Sunday, November 6, 2011

November 6 2011: Democracy Isn't Dead Yet - It's Just the Euro

Arthur Rothstein Where the Grapefruit Grow January 1937
"Part of the family of a migrant fruit worker from Tennessee, camped near the packinghouse in Winter Haven, Florida"

Ilargi: Anyone remember how Merkel and Sarkozy said they would save the Eurozone "by the end of the month" of October? Anyone know why they are still in their respective seats? Read anything about the issue in the press lately? Papandreou's on his last legs, as is Berlusconi, but Merkozy play deaf and dumb, and no-one dares ask the all-too obvious question: "What are you still doing here?". Everyone knows by now: "When things get serious, you have to lie".

I do like Matt Taibbi's take-down of Michael Bloomberg, I do. The mayor of new York is no less of a pathetic psychopathic peacock than any Giorgios, Nicolas or Silvio. But Taibbi's conclusions are way off mark. Bloomberg blames politicians for the financial crisis, Taibbi blames the banks. But it's the interplay between the two that has caused the mess. A political system bought for by the banks. And to say that Barney Frank and Fannie and Freddie didn't write any loans just doesn't begin to cover reality.

Mike Bloomberg's Marie Antoinette Moment
Did government efforts to ease lending standards put a lot of iffy borrowers into homes? Absolutely. Were there a lot of people who wouldn’t have gotten homes twenty or thirty years ago who are now in foreclosure thanks to government efforts to make mortgages more available? Sure – no question.

But did any of that have anything at all to do with the explosion of subprime home lending that caused the gigantic speculative bubble of the mid-2000s, or the crash that followed?

Not even slightly. The whole premise is preposterous. And Mike Bloomberg knows it.

Ilargi: Look, Fannie and Freddie bought about all they were asked to buy. If they hadn't, as in: if their regulators in the political system hadn't let them, the US would be in a whole different situation today. Fannie and Freddie were the first pillar where private risk became public, while profits remained strictly private. You can't just simply blame the banks for using what opportunities they are offered.

In order for this vision of history to be true, one would have to imagine that all of these banks were dragged, kicking and screaming, to the altar of home lending, forced against their will to create huge volumes of home loans for unqualified borrowers.

In fact, just the opposite was true. This was an orgiastic stampede of lending, undertaken with something very like bloodlust. Far from being dragged into poor neighborhoods and forced to give out home loans to jobless black folk, companies like Countrywide and New Century charged into suburbs and exurbs from coast to coast with the enthusiasm of Rwandan machete mobs, looking to create as many loans as they could.

They lent to anyone with a pulse and they didn’t need Barney Frank to give them a push.

Ilargi: No, they didn't need a push, but they needed Barney Frank and his pals to make it possible! If these practices were illegal, would Countrywide have engaged in them? Oh, well, wrong question maybe, or a confusing one: they engaged in plenty illegal stuff, but wait for it: there isn't a politician in the house (make that House) who goes after them.

The typical money-machine cycle of subprime lending took place without any real government involvement.

Ilargi: Excuse me, but do you really believe that, Matt? Ok, if you will, we can turn it around: there was no government involvement, but that was only because they were all looking the other way; on purpose! It's the role of the government to be involved in these matters. And no, let's not turn it around: the government created the legal and political climate that made Mozilo and Bob Rubin and all the other pathetic peacocks possible.

Yes, the bankers are scumbags in any sense of the word. But they didn't write the laws. Or at least, there were elected politicians, like Barney Frank, who could and should have stopped them from doing so, or resign and tell the American people about what was going on whenever and wherever they could. They did not do that.

The whole game was based on one new innovation: the derivative instruments like CDOs that allowed them to take junk-rated home loans and turn them into AAA-rated instruments. It was not Barney Frank who made it possible for Goldman Sachs to sell the home loan of an occasionally-employed janitor in Oakland or Detroit as something just as safe as, and more profitable than, a United States Treasury Bill. This was something they cooked up entirely by themselves and developed solely with the aim of making more money.

Ilargi: But Barney Frank was present when Summers and Rubin and Greenspan squeezed Brooksley Born out of the CFTC for wanting to regulate these derivatives. Which makes Frank just as culpable as Rubin and Clinton and Summers and Geithner and Obama and Greenspan and Bernanke, and you're not doing your country a service, Matt, by pretending this is not so. Barney Frank has been in office since 1981, for petesakes.

But it's not all about him, let's be real. There are numerous government regulators who have all, like the proverbial herd of sheep, looked the same, namely the other, way when it came to what was happening. And no, that does not make them innocent. That makes them guilty of not doing the best they can for the people who elected them, the American people. Public service, my donkey. In a court of law, you can go for aiding and abetting, against the lot of them. But they're no more in a court of law than any banker is, are they?

In order to change the system, and to prevent more, and more of the same, from happening, you need to change the political system, and the people who work in it. Shaking your fists at bankers is useless; they will remain greedy, and that you can't change. So will the milkman, for all we know, he just has less to skim off. The limits within which -just as greedy- politicians can operate, however, that is something you do have a voice in. And the politicians can then rein in the banks, and make a repeat of this ghastly episode, which is by no menas over by the way, not just impossible but unthinkable.

Other than that, as I said, I do like Taibbi's take-down of Bloomberg. Here's Ashvin on Europe, where in some places, unlike in Anerica, democracy perhaps isn't dead yet:

Ashvin Pandurangi:

Democracy Isn't Dead Yet - It's Just the Euro

"Canned laughter" is frequently used on TV shows to create the illusion of soothing, comedic value in the minds of the show’s viewers. Anyone who has watched a show with "canned laughter" is familiar with the logic. One of the characters says something or another that isn’t very interesting or funny, the laugh-track comes on and then we find ourselves forcing a smile or snicker as an almost "unconscious" reaction. Almost, but not quite, because many times we are still forced to face our participation in this contrived reality after the fact.

The ongoing shows in the realm of the political economy are no different. They use their own versions of "canned laughter" to legitimatize a situation which is otherwise plainly illegitimate to those of us strapped into our seats, forced to watch along in agony. A great example of these political laugh-tracks is the "vote of no confidence" that is held in Parliamentary countries, where the appointed governments almost always survive in one piece by maintaining "party discipline" or slightly modifying policies to corral dissenters in.

However, attempts to impose an artificial feeling of political satisfaction for the people and political legitimacy for the government cannot and will not be successful forever, under any and all circumstances, and that fact couldn't be any truer than it is now.  It is evident from the "no confidence vote" that has just occurred in Greece, where Prime Minister George Papandreou was truly on the chopping block this time, and the one that will soon occur in Italy, where Prime Minister Silvio Berlusconi will be as well.

With regards to the former, G-Pap managed to survive with a slight majority of 153 votes (2 votes more than necessary), and is now claiming to be in talks with other parties about forming a "national unity government", which he almost assuredly will not be the leader of. At first blush, one could be forgiven for seeing the developments of last week in Greece, culminating in this vote of confidence for a future government coalition, as marking an unmistakable death blow to "democracy" in the developed world.

G-Pap dangled the prospect of a truly democratic process in front of the Greek people as a ploy, to scare the opposition parties into throwing their support behind the oppressive EU deal of October 26 and joining a coalition government, after which both the referendum and the protection offered by "opposition" parties would be callously stripped away from the people. Indeed, a better example of blatantly anti-democratic tactics within a  democracy cannot be found short of fiscal "supercommittees" and military coups.

G-Pap’s government has now managed to stay in power (albeit in a different form), gain stronger commitments from opposition parties to the EU bailout/austerity deal and postpone new elections until after the deal passes and €8 billion from the IMF is disbursed to avoid "default". Merkel and Sarkozy will now sleep better knowing that the Greek people will be forced to play their part as victims in an epic criminal extortion scheme, without any inconvenient democratic processes, such as a referendum, interfering along the way. Or will they?

Sometimes, when we get bogged down in the superficial details, we miss the bigger perspective that is evolving. G-Pap did win his confidence motion, but only by a slight majority of two votes, and it cost him his job. More importantly, it is not clear what kind of credible "coalition" government can be formed or whether it can really quell political dissent against the austerity deal. Now comes the part where ruling politicians must actually convince the various political factions that G-Pap's words to them in Parliament about "national unity" and "personal sacrifice" are more than just words. Deutsche Welle Reports:

Papandreou Wins Confidence Vote But Looks Set to Step Down
" It is a first in the constitutional history of Greece; parliament expressing its confidence in the prime minister so that he can soon resign.

… If the conservatives continue with their refusal to take part in any government of national unity, it would leave the Socialists with no choice but to form a shrunken coalition with the populist right and the economically liberal "Democratic Alliance" of former Foreign Minister Dora Bakoyannis – seen as a rather pointless exercise.

The leftist opposition signaled that it was particularly upset about the vote. "They want us to express our support for a government that is not even there anymore," said leader of the moderate Left Alliance Alexis Tsipras – with many commentators agreeing that there's an element of truth in Tsipras' assessment of the situation. "

CNN adds some more "clarity" to the ruling politicians' ambitious political plans for Greece (but against the people of Greece), and the ongoing negotiations with New Democracy opposition leader Samaras, who has so far refused to play his part in this Greek tragicomedy by demanding both G-pap's resignation and snap elections for a new government within six weeks. Now it seems G-Pap has agreed to resign if a coalition government is formed, but Samaras refuses to be a part of any coalition until the resignation is put in writing, notarized and delivered to his doorstep, and only then will he be willing to discuss additional terms (i.e. when to hold elections).

Greek PM Expected to Resign After Coalition Government Formed
"Sunday's Cabinet meeting will be the last with Papandreou as prime minister, the spokesman said, according to media reports. The meeting will focus on issues relating to Monday's Euro group meeting, at which Finance Minister Evangelos Venizelos will represent Greece, the reports quoted the spokesman as saying.

Venizelos is likely to remain in his post as finance minister in a new government, sources told Greek television. Candidates for the prime minister's job include Petros Moliviatis and Loukas Papaimos, according to Greek television. The new government will have a life of four months, according to Greek television, citing sources, and elections will be held in early spring.

...Speaking briefly to reporters after the meeting, Samaras said that once Papandreou resigns, everything will "take its course" and "everything else is negotiable."

...But many questions remain unanswered. The main opposition party has showed little willingness to join the unity government, with Samaras making it clear he did not want to be part of a coalition. In forming the new government, the PASOK party will likely seek the support of smaller parties. Samaras has called for a transitional government for six weeks, followed by elections."

The only clear result we can expect from all of this political haggling is that the Greek people will not take kindly to such a blatant betrayal of what little trust they had left to offer to their government. So underneath the surface of G-Pap’s despicably cruel, yet "successful" ploy against the representative interests of the Greek people, we see that there lays a sociopolitical situation that is as volatile and uncertain as it ever was. The Greek people, the opposition leaders and, really, the rest of the world were presented with the PASOK government’s "canned laughter" routine, and very few of us felt the need to smile or laugh along.

In a decades-long era where democracy has been severely lacking and dysfunctional at best, and entirely non-existent at worst, it seems that what has happened in Greece over the last week was net beneficial for the concept of representative democracy within a nation-state. The ruthless political brinkmanship of the Greek Prime Minister was laid bare on the table in full view for the world to see, and, more importantly, for the Greek and German people and their few remaining "representatives" to digest. It has left both him and his anti-democratic government with not even a pinch of credibility. Bloomberg reports:

Papandreou Seeks Unity Government
"The Communist Party of Greece, the third-largest party with 21 seats, and Syriza, which has nine, [in addition to Samaras' New Democracy Party], rejected the overture from Papandreou, and called for elections. "I won’t bow to blackmail," Communist Party leader Aleka Papariga said.

The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package that was negotiated in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

"In the eyes of Angela Merkel and Nicolas Sarkozy he doesn’t have much credibility left," Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. "Greece needs to have a new face to the rest of the world."

We must also remember that, while the democratic ideal may have began in Greece, it now encompasses much of the world and especially the West, so it cannot be expunged from our collective consciousness quite so easily. It has taken many, many hits over the years, nearly becoming a heap of garbage in the dumpster of history in 2008-09, but it refuses to go gently into that good night. It’s resolve will next be tested in another critical (and much larger) member state of the Eurozone, Italy, and this time the odds that it comes out of the battle on top are that much better.

It has become quite clear that Berlusconi will not survive as the leader of Italy much longer, as many of his party members are refusing to support him. The financial "contagion" from Greece has rapidly enveloped one of the largest economies in Europe, as Italy’s sovereign bond yields have consistently hit record highs, and its ruling government simply does not know how to respond.

Brussels wants it to effectively relinquish full fiscal sovereignty in a gambit to calm markets, but that is appropriately an untenable outcome for Italy, and Berlusconi is hoping the EU/ECB will offer to perpetually buy its debt until some political consensus is reached, which is justifiably untenable for the rest of Europe.

