrong, in Spain and Ireland it was the opposite problems.

In Spain it was a booming construction industry which was largely caused by 'free credit' from the Euro. When that industry collapsed due to the credit crunch it resulted in a massive black-hole in Spain's finances.
In Ireland it was even more the opposite - Ireland had one of the "healthiest" economies imagineable from a state-perspective, incredibly low (relatively) debt. But the banks grew mammothly in large part due to the euro and when they were at risk of collapsing the government guaranteed them - under pressure from their contagion-fearing euro colleagues. The collapse of the banks and related income exploded Ireland's finances.

There is no 'massive black' hole in Spain's finances. There is an inflexible job market and over-regulation that curtails growth. Even in the boom days Spanish unemployment figures were unacceptable.

Spain has problems weathering the present crisis because in that petrified economy it's unclear how solid its banks are given the burst building bubble.

The only, and I repeat only, exception is Ireland, where the problems are due to the Irish thinking you can have huge banks operating within your borders without proper oversight. Not much unlike Iceland. To be honest, I think they should have let those banks fail. They were too big to save for Ireland to start with.

[Hazir]

<snip>.

Rand belongs to the school of thought that is hostile towards the euro so is to be expected to blame everything on the currency and nothing on the people that abused it (banks and to an extent governments knowingly and willingly building up too big a debt).

[Loki]

The idea that any colonial concern left a trail of anything except misery and exploitation flies in the face of any kind of objective reading of history. The British Empire did some good in places like India, but I think it's considerably outweighed by the harm it did. It was, in Orwell's words, "very largely a racket"

Of course, whether the Maratha's or the Mogul Empire would have left it in a better or worse state is completely unknowable.

http://www.bbc.co.uk/news/world-africa-16364244 And this is what happened all over Africa before colonialism.

[CitizenCain]

http://www.bbc.co.uk/news/world-africa-16364244 And this is what happened all over Africa before colonialism.

It's still whitey's fault. Hell, look at that picture... what color are the cattle that everyone's killing everyone else over? That's right, white. Q.E.D.

[earthJoker]

Spain and Italy successfully sold about €22bn of government debt at sharply lower costs than at previous auctions, easing tensions in financial markets and underlining the tentative improvement in investor sentiment towards the eurozone.

http://www.ft.com/cms/s/0/e22c4e28-3...#axzz1jGxwtL2T

[Hazir]

Interesting in all that 'improved sentiment' is that none of the fundamentals changed.

[Loki]

http://www.nytimes.com/2012/01/14/bu...pected.html?hp

[earthJoker]

And nobody gives a shit.

http://www.businessweek.com/news/201...e-concern.html

[Loki]

I think S&P is gaining a reputation of being extremely harsh. It should be interesting to see what happens when a second agency provides a similar downgrade.

[RandBlade]

The problem is that AA+ should not be "incredibly harsh" under these circumstances.

[Loki]

That's how the sheeples in the finance sector interpret the results. Give them time to change their minds and set off another run on currencies.

[RandBlade]

No, its because the Finance sector decided they weren't AAA months ago. The idea that France was in the same league as Germany or the UK has already been discounted so it makes no difference S&P moving after the fact.

[Hazir]

No, its because the Finance sector decided they weren't AAA months ago. The idea that France was in the same league as Germany or the UK has already been discounted so it makes no difference S&P moving after the fact.

So one has to wonder; who gives a damn at all. If these agencies don't ever get it right (and from the looks of it they don't ever get it right) then why should you consider them relevant to investment decisions.

There seems to be something very wrong with these agencies. I can't put my finger on what it exactly is that is wrong with them, it's not like they are conspiring or anything, but they seem to be incapable of original thought. I wonder if real successful investors ever pay any heed to what they say.

[RandBlade]

I think its like most "advice agencies" - the truly successful put more effort in than them, so its redundant for them. Those are the major market movers.
But for those who don't have the time of day (or experience/expertise) to do that, they're better than putting your finger in the air and guessing. Those are the major media players.

[Hazir]

I think its like most "advice agencies" - the truly successful put more effort in than them, so its redundant for them. Those are the major market movers.
But for those who don't have the time of day (or experience/expertise) to do that, they're better than putting your finger in the air and guessing. Those are the major media players.

They are not just media players, that is the problem. Too many regulations take those ratings into account.

[Hazir]

This is as good a place as any to put this Roland Berger is planning to start up a rating agency, which is supposed to be operational in the second half of this year. Good news for Amsterdam is that it is considered as the main seat of this agency.

[GGT]

I suppose this is the place to post some numbers on sovereign debt....and the dark market involving credit-default swaps.

Yeah, remember me harping and ranting about those synthetic debt derivatives that made Paulson billions in profits, while tax payers had to save big banks (and non-banks like AIG) and give investment firms (Goldman Sachs) bank-holding status?

http://dealbook.nytimes.com/2012/01/...%2Findex.jsonp

Recognizing this weakness in the derivatives market, finance ministers and central bankers from the Group of 20 leading industrialized nations said in 2009 that they wanted to have clearing in place for all standardized derivatives by the end of 2012.

Yet, as of June, only 9.4 percent of the $29.6 trillion credit-default swap market is centrally cleared, according to the Bank for International Settlements.

See that number--nearly 30 TRILLION? That's actually lower than other estimates that include counterparties and other banks beyond the top 5.

The other thing I noticed....and help me if you can.....nowhere did the article mention which institutions sold and "guaranteed" these credit default swaps, or if they'd be able to pay out.