Mario Monti and his “Imported from Brussels” government was sworn in today in Italy. So let the “reforms” begin there. Meanwhile, Italian bond yields are still right at 7%, and yields rose elsewhere throughout the Eurozone even though the European Central Bank started purchasing.
By the way, the ECB’s purchases, under their own standards and public statements, are illegal under the Treaty of Lisbon:
It’s true that the Treaty of Lisbon expressly forbids the European Central Bank from buying up debt instruments directly from countries like Italy and Spain. But, says Richard Portes of the London Business School, there’s nothing to prevent the central bank from buying up Italian and Spanish bonds on the secondary market from other investors.
“If that’s illegal, then officials should already be in jail,” says Portes. “Because they’ve been doing it sporadically since May of 2010.” The problem is that the bank’s current erratic purchases only seem to be creating more uncertainty in the market. “Right now,” says Portes, “nobody’s buying in that market except the ECB.”
What the ECB won’t do is say out loud that they will purchase as many bonds as it takes from sovereigns to get their yields down to a manageable level. That would reflect acting as the lender of last resort, and the ECB would much rather fret about inflation in a zone of countries under a depression, apparently.
The problem for the United States is that there’s no understanding of how much exposure US financial firms have to the expected fallout, especially if there’s a default event. JPMorgan Chase and Goldman Sachs announced their overall derivatives risk from sovereigns today, but wouldn’t pinpoint how much of that comes from Italy or Spain:
JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.
Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.
As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.
Maybe they hold no risk. Maybe they hold more than they can ever deal with. We have no idea.
Fitch, the ratings agency, put out a report on US bank risk to the European crisis, and stocks tumbled as a result. In this age of global interconnectedness, and considering that at the root, this is a banking crisis in Europe, there’s no way to really avoid that risk, no matter what the risk officers say.
The ECB’s reticence is a problem for the world.



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Well the bizarre thing about the Fitch report is that it says the problem of the banks exposure is manageable because, get this, the ECB is going to come to the rescue. With that kind of nutty assumption it’s no surprise the markets tanked.
The failure in May 1931 of the Creditanstalt, the Rothschild bank in Vienna, led to a cascade of banks failing in Austria, Germany, and throughout Europe.
In 1932, these failures spread to banks in the U.S., and the situation of the banks got worse and worse through 1932 and into the opening months of 1933. Until FDR, as soon as he was inaugurated president, declared a nationwide bank holiday, and then the next week started allowing banks to reopen as they were determined to be solvent. (By this time, Congress had passed federal deposit insurance.)
1932-early 1933 was the worst of the Great Depression. And the deepening of the Depression was caused by the failure of banks in Europe.
Well, they are all connected at the roots. Sort of like those Aspen Trees. However, Timmeh the Taxless would tell you that not one bank or institution is at risk.
In truth, it is Systemic Risk!
They are not “GIIPS”; the term already in use for a few years is: PIIGS (Portugal, Ireland, Italy, Greece, Spain).
We’ll know what US Banks exposure to Euro debt bonds, both bond holdings and the awesome amount of CDS, credit default swaps (anybody remember AIG?), are when they present the bill to the Congressional Bailout II committee.
That is why they are afraid of all those dirty kids in the streets!
I suspect that the Masters of the Universe that are driving this crisis would be a bit more cautious if they thought they would be allowed to fail. In the meantime, we are left to wonder how long the looting will be allowed to go on this time before the taxpayers find out that the joke is on them.
The banks here were just as culpable since they had been lending to people who were buying stock on margin like there was no tomorrow.
After the market crashed, they were left with worthless stock they could not unload.
Hey that has a familiar ring to it, don’t it ?
“…What the ECB won’t do is say out loud that they will purchase as many bonds as it takes from sovereigns to get their yields down to a manageable level. That would reflect acting as the lender of last resort, and the ECB would much rather fret about inflation in a zone of countries under a depression, apparently…”
i can’t find it now, but brad delong recently had a econ history brief involving the bank of england in the depression of 1825-26.
the bank acted as a lender of last resort without
the authority to do so but justified this on the need of the people.
subsequently, the parliment debated and denied the bank the status of gov’t backed lender-of-last-resort.
however, the prime minister at the time said, in effect, that he would expect the bank to so behave again if the need arose.
i take this story to suggest that, even though germany will not overtly give the ecb the right to be lender-of-last-resort, the germans willntacitly tolerate the ecb doing so.. this report serms to substantiate the notion that lender-of-last-resort is an essential, central means of getting out of, or avoiding, a depression, but that governments will never overtly authorize lender-of-last-resort status.