The prospect for that political consensus is also drifting further and further out into the Mediterranean, as all of Europe "re-enters" a severe recession and credit markets weaken further. Given the way things have played out in Greece, anyone with the least bit of common sense knows that systematic austerity will not improve Italy’s rate of economic growth or debt-to-GDP levels, but only make them worse, and therefore further destroy its ability to remain solvent.

Der Spiegel reports on how Italian politics is rapidly transforming to reflect the dire state of Italian finances.

Italy Becomes Next Euro Battleground
"It was a telling tidbit of news. This week, the French bank BNP Paribas announced that it had slashed its holdings of euro-zone government bonds, including €2.62 billion worth of Greek debt.

But it wasn't just bonds from Athens that the bank dumped. BNP Paribas also indicated that it had drastically reduced its holdings of Italian debt. In the three months prior to the end of October, the bank sold off €8.3 billion worth of bonds issued by Rome, reducing its exposure by 40 percent.

…Yet even as the turmoil in Athens dominated headlines this week, there were increasingly distressing indications that Rome may also be in trouble. For one, Italian borrowing costs soared earlier this week, with interest rates on sovereign bonds rising to 6.4 percent, perilously close to the mark which triggered emergency Italian bond purchases by the European Central Bank in August. Analysts consider a rate of 7 percent to be the level at which investors stop buying sovereign bonds.

Equally concerning are indications that the Berlusconi government may be close to collapsing. Several former Berlusconi loyalists published an open letter in the Italian daily Corriere della Sera on Thursday calling for a change at the top. One of the parliamentarians indicated that a rebellion could be mounted as early as next week, during a budgetary vote on Tuesday.

Reuters reported on Thursday that Berlusconi told European leaders in Cannes that he would call a confidence vote within two weeks. The Italian prime minister has survived 53 votes of confidence since 2008, the last of which took place on Oct. 14."

Before any of the dust has even settled on the political machinations out of Greece, we can expect a whole new level of political turmoil in Italy, where Berlusconi cannot put together a "credible" austerity package and is losing the confidence of EU institutions, the Italian people, the opposition parties and much of his own party at a faster pace each and every day. And, once again, there is no separating the devolving European politics from the deteriorating European finances anymore, as is clearly illustrated by Italian Finance Minister Tremonti’s following statement to Berlusconi (translation from Italian news).

Tremonti to Silvio: Go Away or Monday Market is Bloodbath
Tremonti: "I am saying that on Monday there will be a disaster on the markets if you, Silvio, stay at your post and do not go. Because the problem for Europe and the markets, correct or not as it may be, is in fact you."

In the evening, the Treasury has denied that Tremonti has said this sentence.

However, the chronicler of Linkiesta, along with a colleague from a major newspaper Anglo-Saxon, have personally heard the minister's statement that was later confirmed by government sources."

So, despite the government’s best post-hoc denial, it appears that Berlusconi’s own finance minister has singled him out as not only being a political thorn in Europe’s side, but also a man capable of producing complete financial chaos on the Continent and around the world come market open on Monday. Now if that’s not something to laugh about, then I don’t know what is. A man whose biggest problem a few short months ago was a plethora of sex scandals is now being accused of potentially collapsing the entire EMU by his mere presence in Rome, and by his own man!

Even the Financial Times has stepped up to voice its opinion that Berlusconi has to go, in their lead editorial published on Saturday.

In God’s Name, Go!
"In a Group of 20 summit that fell well short of what was needed, the world’s most powerful leaders were powerless in the face of the manoeuvres by two European premiers: George Papandreou and Silvio Berlusconi.

The similarities between the two prime ministers are striking: both men rely on a thin and shrinking parliamentary majority and they are both squabbling with their own ministers of finance. Most importantly, they both have a dangerous tendency to renege on their promises at a time when markets worry about their countries’ public finances.

There is, however, one important difference: having reached €1,900bn, Italy’s public debt is so high that its potential to destabilise the world economy is way above that of Athens.

...After two decades of ineffective showmanship, the only words to say to Mr Berlusconi echo those once used by Oliver Cromwell.

In the name of God, Italy and Europe, go!"

The mainstream media critics and those within Berlusconi’s party, of course, believe he has to go because he is too weak to "handle" the political opposition and therefore unable to push through the savage austerity measures that the "Troika" (European Commission, ECB and IMF) requires of him. They are dead wrong. The truth is that there is no one on Earth "strong" enough to push such devastating and exploitative measures through, and Berlusconi is just a caricature of what happens when you make the foolish decision (or have the bad luck) to be "that guy". Eventually, that guy is always swept away by the financial torrents that flow beneath.

Men like Berlusconi have only survived this long because institutions like the ECB have been willing to subsidize private and public finances through monetary policy, and namely asset purchases. That particular dose of canned laughter, however, is itself being exposed for what it truly is after a few years of diminishing returns and sociopolitical outrage. That's why ECB governing council member, Yves Mersch, told an Italian newspaper that his institution will not continue to defend the line in the sand for Italian bond yields and spreads indefinitely (a line dangerously close to being crossed after last week's action). Reuters:

ECB Debates Ending Italy Bond Buys if Reforms Don't Come
"Asked if this meant the ECB would stop buying Italy's bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg's central bank, replied:

"If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist,it is free to change that decision at any moment. We discuss this all the time."

Since the ECB resumed its bond buying programme (SMP) around three months ago it has purchased some 100 billion euros of government bonds, a majority of which are thought to be Italian BTPs. Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that "don't meet their responsibilities."

Once again, neither Berlusconi nor anyone else can ever meet the "responsibilities" asked of them by the other Euro-crats. Some are foolishly more willing than others, but all fall short. Berlusconi "has to go" for the simple reason that he, like his obsolete colleague in Athens, refuses to represent the Italian people in any meaningful way or give them a voice to be heard throughout Europe, as representatives of their own best interest. It is because he has held 53 "canned" motions of no confidence in the last three years and each one of them was a bigger joke than the last.

And it gets even funnier. It is clear that the ruling politicians in both Greece and Italy are both scrambling to provide some "resolution" to their chaotic political atmosphere before Mr. Market opens on Monday, and that tells us almost all we really need to know. Every weekend has become a chance to smooth out the increasingly unprecedented volatility of the week that preceded it. To stifle the democratic processes of the economy, if you will. To prevent investors from voting with their accounts, and to prevent that from feeding back into actual political change.

Every weekend this happens, and every weekend the people who have to actually live in this world find the whole process less and less funny. All of these people aren't taking to streets to protest individual leaders, either. Many of them are protesting the entire Hollywood show, with all of the rigging and cheating and stealing and killing that goes with it. Some of us still wait in anticipation for the twists and turns, yes, but perhaps that is because we realize there is no longer only one way it could all play out. Bloomberg reports:

Thousands Rally in Rome, Pressing Italy’s Berlusconi to Resign Amid Crisis
"Tens of thousands of Italians gathered in Rome to call on Prime Minister Silvio Berlusconi to resign, as defections eroded his parliamentary majority at a time when the country’s borrowing costs are at a euro-era high.

Hundreds of buses and 14 special trains brought thousands of supporters of the opposition Democratic Party to the rally in front of the Basilica of St. John Lateran to hear calls for the premier to go. Demonstrators shouted "Shame"" and "Get Out" in the square that’s home to the first church built in Rome.

The premier, who generally spends his weekends at his home in Milan, remained in Rome in consultation with his top advisers after several lawmakers said they planned to abandon his People of Liberty party, threatening to leave him without a majority in Parliament before a key vote. Calls will increase for Berlusconi to resign if he loses the ballot to rubberstamp the 2010 budget report, likely to be held on Nov. 8."

Rest assured: the next vote of no confidence, rumored to be held within 2 weeks (if the government even makes it that far), will not produce the automated response desired by Berlusconi. It may not produce the response desired by the rest of his party either, or the EU/ECB/IMF, or even the opposition parties. That’s the point, right? Democracy isn’t about getting exactly what you want or promoting economic growth or establishing "solidarity" in Europe. It is about one thing and one thing only, and that is giving a voice to the people so their opinions on these policy matters can be incorporated into action.

Whether those policies are trivial or absolutely critical to European stability is irrelevant at this time, like it or not. For now, it is clear that the European people are increasingly opposed to the tired old measures of the last two years, where people are squeezed from their jobs, benefits and homes just to keep the zombie banks alive for one more day, while economies across the world crumble. Some may ask whether the Greeks, for example, even know what they are protesting against, and what will happen as a consequence. UBS' Stephen Duo would probably answer "not really", as The Guardian relays.

How Grim Would Bankruptcy be For Greece?
"There is no script to follow when a country goes bust, but as Greece stares into the abyss that would open up if it left the euro, the gravity of the situation has prompted UBS's Stephane Deo to quote Keynes: "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency."

Deo added: "If a country has gone to the extreme of reversing the introduction of the euro, it is at least plausible that centrifugal forces will seek to break the country apart... monetary union break-ups are nearly always accompanied by extremes of civil disorder or civil war."

...Financial markets have already priced Greek government debt as worth less than 50c for each euro. But it's not the same for companies and individuals. If a Greek shipping company's debts are denominated in euros, the debts don't disappear, they just become dramatically more expensive to service.

NIESR can envisage that a Greek default would see the banks shut for weeks, even months. During a default, lending comes to a halt and corporate life seizes up. Unemployment and poverty soar; in Argentina's case, the jobless rate came close to 25%. By 2003, the numbers in "extreme poverty" reached 26% of the population, with more than 50% deemed below the poverty line.

One long-lasting impact of Argentina's bankruptcy has been the rise of worker co-operatives: they took over failed businesses and remain a feature of the country's economy. Local assemblies, which helped distribute food and organise health care, also sprang into being.

The flight of capital that precedes a default can also swiftly reverse. Once assets in Argentina became 80% cheaper than before the default, foreign buyers returned in force. Ireland, even though it has not defaulted, is seeing something akin to that today. Argentina has bounced back from the horrors of December 2001 faster than anyone predicted."

Although Deo (or The Guardian) isn't exactly the most unbiased observer in this whole discussion, he is correct to point out that Greece's economy and society will be dramatically effected by the aftermath of a default and devaluation. Business will not go back to usual anytime soon, and the "existing basis of society" will be overturned.

The same is true for Italy, although Italians may have a much easier time of it given the size of their economy and export sector. It is certainly difficult to predict the exact developments that will unfold for the residents of these countries, and what dynamic will come to exist within its borders and between its international neighbors/partners. No one can ignore the fact, though, that whatever happens will be very painful.

Why, then, do the Greek and Italian people still show up in the streets just about every day to express their disdain for the current path of never-ending bailouts and austerity? It's not a simple question, but here's a simple answer - they believe only chaos is certain from this path.

They look around and see that "austerity" is not reducing their country's debt burden, increasing its economic growth or promoting stability and peace among its people. For Greece, the bailout money goes in one public bank account, and out the privatized other, and for Italy, there isn't even any bailout money. In fact, there never will be, and everyone knows it.

We can repeatedly tell those people above, from a distance, how little they know about economic and financial history, or the extreme outcomes that have resulted from monetary hyperinflation, but I suspect we wouldn't really be telling them anything they didn't already know in the recesses of their minds.

It takes courage to understand the inevitable socioeconomic pain that will result from any and all political outcomes, but still assemble with others, stand out there in the cold and express yourself. We should not doubt for a second that these people are informed and are simply doing what they believe is best, materially or spiritually, for themselves, their families, their communities and their country.

It is also clear that some level of transmission from these people to their representatives in Parliament, however slight, still exists. By and large it has been through interviews, protests, riots and strikes that the peoples’ voices have been heard, but the possibility of meaningful elections still looms around every dark corner in Europe.

Down every dark alley, there is a Parliamentarian that simply won't play along anymore, for whatever reason, and is eagerly awaiting his/her moment to strike. So, despite the best efforts of the Troika, its cronies and their pursuit of a pan-European nightmare, democracy in the developed world isn’t dead yet. 

"Democracy... is a charming form of government, full of variety and disorder; and dispensing a sort of equality to equals and unequals alike."

Ashvin Pandurangi:

*Ding* *Ding*

TAE Community’s "Diamond in the Rough" series has officially entered Round #3!

The second round ended with the majority of voters choosing to explore the idea of revitalizing rural economies through the use of small-scale farming. An article on this Diamond will be published in the near future! In the meantime, we can all begin voting for our favorite Diamond out of a fresh new set of four ideas, presented to you in their order of submission. The following are brief explanations of these ideas, as described in the words of their originators. Remember to place your vote in the poll located in the upper right hand column!

1. Green Buildings - Homes that are insulated and air sealed correctly can cost next to nothing to operate - you can easily build a home that even on the coldest nights won’t drop below 20 degrees C inside without any internal heating source. There will be costs involved to have a heat source to make hot water, and electricity is a different matter, but the basic idea is to lower the heating/cooling loads so low that alternative power or heat generation actually starts to make sense.

2. Tool Lending Libraries - These often operate as a branch of the public library, and allow people to fix things without owning tools. Co-operation! Sharing! And a mightily reduced ecological footprint. A project I did years ago found a 95% reduction in environmental impact because each tool is used to its maximum, rather than 100 tools gathering dust in 100 closets.

3. Food Urbanism - This school of thought holds that local organic agriculture must become the focus for our communities as it was historically.  This extends far beyond simply growing food, including harvesting, processing, selling (farmers markets), festivals that celebrate food, and consuming food.  It also extends to a full program of reusing farming "waste" by composting or other means to close the resource loop.

4. Modifying Home Owners’ Associations - I have lived in my HOA-governed community, in Leesburg, VA, since 2003.  This community of luxury town homes and single family McMansions was built in the early 2000s, and so you can be assured that while many of the homes have brick fronts, construction was done by the pigs with the straw and twigs--not bricks--in a manner that was hasty, cheap and shoddy.  We can begin reversing this by running for election to a HOA board, to see what can be done to cultivate a sense of community among our neighbors, and improve upon the sustainability of our neighborhood.

Europe's rescue fiasco leaves Italy defenceless
by Ambrose Evans-Pritchard - Telegraph

The sixty days allotted to save monetary union have expired. The G20 has come and gone, yet no workable firewall is in place as the drama engulfs Italy and threatens to light the fuse on the world’s third largest edifice of debt.

As of late Friday, the yield spread on Italian 10-year bonds over German Bunds was a post-EMU record of 458 basis points. This is dangerously close to the point where cascade-selling begins and matters spiral out of control. The European Central Bank has so far bought time by holding a series of retreating lines but either it has reached its intervention limits after accumulating nearly €80bn of Italian debt, or it is holding fire to force Silvio Berlusconi to resign – if so, a foolish game.

Say Bye Now!

The ECB’s hands are tied. A German veto and EU treaty constraints stop it intervening with overwhelming force as a genuine lender of last resort. The bank is itself at risk of massive over-extension without an EU treasury and single sovereign entity to back it up.

This lack of a back-stop guarantor is an unforgivable failing in the institutional structure of monetary union. As Berkeley professor Brad DeLong argues in a new paper, such “utter disregard for financial stability – much less for the welfare of the workers and businesses that make up the economy – is a radical departure from the central-banking tradition.”

The Bank of England was forced to jettison such reactionary nostrums in 1825 after the canal boom burst. It intervened in breach of its own mandate, over howls of protest by the hard-money men who warned that the “millennium of the paper-mongers would be at hand.” A near century of gentle deflation followed.

Mario Draghi toed the German line obediently in his debut as ECB chief last week – whatever this MIT-trained student of Robert Solow really thinks -- saying bond purchases could be justified only if “temporary”, "limited in amount", and undertaken to restore “monetary transmission". It would be “pointless” for the ECB to try to bring down yields for any length of time.

He could hardly say otherwise, especially as an Italian trying to seduce an army of German critics. German lawmakers had days earlier stipulated that the ECB must withdraw from its existing purchases of bonds as a condition for Bundestag approval of the revamped bail-out fund EFSF.

Yet Europe’s fiscal rescue machinery remains a fiction, a fund designed for Greece, Ireland, and Portugal that is now being stretched by every disreputable artifice of structured credit to shore up the whole EMU edifice on the cheap.

The market has already cast its verdict on plans to leverage the EFSF (version III) to €1 trillion as a “first loss” insurer of Italian and Spanish bonds, seeing at once that the scheme concentrates risks in lethal fashion for creditor states, dooms France’s AAA rating, and is likely to contaminate the core very fast.

The spreads on EFSF 5-year bonds have already tripled to 151 above German debt, leaving Japan and other early buyers nursing a big loss. The fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand. Gary Jenkins from Evolution Securities said the “frightening” development is that the EFSF is itself being shut out of the capital markets. “If it continues to perform like that then the bailout fund might need a bail out,” he said.

Europe’s attempt to widen the creditor net by drawing in the world’s reserve states evoked near universal scorn in Cannes and a damning put-down by Brazil’s Dilma Rousseff. “I have not the slightest intention of contributing directly to the EFSF; if they are not willing to do it, why should I?”

Europe is resorting to such antics because its richer states – above all Germany -- still refuse to face up to the shattering implications of a currency that they themselves created, and ran destructively by flooding the vulnerable half of monetary union with cheap capital.

We can argue over details, but the necessary formula – if they wish to save EMU -- undoubtedly entails some form of eurobonds, debt-pooling, fiscal transfers, and of course the constitutional revolution that goes with all of this. That would at least buy them time, though I doubt that even fiscal union can ever bridge the North-South gap.

Italy’s travails have little to do with the parallel drama in Greece. This is not contagion in any meaningful sense. The country is suddenly under fire for the very simple reason that its economy is plunging back into deep recession, the predicable outcome of the EU’s 1930s fiscal and monetary contraction policies. The implications of a eurozone double-dip are dreadful for Italy, already grappling with a chronic loss of 40pc in labour competitiveness against Germany and a 70pc collapse in foreign direct investment since 2007.

A report by Italian consultants REF Ricerche warns that Italy will remain trapped in recession through 2012 and 2013. The slump itself is causing fiscal slippage, not lack of budget rigour. “What is sapping the credibility of Italy’s public accounts over the medium term is lack of growth prospects,” it said.

Indeed, yet Angela Merkel and Nicolas Sarkozy continue to order Italy to undertake further fiscal belt-tightening into the accelerating downturn, even though it is one of the few countries in the OECD club with a primary budget surplus and even though its combined public and private debt is just 250pc of GDP – well below that of Holland, France, the UK, the US, or Japan. The EU policy dictates have become unhinged.

Mr Berlusconi invited much ridicule in Cannes by blurting out that the “restaurants are still full”. Less reported was his comment that the country’s exchange rate is misaligned within EMU and that this has been “paralysing for Italy”. This is the elemental point. Italy is in the wrong currency. It should not be in Germany’s monetary union at all.

Italy’s crisis will deepen for fundamental reasons whether or not Mr Berlusconi’s disintegrating regime departs the scene. It is hard to see how an EU police mission -- disguised in International Monetary Fund clothing -- can achieve anything beyond inflaming Italian patriotic fervour.

Reform minister Robert Calderoli (Northern League) gave a hint of where this misguided euro-meddling will ultimately lead when he asked over the weekend whether “it is really worth the candle” staying in the European Union. “The Lisbon Treaty has a lot of bad aspects but one good point: you can withdraw from Europe.”

Greek PM expected to resign after coalition government formed
by CNN Wire Staff

Greek Prime Minister George Papandreou is expected to resign after the makeup of the nation's new coalition government is decided, a spokesman for Papandreou's Socialist PASOK party said Sunday, according to Greek media.

Sunday's Cabinet meeting will be the last with Papandreou as prime minister, the spokesman said, according to media reports. The meeting will focus on issues relating to Monday's Euro group meeting, at which Finance Minister Evangelos Venizelos will represent Greece, the reports quoted the spokesman as saying.

Venizelos is likely to remain in his post as finance minister in a new government, sources told Greek television. Candidates for the prime minister's job include Petros Moliviatis and Loukas Papaimos, according to Greek television.

The new government will have a life of four months, according to Greek television, citing sources, and elections will be held in early spring. The announcement comes amid economic and political turmoil in Greece and the formation of a coalition government tasked with saving the nation from bankruptcy.

A Greek default could drag down larger European economies, in particular those of Italy and Spain, as well as struggling Portugal and Ireland, analysts warn.
Greece leave eurozone?
Earlier, Greek President Karolos Papoulias met with all party leaders Sunday as Papandreou began steps to form the coalition government, hours after narrowly winning a vote of confidence. Papandreou started talks with smaller parties, and met with the president to seek permission to form a coalition. The president summoned party members ahead of Sunday's Cabinet meeting.

"I can sense the agony of the Greek people," opposition leader Antonis Samaras said before the meeting. "Everybody has to act responsibly now and send a message of stability abroad to the people of Europe and the people of our country too." "I agree completely with your words," Papoulias said.

"We should give an end to this sense of insecurity and instability. We should give answers to the questions: where are we going and what are we doing? We are all responsible for that." Speaking briefly to reporters after the meeting, Samaras said that once Papandreou resigns, everything will "take its course" and "everything else is negotiable."

The vote of confidence gives Greece's stricken economy some breathing room and may reassure international markets sent into a tailspin by political turmoil in the nation. But many questions remain unanswered. The main opposition party has showed little willingness to join the unity government, with Samaras making it clear he did not want to be part of a coalition.

In forming the new government, the PASOK party will likely seek the support of smaller parties. Samaras has called for a transitional government for six weeks, followed by elections. "We need to have an agreement during the course of today for a new coalition government, and we need to specify by tomorrow, Monday, the name of the new prime minister," PASOK spokesman Elias Mosialos told Greek television Sunday.

Both of the big parties, PASOK and New Democracy, should participate in the coalition government, he said, and if that is successful, then smaller parties could join as well.

Though Papandreou won the confidence vote after announcing he would seek a coalition government, it was not immediately clear who would lead it. Venizelos has called for a temporary government that would push through all the necessary legislation through February with elections likely to follow. Papandreou said holding elections immediately would leave the latest bailout deal "up in the air."

Implementing the controversial bailout package reached October 26 is a priority, the prime minister said, to ensure Greece stayed in the euro, the single currency used by the 17 nations in the euro zone. European leaders have warned they want Greece to stay in the euro, but saving the currency is more important.

The deal would wipe out 100 billion euros in Greek debt, half of what it owes. It comes with a promise of 30 billion euros from the public sector to help pay off some of the remaining debts, making the whole deal worth 130 billion euros ($178 billion).

But the package comes with strings that would require Greece to slash government jobs, privatize some businesses and reduce pensions. Such austerity measures run the risk of deepening Greece's recession, said Antonis Papagiannidis, editor of Greece's Economic Review. Though Greece ranks 32nd in terms of gross domestic product, experts say it wields a disproportionate influence on world markets.

Greek MP who wants Papandreou to quit says 'I haven't slept for days. This is the point of no return.'
by Harriet Alexander - Telegraph

Greece needs a government that can reassure people it is staying in the Eurozone, says Eva Kaili, a key politician who has stopped backing prime minister George Papandreou.

The stage was set for the final act. Crowds gathered outside the seat of power, waiting, after a series of epic plot twists, for the embattled leader to fall on his sword. Except George Papandreou, the Greek prime minister, appeared not to have read the script. Confounding all expectations, the protagonist in this most gripping of Greek dramas was last night still clinging to power, defying both critics inside his government and the opposition who had demanded his resignation.

Instead, he yesterday went to President Carolos Papoulias to ask for permission to form a coalition government, and begin uniting his fractious politicians, reassuring euro leaders, and securing Greece's economic lifeline. He is in for a rough ride. Even those who were supportive a week ago are now calling for his head.

"He has to step down," said Eva Kaili, an MP from Mr Papandreou's PASOK party, before the vote on his future in the early hours of Saturday. "We have a few days to get there. But he said he's willing to, and that's a big thing for him," said Miss Kaili, who was a newsreader before entering parliament in 2007.

Like many MPs, she said the past few days had been "the most difficult" of her political career. "It's been huge tension. And everybody's been trying to figure out what's going on," she said. "A lot of confusion, and a huge sense of responsibility. Exhaustion I haven't slept for days." Miss Kaili, 33, was one of the politicians who forced Mr Papandreou into trying to form the coalition government, by announcing that she could no longer support him and making PASOK's enfeebled political majority barely tenable.

"The political system has reached the point of no return. It's not working," she said. But, like many Greeks, she blames the EU for allowing their government to get so badly into debt. "If you lend money to somebody you have to make sure the money is going to the right place, she said. "I really think it's not fair for Greece. Greece has done a lot for Europe, it's a big market. We have a lot of culture, tourism. Greece was always there when you needed us. And we're not the only ones, so it's not right we are pushed into a corner."

While opposition MPs are no more amenable to the bail-out than Mr Papandreou's party, the hope is that a coalition will gain sufficient legitimacy with the public, two thirds of whom disagree with the deal.

"Now, we have to find the strength to step back and find a new government of cooperation, and stabilise the situation, to get us out of this new crisis," Miss Kaili said. "And we need to reassure people that we are staying in the eurozone. Things are changing every hour, it's like a political thriller."

Many fear that reassurance, stability and cooperation will be in short supply in the coming weeks, and last night there were predictions that Mr Papandreou could yet throw in the towel. "The mask has fallen," said Antonis Samaras, leader of the opposition New Democracy party, who insisted again on Saturday that he would only participate in a coalition if Mr Papandreou resigned. "Papandreou has rejected our proposals and he must take responsibility for that. Elections are now the only answer."