I have enough friends and relatives around the country to give me a reality check hat can’t be found here in Berkeley and neither they nor anyone they know would accept another bailout as just a necessary evil that must be endured. I don’t what they would do,but they are really enraged and that that would be the tipping point.
The answer is B) “they hold more than they can ever deal with”
It is a problem for the world. But not nearly as severe a problem as the the death-grip the Global Financial Elite has on western economies, which the ECB would be abetting if it were to bail out the defaulting sovereigns, in order bail out those Eurobanks that loaned them money recklessly, and — ultimately — to bail out those rapacious bloodsuckers on Wall Street who incubated and spread the GreedIsGood virus. This must stop now. And, since Germany has no intention of taking the German People’s money to bailout the GFE, it will end unless …
What to watch for: The Wall Street White House coming after the American People’s money again to bail out the vampire squids again.
I mean, after all, as we have money to establish a permanent American military presence in Australia and to launch a Cold War against China, then surely the American People won’t mind bailing out Goldman Sachs again.
I think the entire Global Financial System is being held together by the expectation/hope of bail outs. The GFE think that if they want something enough it will happen, a result, no doubt, of it being so for 30 years. Problem is: the GFE is running out of suckers.
I don’t remember them asking for permission last time?
It’s always good to remember that by definition, a politician is a person who would try to steal a red-hot stove with their bare hands.
Just because a second wave of bail-outs is unimaginable to you and me, doesn’t mean they won’t try it.
I don’t for a second think more bail outs are unimaginable. In fact, I’d say the odds are greater than 50-50 that significant amounts of U.S. taxpayer money will be taken to bail out Wall Street. For some time, I have been attempting to identify the most likely vehicle for the theft. At first, I though it would be through the IMF, with U.S. money going to prop up the Eurostates, the Eurobanks that loaned them the money and, ultimately, Wall Street. That may have been overtaken by events, however. Without German complicity, the IMF/U.S. bail out appears unlikely. The Wall Street White House had hoped to cover its tracks by making the bail out go to Europeans, not directly to Wall Street. That option seems to be foreclosed now so the theft will be attempted on American soil. Watch closely for signals from Geithner.
Like a broken record I’ll say it again: Unless we American People prepare now to defend ourselves the larceny will occur before we know what hit us. A good start would be for someone with wasta to begin discussing these threats publicly say, for instance, on the Front Page of FDL.
From the linked Bloomberg article;
There’s an informative PDF from the Comptroller of the Currency here;
W4B; the linked report has some really nice charts, the gist of which appears to be ever increasing exposure, it’s worth a look.
W4B; The way I read this, is the OCC’s method for assessing risk is to use the simplest possible calculation to describe risks associated with derivative positions that, as the banks themselves describe it are so complicated that they cannot really assess it.
The Banks cannot, and so won’t explain the risks they are taking, and the OCC is using a simplistic formula to guess at a metric to describe a situation that the banks intend to keep a secret.
“We could tell you, but then we’d have to kill you.”
I’m hoping this post is a signal that this issue is emerging front-and-center.
The OCC PDF I linked above is startling for it’s illustration of ever-increasing CDS activity. I don’t see much effort to de-leverage.
Meanwhile, I hear too many saying those big numbers are “meaningless” as in, “we’ll only be on the hook for a small percentage after all the netting.”
I got news for those people, 5% of a $10 Trillion is $500 Billion, and in the end, what they’re trying to do is trade a small percentage of their phony CDS wager losses for a large percent of real taxpayer wealth, meaning our homes.
It’s what the MOTU call reasonable.
Perhaps I spoke too soon about the IMF being out of the bail out picture:
“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.”
http://www.reuters.com/article/2011/11/17/ecb-imf-eurozone-idUSL5E7MH2MW20111117
There is no end to the plutocrats’ tricks though, I must say, I am tiring of the term “plutocrats,” which I am increasingly convinced is just a euphemism for what is really happening: fascism. So from now on, I intend to call them what they are: fascists. In any case, the American fascists are coming for what’s left of the American People’s wealth.
Thanks for the history. I also believe that the NAZIS have indeed re-incarnated, and the world is really in for it now.
JUST ONE fat MF sits at the top of the $$$$$$$$$$$$pyr