That the coming days and weeks could provide yet more unscripted scenes was greeted with grim resignation across Europe. For hanging in the balance this weekend is not just Mr Papandreou's own political survival but the future of Greece's economy, and that of the whole eurozone.

The nightmare scenario for Europe is that the Greek contagion could spread to other struggling economies, in particular Italy. Last week Mr Papandreou began by provoking fury among EU chiefs by unexpectedly announcing a referendum on the bail-out. "I think his intentions were good but the timing was bad," said Miss Kaili. "Greeks are so angry that they wouldn't have voted for Europe. They'd have just voted No to him."

In the days that followed, the G20 summit in Cannes was almost a sideshow to the Greek tragedy unfolding within the Athens parliament, where Mr Papandreou had to explain himself to his party. Chain-smoking MPs stood transfixed by the television screens beaming live from the debating chamber. Waiters carried trays of whisky and cola among the crowds of the parliamentary bar. One PASOK insider muttered: "Papandreou made a huge mistake in calling that referendum, and he will pay for it."

Mr Papandreou did pay for it - backtracking on his idea for a referendum, and being cornered into agreeing to form a unity government, which would govern until the seventh tranche of EU bail-out funds was received in February, and then call elections.

A vote of confidence in the early hours of Saturday gave Mr Papandreou the approval for his plan. His dogged determination to hang on is, he says, down to his duty to serve his country. He comes from Greece's most prominent political dynasty his grandfather George was three times prime minister, while his maverick father Andreas founded PASOK four decades ago. Even so, many still think Mr Papandreou will be forced to hand over to Evangelos Venizelos, his finance minister.

Meanwhile, Petros Doukas, the former deputy finance minister, was watching Mr Papandreou's manoeuvres closely. He accused him of "playing heroic to the Greek people" by calling the referendum. He added: "This economic mismanagement has been so great that our ancestors would be turning in their graves."

Greek opposition refuses to join coalition
by Kerin Hope - FT

George Papandreou’s chances of putting together a strong coalition government that could persuade international lenders to unblock fresh funding for Greece have faded after the conservative leader bluntly rejected his proposal. Antonis Samaras said on Saturday his New Democracy party would not join a new government that would lack a clear mandate. He repeated his call for immediate elections.

Analysts said that without the support of Greece’s largest opposition party, Mr Papandreou would be unable to secure the disbursement of a desperately needed €8bn loan tranche, exposing the country to the risk of a disorderly default by the middle of December. Herman Van Rompuy, the EU president, has called for both main political parties to back the new programme as a precondition for any funding to be disbursed.

“Europe is running out of patience … it’s clear that if we don’t reach a deal very soon with the conservatives, our financing lines will be cut,” said a senior member of Mr Papandreou’s PanHellenic Socialist Movement (Pasok).

Mr Papandreou won a vote of confidence in parliament on Friday night after all 153 socialist lawmakers backed his pledge to build a coalition that would swiftly approve a new €130bn bail-out agreed by European leaders, thereby securing inflows of more than €80bn by next March.

That amount would include €30bn to recapitalise struggling Greek banks, €30bn to support fiscal adjustment and €20bn for bond swaps under a scheme for investors to take a 50 per cent “haircut” on their holdings of Greek debt, he said.

Mr Papandreou said after a meeting with President Carolos Papoulias on Saturday that talks with other political leaders on “forming a broad consensus …. with the basic aim of approving the latest package” would start soon.

Mr Samaras said the conservatives were ready to back the second bail-out programme but only after an election, which he said could be held by mid-December: ”No economic adjustment programme can succeed if it doesn’t have the people’s support.”

The leaders of two small conservative parties, Laos and Democratic Alliance, said they would not join a coalition unless Mr Samaras’s party had already agreed to participate.

Greece’s two leftwing parties also turned down Mr Papandreou’s proposal. Alexis Tsipras, head of the radical Syriza party called for immediate elections. The communist leader Aleka Paparriga said her party would not be “blackmailed” into supporting a coalition.

Two opinion polls published in Athens newspapers on Saturday showed more popular support for a coalition government than for a snap election. According to a poll in Proto Thema, about 52 per cent of Greeks would prefer a consensus arrangement to govern until early next year, compared to 36 per cent in favour of holding elections by December. Another poll published by Ethnos showed 45 per cent support for a coalition and 42 per cent for a snap election.

The Revolt of the Debtors
by Daniel Gros - Project Syndicate

Greek Prime Minister George Papandreou’s call to hold a referendum on the rescue package agreed at the eurozone summit in late October has profound implications for European governance. It may also determine the future of the euro.

Less than one week before Papandreou dropped his bombshell, eurozone leaders had spoken unequivocally: "The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are coordinated at European level, with co-ordination at EU level now taking place before national decisions are taken." Simply put, pan-eurozone financial governance had supposedly won the day.

Technically, Papandreou’s proposed referendum is not directly about fiscal or economic policy, but it is a decision that will have huge economic ramifications for the eurozone. Despite that, it was taken without any coordination with other eurozone leaders. Moreover, if Greece’s voters reject the deal that has just been proposed to them, the outcome might foreclose any further coordination on the country’s debt problems with the European Union. Greece would sink or swim on its own.

So, only days after the eurozone’s heads of state and government congratulated themselves on their summit success, the concept of coordination has been shown to be meaningless for the one country where coordination matters most. Papandreou’s move also exposes the fatal flaw of grand plans for a political or fiscal union to support the euro: the "people," not governments, remain the real sovereign.

Governments may sign treaties and make solemn commitments to subordinate their fiscal policy to the wishes of the EU as a whole (or to be more precise, to the wishes of Germany and the European Central Bank); but, in the end, the people may reject any adjustment program that "Brussels" (meaning Berlin and Frankfurt) might want to impose.

The EU remains a collection of sovereign states, and it therefore cannot send an army or a police force to enforce its pacts or collect debt. Any country can leave the EU – and, of course, the eurozone – when the burden of its obligations becomes too onerous. Until now, it had been assumed that the cost of exit would be so high that no country would consider it. This no longer seems to be the case – or so the Greeks, at least, seem to believe.

This also implies that Eurobonds will never constitute the silver bullet that some had hoped would solve Europe’s sovereign-debt crisis. As long as member states remain fully sovereign, investors cannot be assured that if the eurozone breaks up, some states will not simply refuse to pay – or will not refuse to pay for the others.

With popular resistance to paying for profligate southern Europeans rising in Germany and Holland, governments there might be forced to ask their people whether they want to pay the huge costs implied by their commitments to bail out eurozone members that are unwilling or unable to pay. That is why the bonds issued by the eurozone’s rescue fund, the European Financial Stability Facility, are trading at a substantial premium relative to German debt, while efforts by Klaus Regling, the EFSF’s head, to convince China, Japan, and other Asians to buy the bonds have gotten nowhere.

The broader message of the Greek move is that "coordination" has so far been a code word for almost total control by creditors (sometimes together with the ECB). The attempt to impose a benevolent creditors’ dictatorship is now being met by a debtors’ revolt. Financial markets have reacted so strongly because investors now comprehend that "sovereign debt" is the debt of a sovereign that can simply decide not to pay.

Holders of bonds of the eurozone’s member states have now been put on notice that, when the going gets tough, the real sovereign, "We, the people," might be asked whether they actually want to pay. And the answer might very well be an emphatic "no," as opinion polls in Greece and the experience of Iceland (whose population twice voted down deals agreed by the Icelandic government) suggest is likely.

Nobody can know at this point whether Portugal or Italy might be the next stops on this road of resistance. The result, however, is quite predictable: soaring risk premia throughout the periphery.

Papandreou’s decision to call a referendum in Greece could thus mean the beginning of the endgame for the euro. At this point, the common currency can be saved only if systemically important countries – namely, Italy and Spain – take concerted action to demonstrate that they are different from Greece.

How grim would bankruptcy be for Greece?
by Patrick Collinson - Observer

As Athens faces economic meltdown, memories of Argentina's 2001 default paint a stark picture

Banks shut their doors. Supermarket shelves empty. The rich stuff their suitcases with dollars and head for the border. The middle classes abandon their offices and join the street protests. The president flees by helicopter from the roof of his palace.

There is no script to follow when a country goes bust, but as Greece stares into the abyss that would open up if it left the euro, the gravity of the situation has prompted UBS's Stephane Deo to quote Keynes: "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency."

Deo added: "If a country has gone to the extreme of reversing the introduction of the euro, it is at least plausible that centrifugal forces will seek to break the country apart... monetary union break-ups are nearly always accompanied by extremes of civil disorder or civil war."

The only certainty for a stricken country is a run on its banks. When Argentina went through this painful experience a decade ago desperate individuals took to sleeping in front of cashpoints so they could withdraw money as soon as the machines were refilled.

Before a default, companies and individuals withdraw as much cash as possible. In Greece, the run on the banks has been in slow motion; last year, deposits fell by only 14%. But over the past month alone, another €10bn – around 6% of the total – has fled, much of it to Cyprus, Switzerland and London. The parallels between Athens and Buenos Aires are ominous.

In 2001, as Argentine banks were drained of cash, the Argentine government froze all accounts and halted withdrawals from dollar-based accounts. But the corralito – which banned Argentinians from taking out more than $250 – didn't work, and banks were besieged by desperate account holders. The economy lurched deeper into recession, small businesses went bust, and rioting and looting spread from the poorer neighbourhoods already hit by austerity measures and pay cuts. Virtually imprisoned in the Casa Rosada palace, president Fernando de la Rúa fled by helicopter. Days later the country officially defaulted.

Few reckon that a Greek exit from the euro and a swap into "new drachmas" would be much less painful. Dawn Holland of the National Institute of Economic and Social Research (NIESR) says: "At a minimum, we'd expect a 50% fall in the value of the currency." How a forced redenomination of a post-euro currency could work vexes economists. Would only euro-denominated accounts have to switch into the new currency? What about, for instance, Britons with sterling-denominated accounts in Greece? Would they be forcibly switched into new drachmas? No one really knows.

In Argentina's case, defaulting on $93bn of foreign debt – the largest-ever bankruptcy – resulted in a 60% fall in domestic consumption as households saw their assets wiped out and inflation took hold. All imported goods, whether a BMW or a bag of rice, became unaffordable luxuries. To put that into context, British consumption fell by only 5% when the economy tanked in 2008-09.

In a national bankruptcy, the government can almost dictate the terms. In Argentina's case, bondholders were given a take-it-or-leave-it offer of 35 cents in the dollar. Financial markets have already priced Greek government debt as worth less than 50c for each euro. But it's not the same for companies and individuals. If a Greek shipping company's debts are denominated in euros, the debts don't disappear, they just become dramatically more expensive to service.

NIESR can envisage that a Greek default would see the banks shut for weeks, even months. During a default, lending comes to a halt and corporate life seizes up. Unemployment and poverty soar; in Argentina's case, the jobless rate came close to 25%. By 2003, the numbers in "extreme poverty" reached 26% of the population, with more than 50% deemed below the poverty line.

One long-lasting impact of Argentina's bankruptcy has been the rise of worker co-operatives: they took over failed businesses and remain a feature of the country's economy. Local assemblies, which helped distribute food and organise health care, also sprang into being.

The flight of capital that precedes a default can also swiftly reverse. Once assets in Argentina became 80% cheaper than before the default, foreign buyers returned in force. Ireland, even though it has not defaulted, is seeing something akin to that today. Argentina has bounced back from the horrors of December 2001 faster than anyone predicted. The devalued peso precipitated a swift recovery in exports and the country soon swung into a massive trade surplus. Economic growth hit Chinese levels, running at 8.7%-9.2% between 2003 and 2007.
Unemployment has fallen and less than one in 20 is now deemed to be in extreme poverty.

When Iceland's banking system imploded in 2008, the islanders' experience was less savage than Argentina's. No protestors were shot or supermarkets looted, but its currency fell by half against the euro and its stock market(home to much of the country's pension savings) lost 90% of its value. But, like in Argentina, its recovery has been impressive. The currency had stabilised by January 2009, and by mid-2011 international bond investors were happy to lend the country $1bn.

But Holland cautions against thinking that when a country goes bankrupt the pain is only short-lived. Argentina's default took place just as the global economy was in a major upswing. Greece would be defaulting into a world of double-dip economies: "It's a very, very high-risk policy, and there are no guarantees of how it would turn out. It would probably make almost everyone worse off."

Mass emigration might follow a Greek default, plus a cut-price sell-off of state assets. But winners may emerge. When France was close to bankruptcy during the Napoleonic wars, the US government snapped up Louisiana at three cents an acre, in what is still regarded as the best real estate coup in history. With Europe in turmoil again, China is now the country with the funds to bag a historic deal.

The Denials That Trapped Greece
by Landon Thomas Jr. and Stephen Castle - New York Times

The warning was clear: Greece was spiraling out of control.

But the alarm, sounded in mid-2009, in a draft report from the International Monetary Fund, never reached the outside world. Greek officials saw the draft and complained to the I.M.F. So the final report, while critical, played down the risks that Athens might one day default, with disastrous consequences for all of Europe.

What is so remarkable about this episode is that it wasn’t so remarkable at all. The reversal at the I.M.F. was just one small piece of a broad pattern of denial that helped push Greece to the brink and now threatens to pull apart the euro. Politicians, policy makers, bankers — all underestimated dangers that seem clear enough in hindsight. Time and again over the last two years, many of those in charge offered solutions that, rather than fix the problems in Greece, simply let them fester.

Indeed, five months after the I.M.F. made that initial prognosis, Prime Minister George Papandreou of Greece disclosed that, under the previous government, his nation had essentially lied about the size of its deficit. The gap, it turned out, amounted to an unsustainable 12 percent of the country’s annual economic output, not 6 percent, as the government had maintained.

Almost all of the endeavors to defuse this crisis have denied the overarching conclusion of that I.M.F. draft: that Greece could no longer pay its bills and needed to drastically cut its debt.

Until October, when European leaders conceded that point, the champion of the resistance was Jean-Claude Trichet, who stepped down this month as president of the European Central Bank. It was he who insisted that no European country could ever be allowed to go bankrupt.

"There is simply no excuse for Trichet and Europe getting this so wrong," said Willem Buiter, chief economist at Citigroup. "It is fine to make default a moral issue, but you also have to accept that outside of Western Europe, defaults have been a dime a dozen, even in the past few decades."

If leaders had agreed earlier to ease Greece’s debt burden and moved faster to protect the likes of Italy and Spain — as United States officials had been urging since early 2010 — the worst might be behind Europe today, experts say.

The turning point came at a late-night meeting last month when Angela Merkel, the German chancellor, pushed private creditors to accept a 50 percent loss on their Greek bonds. Mr. Trichet had long opposed such a move, fearing that it could undermine European banks. Instead, at his urging, European leaders initially promoted painful austerity for Greece, prompting a public backlash that pushed Mr. Papendreou’s government to the brink of collapse and could force Athens to abandon the euro.

Many view the latest rescue plan as too little, too late. "Because of all this denial and delay, Greece will need to write down as much as 85 percent of its debt — 50 percent is not enough," Mr. Buiter said.

It was never going to be easy to turn things around in Greece, particularly given European politics. In countries like Germany and the Netherlands, many people oppose bailing out their southern neighbors. Policy makers and, indeed, many financiers believed that they could buy enough time for Greece to solve its problems on its own.

"It was quite obvious, by the spring of 2010, that Greek debt could not be paid off," said Richard Portes, a European economics expert at the London Business School. "But in good faith, policy makers felt that Greece could grow out of its debt problem. They were wrong."

Bob M. Traa is no one’s idea of a radical. A Dutchman, he labors at the I.M.F., among the arcana of global debt statistics. He wrote the 2009 report. Immediately after that bulletin, he produced another, more damning analysis, which concluded that if Greece were a company, it would be bankrupt. The country’s net worth, he concluded, was a negative 51 billion euros ($71 billion).

But because Greece had a high-enough credit rating at that time, it could keep borrowing money and skate by. Once again, the Greek government objected to the I.M.F. analysis, although this time, the report was not amended.

Attention has only recently been drawn to these early I.M.F. studies. The Brussels research group Bruegel, which conducted an analysis at the I.M.F.’s behest, concluded the fund should have done more to draw attention to Greece’s troubles.

By early 2010, banks and bond investors were growing reluctant to lend Greece money. The country’s finance minister, George Papaconstantinou, delivered a blistering message to his European partners.

"I know we have German elections in May," he said, referring to a regional vote to be held that month that was being blamed in part for Germany’s reluctance to sign off on a rescue package for Greece. "But I have a 9 billion euro bond maturing on May 9," he added, "and if we are not careful, this could blow up in our face before the election!"

Despite that warning, Mrs. Merkel, angry over being misled about Greece’s finances, stalled for time. Greek officials were acknowledging privately that the country was out of money. No one wanted to say so publicly.

"Any talk of restructuring was a total taboo," said a senior Greek official, who spoke on condition of anonymity. "We never even brought it up. If we made this case to Europe, we would have been pariahs forever."

In February 2010, Yanis Varoufakis, a political economist with ties to Mr. Papandreou’s party, suggested publicly that Greece default. He was attacked by the Greek finance ministry for spreading what officials there viewed as treasonous notions.

From the beginning, Mr. Trichet of the European Central Bank privately warned Greek officials that the European Union would cut off funds to Greek banks unless the nation agreed to austerity measures. "You are not getting any help unless you implement your cuts," Mr. Trichet told them bluntly, according to a witness to the discussions. Rather than help matters, the stance fed a broader panic in the financial markets.

Earlier this year in Washington, in a speech to bankers and government officials, Mr. Trichet said the austerity measures were key and that there was no need to reduce Greece’s debt. His assurances did little to ease the angst in the room. "People were raising questions," said Charles Dallara, the head of the Institute of International Finance, which was the host for the event. "But it was such a dramatic notion — having a European country default — no one could accept it."

That pattern, however, began much earlier. In April and May 2010, as European leaders scrambled to come together with their first rescue for Greece and to create a bailout fund for other countries using the euro. Timothy F. Geithner, the United States Treasury secretary, urged his European counterparts to "think big."

He called on them to produce a plan that might rival in size the $700 billion bank rescue that Washington devised in 2008. At one point early in the talks, the team from Washington, headed by Mr. Geithner and Ben S. Bernanke, the chairman of the Federal Reserve, was told that the initial European proposal was for a bailout fund of about 60 billion euros.

The team was stunned. The American officials told the Europeans that they were off by an order of magnitude, meaning that Europe should be talking about at least 600 billion euros.

Markets were calmed briefly by the I.M.F.-backed plan for Greece and the 440 billion euro rescue facility that was eventually agreed upon. In October 2010, Mrs. Merkel and the French president, Nicolas Sarkozy, suggested requiring some sacrifice from banks and other euro zone creditors, though their idea was that this would not happen until 2013 and would not affect Greece.

But that declaration, agreed upon at a meeting in Deauville, France, set off alarm bells in the markets. First, Ireland, then Portugal, were forced to seek bailouts of their own. By breaking the taboo over private-sector losses, but without having an immediate plan for Greece or financial firewalls for other nations, the French-German statement set back prospects for tackling the mountain of Greek debt.

Athens’ failure to make good on its economic promises, meanwhile, including a 50 billion euro privatization program, turned attention to the deteriorating political situation in Greece.

Last April, the Dutch finance minister, Jan Kees de Jager, dared to raise the subject of Greek debt restructuring again, only to receive another blast from Mr. Trichet. By May, the Germans had concluded, long after most private economists said it was inevitable, that a restructuring was needed.

Instead of bolstering Athens’ finances, the austerity program in Greece was turning a recession into a near-depression. The issue was broached at a meeting in Luxembourg, which was convened in secret but which quickly leaked to the press. This time, Wolfgang Schäuble, the German finance minister, argued that Europe must face up to its Greek losses.

But by now Mr. Trichet’s objection was more than philosophical: the European Central Bank had acquired a lot of Greece’s debt as part of the effort to prevent its collapse and could suffer if it was forced to write off its Greek bonds at a huge loss. He stormed out of the dinner in a huff.

The result was more delay. "It is very difficult to stand up to the president of the E.C.B.," said Guntram Wolff, an economist at the Bruegel Institute. "This is the person with the best information in the world and he was saying a Greek restructuring would be the end of the world."

By this spring, the realization in Greece that it would need another bailout was forcing Mr. Papandreou to consider all options — even the extreme step of leaving the euro, according to one banker who talked with him at the time. But the subject of reducing Greece’s debt, which was on course to swell to more than 180 percent of its annual economic output, was still taboo.

In late June, Mr. Dallara, the banking representative, met with the prime minister and his newly appointed finance minister, Evangelos Venizelos, in Athens. There would have to be a haircut on Greek debt, Mr. Dallara told them.

Paradoxically, it was a representative of the banking industry, perhaps more in tune with the realities of the marketplace, who finally insisted that Greece could not borrow and cut its way out of the crisis without having to restructure its debt. "There was shock and surprise on their faces," Mr. Dallara recalled. "They could not believe it."

Again, Germany put its foot down — another delay. While a new deal reached in late October will force bondholders to accept deep losses, Europe, Greece and Mr. Dallara continue to insist that the transaction will be voluntary. As a result, there will be no need to trigger Greek credit defaults swaps, which would add to the complexity and cost. But in the eyes of many debt experts, this is simply another form of denial.

"You have to have a coercive element to make it work," said Mitu Gulati, a sovereign debt expert at Duke University Law School. "To not accept that means you are living in Alice in Wonderland."

Bundesbank: central bank reserves will not help fund EFSF
by Harro ten Wolde, Annika Breidthardt and Marc Jones - Reuters

Germany on Saturday rejected media reports that Bundesbank reserves would be used to fund the euro zone's rescue facility after German newspapers said Group of 20 leaders had discussed the idea of tapping central banks.

The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion). The European Central Bank (ECB) would own the reserves, according to the paper, citing sources at the G20 meeting held in Cannes this week.

The Welt am Sonntag newspaper, citing similar plans, said 15 billion euros would come from special drawing rights (SDR) that the Bundesbank holds. "Germany's gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in Cannes," government spokesman Steffen Seibert said.

G20 leaders in Cannes discussed the idea that the European System of Central Banks could pawn their total foreign exchange reserves of 50-60 billion euros to a trust of the European crisis fund in the form of special drawing rights from the International Monetary Fund (IMF), the newspapers said. "We know this plan and we reject it," a Bundesbank spokesman said.

Seibert said several partners had raised the question in Cannes whether SDRs could be used to strengthen the EFSF but Germany had rejected this plan and discussions at Monday's Eurogroup on Monday would not discuss this topic. The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposition but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.

Tough-talking Germany takes the eurozone to the brink of a break-up
by Liam Halligan - Telegraph

I ended last Sunday’s column by predicting that the latest eurozone bail-out would unravel within two weeks. Amid the post-deal euphoria, this statement raised a few eyebrows.

As it turned out, though, far from being alarmist, I was actually too optimistic. Within three days, the much-trumpeted Franco-German “complete strategy” solution, having previously caused share prices to surge, collapsed in a heap. No one should be surprised. The failure of last weekend’s agreement was inevitable – not least because there was no agreement.

The “50pc haircut” that private sector holders of Greek sovereign bonds “voluntarily accepted” was a myth. There was no resolution in terms of coupons, maturities or participation ratios – as was clear to anyone who looked beyond the headlines. Presented as a victory for courageous politicians over nasty bankers, the Greek bond-holders’ deal, the centre-piece of last weekend’s entire rescue-plan, has been exposed as a tawdry publicity stunt.

Precisely from whom the newly “leveraged” European Financial Stability Facility will be able to raise borrowed funds, and on whose collateral, was also clouded in mystery last weekend, and still is. The possibility of China stumping up cash now looks even less likely than before. Around a fifth of the country’s massive $3,200bn (£1,997bn) reserve pool is already euro-denominated and Beijing’s earlier disastrous investments in various Wall Street banks attracted bitter internal criticism.

Klaus Regling, the chief of the eurozone’s new bail-out fund, was received courteously enough in the Chinese capital last week. But it was always doubtful that a country with no welfare state would rescue nations whose welfare states are bloated and out of control.

The major reason that this latest single currency bail-out has failed, though, is that Germany is still not on board. The initial positive market reaction was based on the notion that a eurozone-wide guarantee of bank bonds and sovereign debts had been secured. That’s what was being claimed by stock-brokers and the other sell-side hired-gun experts who dominate the airwaves.

The German government, though, hasn’t signed-up for that. Such a guarantee would either require massive money-printing by the European Central Bank – which is unthinkable given Germany’s deeply ingrained inflation-aversion – or would put Berlin’s own credit-rating at risk. It doesn’t matter how intensely the French plead, how hard the eurocrats suck their pencils or how much America huffs and puffs, I just can’t see Europe’s economic powerhouse making that kind of open-ended commitment.

On that note, there has been a new harshness, and frankness, in the tone from Berlin in the past week. Chancellor Angela Merkel made clear she would treat any Greek referendum on acceptance of the latest €130bn bail-out package as a vote on Greek membership of the single currency itself. That threat to throw Athens out of the euro altogether forced the Greek prime minister, George Papandreou, abruptly to retreat from his referendum call.

By admitting that leaving the single currency is possible, though, both technically and politically, Germany broke the taboo. The reality that a member nation could default and re-state its debts in another, heavily de-valued currency has never been acknowledged. Merkel raised this prospect to pressure Papandreou to drop his call for a vote that would have likely seen the Greek public reject the bail-out, sparking an outright default and fears the same thing could happen elsewhere in the eurozone.

That outcome has been avoided, for now, but an important line has still been crossed. Re-denomination is now out there as an officially recognised possibility that could yet spark chaotic retail and wholesale bank runs. Firms and households in Greece, Italy, Spain – and eventually even France – could end up, to the extent they can, transferring domestic balances to German banks to avoid re-denomination risk. If this happens on a significant scale, what then? Capital controls? Within a single currency area? That sounds absurd, of course. But that is where the deeply flawed logic of Europe’s monetary union ultimately leads us.

In keeping with Germany’s more austere approach, Merkel also admitted there is “little appetite” among the G20 nations to invest in the EFSF. So the bail-out fund could well lack the firepower to stop sovereign debt contagion spreading from Greece, to the likes of Spain and Italy. That would imperil the entire European banking system, undermining further an already feeble global recovery.

The market reaction to this on-going eurozone fiasco is, for now, focused on Italy. Yields on Italy’s 10-year bonds, which breached new euro-era highs last week, remain well above 6pc. The eurozone’s third-biggest economy is flirting with borrowing costs that drove Greece, Portugal and Ireland into forced bail-outs, courtesy of the European Union and the International Monetary Fund.

Italian public debt is almost 120pc of GDP, second only to Greece within the single currency region. If market interest rates remain at current levels for an extended period, Italy would need to run a budget surplus excluding interest payments of around 4pc-5pc of GDP, just to keep its debt-to-GDP ratio constant.

Even this pie-in-the-sky scenario, requiring more prudence and leadership than Italy’s body-politic has mustered for a century or more, rests on an assumption that domestic GDP expands by 2.5pc a year – which looks highly unlikely. A stable debt-to-GDP ratio is, anyway, probably not enough to maintain Italy’s access to global capital markets at single-digit rates of interest, with the market insisting on a cut.

The prime minister, Silvio Berlusconi, is having fun, thumbing his nose at Brussels and waving away as “unnecessary” low-interest IMF loans. But Italy is in a very serious situation. It is only the estimated $70bn of Italian bond purchases by the ECB in recent months that has stopped Italian yields spiralling ever further upward.

This eurozone crisis, even under the rosiest of the best-case scenarios, has already had a massive de-stabilizing impact on Europe and the world. The very idea that China could rescue the West, as opposed to the US, has revealed the extent of America’s fiscal impotence. This will have profound geo-political consequences.

Deeply held convictions regarding the “risk-free” status of Western sovereign bonds are now also being questioned. If Italy and Spain are pulled into the mire, such assumptions will be completely exploded. Even if that is avoided, though, the notion that AAA-rated sovereign bonds are actually more risky than their emerging market counterparts is now rapidly gaining ground.

That could spark a huge regulatory shake-up, given that “zero-risk” Western government bonds are at the heart of the laws that govern, or are supposed to govern, the global banking system. At the very least, the recognition that “zero-risk” is, in fact, an arrogant, out-dated and increasingly absurd concept could spark a massive reallocation of capital from West to East.

The most immediate paradigm shift, though, could relate to Germany. There is still a widespread view that the eurozone’s Teutonic engine-room will eventually agree to ECB bond-buying on a much larger scale. When the market panic becomes intense enough, the argument goes, the Germans will capitulate.

The ECB’s decision to mark the arrival of the new president, Mario Draghi, by cutting interest rates a quarter point to 1.25pc last week suggests the eurozone’s central bank might show a little more latitude in the future.

But I truly believe that Germany’s political and economic establishment would rather see the eurozone break up than risk its own national prosperity, and political stability, by allowing the ECB – and thus, Germany – to backstop the rest of Europe. A currency with “no lender of the last resort” – that’s the incoherent reality of the single currency project, a reality that is now being mercilessly exposed.

ECB debates ending Italy bond buys if reforms don't come
by Reuters

The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said.

"If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday.

Asked if this meant the ECB would stop buying Italy's bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg's central bank, replied: "If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that decision at any moment. We discuss this all the time."

Since the ECB resumed its bond buying programme (SMP) around three months ago it has purchased some 100 billion euros of government bonds, a majority of which are thought to be Italian BTPs.

Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that "don't meet their responsibilities." "Our job is not to remedy the errors of politicians," he said.

Mersch also defended the right of Italian Lorenzo Bini Smaghi to remain on the ECB board even though this means Italy now has two members and France has none, much to the annoyance of French President Nicolas Sarkozy.

"He (Bini Smaghi) has an eight year mandate, the treaties do not say that if someone comes from a specific Treasury ministry he has a right to a place on the ECB board," he said. "The spirit of the treaties is that everyone leaves his passport in the wardrobe when he participates in ECB meetings."

Berlusconi Rejects Calls to Resign Over Fiscal Crisis
by Stacy Meichtry and Sabrina Cohen - Wall Street Journal

Italian Prime Minister Silvio Berlusconi on Saturday rebuffed calls to resign as thousands of protesters poured into the streets criticizing his handling of Italy's economy and calling for new leadership to steer the country out of the euro-zone debt crisis.

In a defiant statement, Mr. Berlusconi labeled as "gossip" Italian newspaper reports stating he has come under pressure from key advisers to step down. "Responsibility in the face of voters and the country requires us and our government to continue this battle for civility that we are conducting in this difficult moment of the crisis," he said.

The protest rally in Rome Saturday was organized by the main opposition party, the Democratic Party, which has repeatedly called on the prime minister to resign. Center-left opposition leader Pier Luigi Bersani said that "either he resigns or he will lose the next election round."

The protest comes in the wake of Mr. Berlusconi's turbulent visit to the Group of 20 summit in Cannes, France, where the International Monetary Fund announced that IMF observers will be sent to Italy in the coming week to monitor the implementation of economic measures. News of the oversight, an extremely rare step for the IMF to take with a G-8 country, alarmed investors on Friday, driving another selloff in Italian bonds and driving up the country's borrowing costs.

Mr. Bersani and other opposition leaders have met several times with Italian President Giorgio Napolitano in recent days to discuss the economic crisis as well as the political gridlock. A group of lawmakers within Mr. Berlsuconi's conservative People of Freedom Party have also forged a pact to vote against the government in Parliament, according to people familiar with the matter, but it remained unclear if the mutiny is large enough to deprive Mr. Berlusconi of a majority.

Mr. Napolitano, who wields to power to dissolve Parliament, said on Friday that "Italy cannot give signs of insufficient determination and reliability" warning that the country is facing a grave crisis of credibility.

The Berlusconi government is expected to face Parliament next week in a routine vote on budget matters that will be closely watched for signs that his majority is weakening. Last month, he won a confidence vote with 316 in favor of his government and 301 against.

In God’s name, go!
by FT Editorial

In a Group of 20 summit that fell well short of what was needed, the world’s most powerful leaders were powerless in the face of the manoeuvres by two European premiers: George Papandreou and Silvio Berlusconi.

The similarities between the two prime ministers are striking: both men rely on a thin and shrinking parliamentary majority and they are both squabbling with their own ministers of finance.

Most importantly, they both have a dangerous tendency to renege on their promises at a time when markets worry about their countries’ public finances. There is, however, one important difference: having reached €1,900bn, Italy’s public debt is so high that its potential to destabilise the world economy is way above that of Athens.

The good news, of course, is that Italy is still a solvent country. However, the interest rate on its debt is becoming ever less sustainable. The spreads between Italian and German 10-year bonds have doubled over the summer. Yesterday, they reached a euro-era record of 463 basis points and would have probably been higher if the European Central Bank was not buying Italian bonds.

Although Rome can sustain high interest rates for a limited time period, this process must be halted before it becomes unmanageable. Next year Italy has to refinance nearly €300bn worth of debt. As the eurozone crisis has shown too well, once spreads have risen, they are extremely difficult to bring down.

The most troubling aspect is that this is happening even as Italy has agreed, in principle, to the structural reforms recommended by Europe and the G20. That the International Monetary Fund will monitor Rome’s progress can only be a good thing. However, this risks being undermined while the country retains its current leader. Having failed to pass reforms in his two decades in politics, Mr Berlusconi lacks the credibility to bring about meaningful change.

It would be naive to assume that, when Mr Berlusconi goes, Italy will instantly reclaim the full confidence of the markets. Clouds remain over the political future of the country and structural reforms will take time before they can affect growth rates.

A change of leadership, however, is imperative. A new prime minister committed to the reform agenda would reassure the markets, which are desperate for a credible plan to end the run on the world’s fourth largest debt. This would make it easier for the European Central Bank to continue its bond-purchasing scheme, as it would make it less likely that Italy will renege on its promises.

After two decades of ineffective showmanship, the only words to say to Mr Berlusconi echo those once used by Oliver Cromwell. In the name of God, Italy and Europe, go!

Italy Agrees to Allow I.M.F. to Monitor Its Progress on Debt
by Liz Alderman - New York Times

Acceding to pressure from European leaders, Italy "invited" the International Monetary Fund on Friday to look over its shoulder to ensure that Rome is carrying out changes devised to keep the country from succumbing to Europe’s sovereign debt crisis, signifying a new moment in global economic management.

Even as political instability in Greece threatened to tip the crisis into a new and more dangerous phase, the unprecedented move by the I.M.F. to act as an overseer of Italy’s efforts to contain its ballooning debt underscored just how rapidly Italy was pivoting back to the center of the storm on the Continent.

The Group of 20 summit meeting was also a new departure for the I.M.F. In addition to agreeing to scrutinize Italy, the fund is leading a push to raise billions in new rescue money from China, Russia and other cash-rich rising powers. It is also preparing credit lines for countries like Hungary that are "innocent bystanders" of the crisis, a provision that goes well beyond the group’s traditional mandate of helping countries that are direct recipients of its financial aid.

As financial markets cast a wary eye on Greece, on the eve of a critical no-confidence vote in Parliament, officials in the euro zone struggled to keep the debt contagion from spreading west to neighboring Italy. Should Italy get swept up in that, it could rapidly overwhelm even the latest bailout vehicle being assembled, the $1.4 trillion European Financial Stability Facility, taking Europe’s debt crisis to a new level and potentially dragging down the global economy.

Italy said it would allow the fund to scrutinize its books every three months to make sure a $75 billion austerity package was carried out according to plan. A team from the European Commission will also travel to Rome next week to start monitoring Rome’s efforts, said the president of the commission, José Manuel Barroso.

Even that backstop seemed in doubt on Friday after the Group of 20 meeting broke up apparently with little progress on Europe’s debt problems, aside from the decision to have the I.M.F. monitor Italy. Germany’s chancellor, Angela Merkel, acknowledged that Europe’s leaders had so far failed to interest any of the nations in the Group of 20 in investing in the new facility — a major goal of European leaders.

The decision also did little to edge Italy away from the center of the storm: The interest rates it pays to borrow in financial markets continued to tick up Friday, amid concerns that a broader rescue effort by European leaders had not gained much traction. Rising borrowing costs are what helped send Greece, Portugal and Ireland to the fund looking for bailouts last year.

Mrs. Merkel said cash-rich countries like China and Russia wanted more assurances that they would not sustain losses, perhaps by having the I.M.F. oversee the financing facility. Japan, whose leadership has grown increasingly alarmed at the Continent’s spreading debt crisis, does not want to commit funds to the rescue effort until it is clear that they would not be subject to losses, especially if Europe insists on using the money to help support insolvent banks, a government spokesman said Friday.

President Obama called on world leaders to continue to work to manage the global economic crisis, saluting them for making "important progress." Mr. Obama, who has spent the last two days shuttling between meetings trying to salvage last week’s European debt deal, said the agreement on increased scrutiny of Italy was a step in the right direction. "There’s no excuse for inaction," Mr. Obama said. "That’s true globally, and it’s certainly true back home right now." Mr. Obama’s remarks came at a news conference at the Debussy Theater — usually the sight of Cannes Film Festival movie premieres.

Prime Minister Silvio Berlusconi’s shaky coalition government is having trouble carrying out a number of painful austerity measures passed recently to reduce the nation’s deficit and its $2.5 trillion mountain of debt. Further complicating matters, his government is hanging by a thread, and faces challenges from his main coalition party, the Northern League, which has already said it does not agree with all the structural changes adopted by Rome to bring the nation’s finances under control.

The I.M.F.’s decision is a further sign that the Italian government has little credibility, Pier Luigi Bersani, leader of the Democratic Party, the largest opposition group, said Friday. "Being under a guardianship takes away our liberty, and a bit of our dignity," he said in an interview on Italian state television. The Berlusconi government faces a critical vote next week that could spell its end, Italian commentators said this week.

President Nicolas Sarkozy of France and Chancellor Merkel have been pressuring Mr. Berlusconi to fulfill Italy’s financial commitments, but to date the Italian prime minister has been able to muster only a letter outlining his government’s intentions.

Publicly, European officials are presenting Italy’s decision to bring in the I.M.F. as purely voluntary. "We didn’t put Italy in a corner," said Herman van Rompuy, the European Commission president. "They themselves decided to invite the I.M.F."

But few countries easily surrender their sovereignty to the fund, and Italy appears to be no exception. Behind closed doors, said one European Union official, leaders pressured Mr. Berlusconi to bring in the group’s auditors to demonstrate to world markets that Italy is making a credible effort to cut its deficits and make changes to restore growth, which is currently close to nonexistent.

Mr. Berlusconi sought to play the development to his advantage, telling reporters he had rejected an offer by the I.M.F. to provide a financial lifeline. That differed from accounts offered by European Union leaders and Christine Lagarde, the managing director of the I.M.F., who started pushing the idea several weeks ago as a way to help the Europeans act as a fiscal parole officer for Italy.

In an interview on the sidelines of the summit, Ms. Lagarde said that "friendly pressure" had been placed on Italy to accept the I.M.F. as a monitor. Because Italy is not under an I.M.F. bailout, the only way the fund could act as a monitor was if Italy invited it to do so, she added

The oversight of Italy is an extraordinary step for the fund, which typically monitors only countries that are recipients of bailouts. But the I.M.F. appears to be increasing its clout and presence in Europe as the crisis grows. It is already overseeing the bailouts of three Western European countries — Ireland, Portugal and Greece — something that would have been all but unthinkable just a few years ago.

Berlusconi brushes off debt crisis
by Peter Spiegel and Guy Dinmore - FT

Silvio Berlusconi, the Italian prime minister, said on Friday that he had refused the offer of an International Monetary Fund loan to his indebted country, arguing that Rome did not need one even as its borrowing costs remained at near-unsustainable levels.

During meetings on the sidelines of a summit of world leaders in Cannes, Mr Berlusconi instead agreed to accept highly intrusive IMF monitoring of his government’s promised reforms – an unprecedented concession by a eurozone country that has not received a bail-out.

Yields on Italy’s 10-year bonds surged to euro-era highs after Mr Berlusconi said he had declined the offer of a low-interest IMF loan. At 6.4 per cent, they are near the level at which Greece, Ireland and Portugal were forced into IMF-European Union bail-outs. Italy must refinance €300bn ($413bn) in borrowing next year.

The rise in borrowing rates came despite reports from traders that the European Central Bank was purchasing Italian bonds to try to drive yields down. The ECB has bought an estimated €70bn in Italian bonds since panicked selling began in August.

"Italy does not feel the crisis," Mr Berlusconi said after the G20 summit of industrial powers. He described the Italian bond sell-off was "a passing fashion", adding "the restaurants are full, the planes are fully booked and the hotel resorts are fully booked as well".

At a press conference with Mr Berlusconi, Giulio Tremonti, Italy’s finance minister, declined to comment when asked if the country needed a change of government.

Christine Lagarde, IMF managing director, said she had not offered Italy a loan – known as a "precautionary credit line" – but other officials familiar with the deliberations in Cannes told the Financial Times that Italy had urged to accept as much as €50bn in assistance.

Senior European officials had hoped Mr Berlusconi’s acceptance of intensive IMF monitoring would return calm to the Italian bond market. Several said they believed Italy’s reform programme would improve the economy but feared that markets doubted the prime minister’s ability to implement them.

"The problem that is at stake, and that was clearly identified both by the Italian authorities and its partners, is a lack of credibility of the measures that were announced," Ms Lagarde said, adding that the Italy mission would make its quarterly reports public and that she planned to visit Rome as part of the evaluation process.

The European Commission, the EU’s executive, has already been tasked with sending monitors to Rome to keep tabs on Mr Berlusconi’s administration. The addition of IMF monitors, who will publish quarterly reports on Italy’s progress, makes the mission almost identical to so-called "troika" teams of Commission and IMF evaluators who conduct reviews of the eurozone’s three bail-out countries.

Despite heightened concern by European officials, Herman Van Rompuy, president of the European Council, insisted Mr Berlusconi had not been forced to accept the IMF monitors by EU, French and German leaders, who met for hours with the Italian premier over the course of the summit. "We haven’t put Italy in a corner – not at all," said Herman Van Rompuy, president of the European Council.

'Bucket' List: G-20 Panel Names 29 Too Big To Fail Banks
by Geoffrey T. Smith - Wall Street Journal

The enforcement agency for financial stability of the Group of 20 industrial and developing nations Friday published the long-awaited list of those banks it will force to hold more capital because of their importance to the global financial system.

The list of Globally Systemically Important Financial Institutions is very much as had been expected, with 17 European banks, eight U.S. ones, three Japanese and one Chinese on it. Two large European banks, Spain's Banco Bilbao Vizcaria Argentaria SA and Italy's Intesa Sanpaolo SpA, that some expected may be on the list were left off, largely due to their concentration of activities in their home markets.

The banks named Friday by the agency have until the end of next year to lay out in detail how their businesses should be unwound if they collapse. From 2016, they will also have to hold more capital than other banks "in order to reflect the greater cost to the system of their failure." As such, by 2019 at the latest, these banks will have to have a core Tier 1 capital ratio up to 3.5 percentage points higher than banks that aren't systemically relevant.

The agency foresees five "buckets," requiring extra capital of 1%, 1.5%, 2%, 2.5% and 3.5%. The more important the bank, the higher the surcharge it will have to pay. Mario Draghi, the outgoing chairman of Financial Stability Board and the new president of the European Central Bank, said in Cannes Friday that it is still too early to say which "bucket" the individual banks will be put in, but the 3.5% "bucket" will be left empty to start with.

The banks have argued that the surcharges will restrict their ability to lend to the economy, as well as distorting competition with their rivals. The regulators largely dismissed those concerns in confirming the bulk of their original recommendations Friday.

"Complete and globally consistent implementation of these measures will be essential for a safer and sounder banking system and will contribute to broader financial system stability," Stefan Ingves, chairman of the Basel Committee on Banking Supervision, said in an emailed press statement.

The Basel Committee has stressed that the capital surcharges are intended as minimum requirements, and has left national regulators free to impose higher ones. The FSB said the list of banks would be updated in November every year, while the methodology used to define them would be reviewed every three years.

As reported, the agency and the Basel Committee of Banking Supervision drew up its list of banks based on their absolute size, their complexity, the extent of their cross-border activities and the degree to which they are interconnected with the rest of the financial system. The regulators also considered to what extent the banks provided services that couldn't be quickly or adequately replaced by other banks if they failed.

The full list is as follows:
  • U.S.: Bank of America, Bank of New York Mellon , Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street and Wells Fargo.
  • U.K.: Royal Bank of Scotland PLC, Lloyds Banking Group PLC, Barclays PLC, HSBC Holdings PLC;
  • France: Crédit Agricole SA, BNP Paribas SA, Banque Populaire, Société Générale SA
  • Germany: Deutsche Bank AG, Commerzbank AG
  • Italy: Unicredit Group SA
  • Switzerland: UBS AG, Credit Suisse AG
  • Belgium: Dexia SA
  • Netherlands: ING Groep NV
  • Spain: Banco Santander SA
  • Sweden: Nordea AB
  • Japan: Mitsubishi UFJ FG, Mizuho FG, Sumitomo Mitsui FG
  • China: Bank of China

'Too big to fail' Barclays, RBS, Lloyds and HSBC will be forced to increase capital buffers
by Philip Aldrick - Telegraph

All four of Britain's high street lenders will have to increase their capital buffers above the global regulatory minimum after being confirmed as banks that are "too big to fail".

Barclays, Royal Bank of Scotland, Lloyds Banking Group and HSBC are on a list of 29 banks deemed to be so important to the global financial system they need better protection against collapse. The Financial Stability Board (FSB), an arm of the Bank for International Settlements, unveiled its official list at the meeting of G20 leaders in Cannes on Friday.

Of the banks listed 17 are from Europe, four are from Asia and eight are US banks, including Goldman Sachs and a number of US investment banks. Standard Chartered has not been named as systemically important.

Under the FSB rules, every bank on the list will have to hold more than the 7.5pc regulatory minimum capital ratio. They are split into four "buckets", with least risky required to hold an extra 1pc. Each successive bucket adds another 0.5pc. A special fifth bucket exists to deter the world's biggest banks from getting any larger. Any lender which qualifies for that will be hit with a 3.5pc capital surcharge. At the moment, no bank is in the fifth bucket.

The aim is to ensure taxpayers will never again be called on to foot the bill in a major banking crisis. "We consider these to be minimum rules," said Svein Andreson, secretary general of the FSB. The FSB will re-evaluate the banks every year to assess whether the surcharge should be increased. The rules will be phased in over three years from 2016. The arrangement means that no UK bank would have to hold more than 10pc capital, in line with what has already been proposed by the Independent Commission on Banking.

Mario Draghi, the outgoing FSB chairman who has just started as President of the European Central Bank, said the capital surcharges should not affect global growth. "We have done several impact studies and they don't show any significant economic effects," he said. Mr Draghi will be replaced by Mark Carney, Bank of Canada's Governor. Swiss National Bank chairman Philipp Hildebrand will become vice-chairman.

The FSB also said the 29 banks will need to meet resolution planning requirements, dubbed "living wills", by the end of next year. National authorities can extend this requirement to other banks at their discretion, it said. Mr Andreson said that any unsecured, uninsured creditors could be subject to losses under "bail-in" part of the resolution plans. However, he suggested retail depositors should be excluded because they "are not well positioned to make decisions about the balance sheets of banks".

Meanwhile, Co-operative Group has confirmed that it made a second round bid for the 632 bank branches being sold off by Lloyds. The bid for the Project Verde assets being sold by Lloyds means the bank has received two confirmed bids for the business, which once spun off will comprise the seventh largest banking business in the UK. Lloyds has already received a bid from banking start-up NBNK and expects to announce its decision on the future of the business by the end of the year.

The news comes as Tim Tookey, the acting chief executive of Lloyds, following the departure earlier this week of the lender's chief Antonio Horta-Osorio due to "extreme fatigue", has told Resolution that he will join the insurer in March as planned.

Mr Tookey, Lloyds' chief financial officer, took over from Mr Horta-Osorio on Wednesday after doctors ordered the banker to take the next six weeks off work due to stress. Mr Tookey had already resigned from the bank to join Resolution. However, speculation had mounted he could postpone his departure in February due to Mr Horta-Osorio's temporary leave of absence.

Bank exodus from euro zone sovereign debt quickens
by Steve Slater and Lionel Laurent - Reuters

Banks including BNP Paribas and ING are ditching billions of euros of euro zone government bonds, cutting their exposure to the region's trouble spots.

More lenders are expected to retreat as the euro zone crisis deepens and leaders raise the possibility of the exit of Greece from the bloc, further damaging prices. "The market value of the debt of the countries most under scrutiny is likely to decline further as banks unload sovereign bonds," Charles Dallara, managing director of the Institute of International Finance, warned on Wednesday.

BNP, the biggest overseas private holder of Greek government debt, took a 2.6 billion euro writedown on Thursday as the crisis in the currency bloc deepened, mostly because it wrote down the value of its Greek bonds to 40 percent of par value. The bank had been told by the French government not to sell down its Greek bonds as the country's troubles grew over the summer, to prevent destabilising the euro zone, a senior banking source has told Reuters, on condition of anonymity.

BNP lost 362 million euros in the third quarter and said it will lose another 450 million euros in October from selling almost 25 billion euros of sovereign debt, or a quarter of its holdings, reducing its Italian bonds by 8.2 billion euros to 12.6 billion euros over the four months.

The retreat is not restricted to those economies seen as most vulnerable to the crisis. In addition to cutting back on 2.2 billion euros of Spanish sovereign bonds (leaving 0.5 billion euros), BNP also reduced its French debt holding by 1 billion euros (leaving 13.8 billion euros) and its German debt by 1.4 billion euros (leaving 2.5 billion euros).

In a similar move, Dutch financial group ING said it had cut its Greek, Italian, Irish, Portuguese and Spanish sovereign bond holdings by 5.4 billion euros, also in the last four months.

Tougher Rules
The IIF, which represents over 450 financial firms, half of them in Europe, said in a letter to G20 leaders ahead of their summit in France that the sales of government bonds were the result of banks being hit by tougher capital and liquidity rules -- including their "increasingly questionable emphasis on sovereign debt".

Regulators have encouraged banks since the 2007/08 financial crisis to increase their holdings of liquid assets such as government bonds and cash, so they could withstand at least a 30-day funding crisis. The European Central Bank is likely to be by far the biggest buyer of the bonds being offloaded, although BNP said all its sales of Italian debt had been on the market and not to the ECB.

The ECB has bought 100 billion euros of bonds since August after it reactivated the controversial programme -- - known as the Securities Markets Programme -- which aims to keep borrowing costs in check. It bought 4 billion euros last week. The ECB does not break down its purchases, but most purchases since August are expected to have been of Italian and Spanish debt.

Hedge funds or other opportunistic investment firms could also be buyers, although this week's collapse of U.S. firm MF Global after big bets on the euro zone may deter many. "Probably the main buyer is the ECB's SMP program ... but the second largest buyers would be domestic insurers and pension funds," said Andrew Fraser, investment director for fixed income at Standard Life Investments. "As they receive coupon payments or as bonds mature, they have to reinvest that money in domestic bonds because the liability is in the domestic market."

Other banks to cut holdings include Barclays, which last week said its sovereign exposure to Spain, Italy, Portugal Ireland and Greece (PIIGS) fell by 31 percent in the third quarter to 8 billion euros.

Deutsche Bank said its net exposure to sovereign PIIGS debt increased slightly in the third quarter mainly due to trading book positions. But its end-September holding of 4.4 billion euros was down from 12.1 billion euros at the start of the year, with its Italian holdings almost halving to 4.4 billion euros.

Royal Bank of Scotland could take a 180 million pound hit on its Greek bonds if it marks them to current prices when it reports on Friday, despite taking a "conservative" 50 percent loss on them in August. BNP's residual exposure to Greek sovereign bonds was now 1.6 billion euros. It said a deal whereby private sector investors will voluntarily lose half the nominal value of their Greek bonds was "still shrouded by uncertainty".

ING took a 467 million euros hit as it marked its Greek government bonds to market value, which is currently around a 63 percent loss.

New French Austerity Package Looms
by William Horobin And Max Colchester - Wall Street Journal

The French government is finalizing an austerity package that could be unveiled as early as Monday, said a person familiar with the matter, as it seeks to meet its deficit reduction targets and hold on to its prized triple-A credit rating against a backdrop of slowing growth.

French President Nicolas Sarkozy has already said he would need to pass an additional €6 billion to €8 billion ($8.3 billion to $11 billion) of austerity measures, the second set of government initiatives to shore up state coffers in just over two months. With the euro-zone debt crisis continuing to hammer European economies, Mr. Sarkozy late last month cut France's growth forecast to 1% for 2012 from 1.75% that was previously in the budget for next year.

Mr. Sarkozy had pledged to address the issue once the Group of 20 summit was over in Cannes, where the euro-zone debt crisis swamped France's ambitious agenda for global reforms.
The French president met Saturday with some top government ministers to work on the austerity measures, said the person familiar with the matter, adding that the announcements may come Monday at a cabinet meeting.

Measures being considered include raising the Value Added Tax on restaurant meals and erasing a public holiday from the calendar, according to French newspaper Le Journal Du Dimanche. The state is also weighing whether to increase the tax on companies with revenue above €150 million to 36% from 33%, according to the newspaper. The person familiar with the matter said nothing has been decided yet on such measures.

Speaking in the French Alps earlier Saturday, French Prime Minister François Fillon said the budget measures would be one of the most rigorous that France has witnessed since 1945. France has pledged to reduce its deficit from 5.7% of GDP this year to 4.5% next year, before reaching the 3% limit prescribed by European Union treaties in 2013.

The heat is on France, the euro zone's second largest economy, to meet those targets after ratings firm Moody's Investors Service warned the stable outlook on France's triple-A sovereign rating was under pressure.

Mr. Fillon said the moment of truth has come for France. "I want to tell you that [the triple-A] is an asset that we must preserve at all costs," he said, adding the necessary measures will be announced "soon."

The previous austerity package at the end of August was almost entirely based on boosting tax revenue. This time, government ministers are indicating they will make more of an effort on spending. "When you hold the record for public spending, when you have the record for taxing, there is no other recipe to cut debt than cutting spending," Mr. Fillon said. "It's an inescapable reality."

In MF Global, Sad Proof of Europe’s Fallout
by Gretchen Morgenson - New York Times

Who are you going to believe — me, or your own lying eyes?

That old line from the Marx Brothers came to mind last week as MF Global, the brokerage firm run by Jon S. Corzine, was felled by over-the-top leverage and bad derivative bets on debt-weakened European countries. Suddenly, all of those claims that American financial institutions have little to no exposure to Europe rang hollow.

You can understand why Wall Street wants to play down the threats from Europe. Its profits depend on the market’s confidence in the products it sells — and on the belief that the firms that sell those products will be around tomorrow.

But MF Global provides two lessons. The first is that our financial institutions are not impervious to Euro-shocks. The second is that when those problems reach our shores, they usually ride in on a wave of derivatives.

"The problems that we’ve had since the inception of the credit derivatives market have never been solved in any meaningful way," said Janet Tavakoli, president of Tavakoli Structured Finance and an authority on these instruments. "How many times do we want to live through this?"

MF Global’s debacle was a result of complex swaps deals it had struck with trading partners. While those partners owned the underlying assets — in this case, government debt — MF Global held the risk relating to both market price and default.

These arrangements at MF Global underscore two big problems in the credit derivatives market: risks that can be hidden from view, and risks that are not backed by adequate postings of collateral. These are the same market flaws that helped hide the problems at the American International Group — problems that arose from insurance that A.I.G. had foolishly written on crummy mortgage securities.

The International Swaps & Derivatives Association, an industry lobbying group, contends that the market in credit default swaps is far more transparent than it was in 2008. For example, the Depository Trust and Clearing Corporation compiles figures on the number and dollar amount of swaps outstanding on its trade information warehouse.

The numbers are pretty mind-boggling. As of Oct. 28, for example, the warehouse reported $24 billion in net credit default swaps outstanding on debt issued by France, up from $14.4 billion one year ago. Some $17 billion in net credit default swaps were outstanding on Spain, up from $15.5 billion in 2010. Net swaps on Italy were $21.2 billion at last count, down from $28.5 billion last year.

The amount of net credit default swap exposure on the imperiled nation of Greece was much smaller: $3.7 billion late last month. It was $7 billion a year earlier. Officials at the I.S.D.A. say these bets are manageable because they are probably backed by substantial collateral.

Moreover, because of the "voluntary" nature of the Greek restructuring deal, which would require private holders of the nation’s debt to write off half its value, the I.S.D.A. predicts that the arrangement should not qualify as a default.

Therefore, the insurance that has been written on all this Greek debt will not cover investor losses generated by the 50 percent write-down — a disturbing consequence to those who thought they were buying insurance against that very risk. Given this turn of events, it’s hard to imagine why anyone would continue to buy credit default swaps.

In any case, the figures compiled by the D.T.C. don’t show the entire amount of credit insurance that has been written on Greece and other nations. D.T.C. says it believes its figures capture 98 percent of the market, but credit default swaps are often struck privately; not all of them are reported to regulators.

Consider an investment vehicle known as a credit-linked note. In these deals, investors buy a note issued by a special-purpose vehicle that contains a credit default swap referencing a debt issuer, like a government. That swap provides credit insurance to the party buying the protection, meaning that the holder of the note is responsible for losses in a so-called credit event, like a default.

Credit-linked notes are very popular and have been issued extensively by European banks. Many are governed by I.S.D.A. contracts, which define the terms of a credit event and require a ruling by the association on whether such an event has occurred.

But some deals have different definitions or contractual language overriding the I.S.D.A. agreement. "The people writing these contracts may say, ‘I would like to be paid if there is a voluntary restructuring of debt, or if Greece goes back to the drachma, or if Greece goes to war with Cyprus,’ " Ms. Tavakoli said. "I can declare a credit event where I am entitled to get paid if any of those events happen."

Cash calls can also be generated by declines in the market price of the notes or increases in the cost of insuring the underlying sovereign debt issue, according to credit-linked note prospectuses.

The other party has to agree to these terms up front. But, given the nature of these so-called bespoke deals, we don’t know the full extent of the insurance that investors have written on troubled nations or the circumstances under which the insurance must be paid. Neither do we know who may be facing severe collateral calls or demands for termination payments on the contracts.

When those collateral calls start coming, market values assigned to the securities that have been provided as backup can decline significantly. And when a company’s credit rating is downgraded, as MF Global’s was in late October, cash demands from skittish trading partners become even greater. "At this late date we still don’t know the risks that are out there," Ms. Tavakoli said. "This market is opaque, bespoke, and the regulators don’t know what they’re doing."

At least regulators didn’t deem MF Global too big to fail. That’s a plus. But given the billions at stake in these markets, more transparency is needed about market participants, their financial soundness and their ability to withstand liquidity crises like the one that wiped out MF Global.

Goldman: euro could split apart
by Kamal Ahmed - Telegraph

The chairman of Goldman Sachs Asset Management has said that the need for a German-led fiscal integration in the eurozone would make it increasingly unattractive for all the countries who joined to stay in the single currency.

Jim O’Neill, whose division manages more than $800bn (£500bn) of assets, said that countries as diverse as Portugal, Ireland, Finland and Greece could pull out of the single currency rather than have to operate under a single eurozone treasury. Yesterday, Angela Merkel, the German chancellor, said the market turmoil could last for a decade and there was still “a chunk of work” to do.

“The Germans want more fiscal unity and much tougher central observation – with the idea of a finance ministry,” Mr O’Neill said in an interview with The Sunday Telegraph. “That will emerge for those that want to stay in this damn thing, or can stay in.

“With that caveat, it is tough to see all countries that joined wanting to live with that –including the one that is so troubled here [Greece]. If you wind the clock back, it was pretty obvious that economically probably only Germany, France and Benelux of the original joiners were the ones that were ideal for a monetary union.

“For [them] it is not a bad idea – these countries have always had some kind of tight fixing of exchange rates and are very intertwined. For all the rest that originally joined – Spain, Italy, Portugal, Ireland, Finland – it is actually questionable.”

Mr O’Neill said that because Finland and Ireland were adjacent to non-eurozone countries – the UK and Sweden – they might prefer to quit the euro. He said the single currency might be stronger as a result.

Turning to the Brussels bail-out deal, he said that, although some steps had been taken in the right direction, it did not “solve the issue” and that the European Central Bank needed “eagerly” to buy bonds. “The dilemma is how is this going to be implemented and is everyone fully signed up and, of course, we find in a few days that the key participant hasn’t signed up [Greece],” he said.

The ECB last night disclosed that it has discussed the possibility of ending the purchase of Italian bonds if it concludes Italy is not adopting promised reforms. Also last night, the chairman of the supervisory board of China Investment Corporation, the country’s sovereign wealth fund, put further distance between China and the eurozone bail-out, saying that Europe’s bloated welfare state meant that people did not work hard enough.

“I think if you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies,” Jin Liqun said in an interview with Al Jazeera television. “I think the labour laws are outdated – the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.”

Eurozone leaders had been hoping that China would use some of its trade surplus to back the bail-out fund.

Why Wall Street Can't Handle the Truth
by Mike Mayo - Wall Street Journal

Longtime bank analyst Mike Mayo tells the inside story of why it's so hard to yell 'sell' in a crowded room—and lays out how Wall Street needs to change to avoid the next financial collapse.

Over the past 12 years, longtime banking analyst Mike Mayo has issued numerous calls to sell bank stocks, a rarity in a system where nearly all stocks are rated buy or hold. His negative ratings have frequently gotten him in trouble with banks, clients and his own bosses, who didn't want to alienate those companies. In this excerpt from his new book, "Exile on Wall Street," Mr. Mayo gives an inside view of the fights, the scolding and the threatening phone calls he received as a result of yelling "sell"—and offers a proposal to fix the banking sector.

Taking a negative position doesn't win you many friends in the banking sector. I've worked as a bank analyst for the past 20 years, where my job is to study publicly traded financial firms and decide which ones would make the best investments. This research goes out to institutional investors: mutual fund companies, university endowments, public-employee retirement funds, hedge funds, and other organizations with large amounts of money. But for about the past decade, especially the past five years or so, most big banks haven't been good investments. In fact, they've been terrible investments, down 50%, 60%, 70% or more.

Analysts are supposed to be a check on the financial system—people who can wade through a company's financials and tell investors what's really going on. There are about 5,000 so-called sell-side analysts, about 5% of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of more than $15 trillion.

Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners.

Over the years, I have pointed out certain problems in the banking sector—things like excessive risk, outsized compensation for bankers, more aggressive lending—and as a result been yelled at, conspicuously ignored, threatened with legal action and mocked by banking executives, all with the intent of persuading me to soften my stance.

Looking inside the world of finance—with its pressures to conform and stay quiet—may offer some insight into why so many others have fudged. And it may offer some answers as to how crisis after crisis has hit the economy over the past decade, taking the markets by surprise, despite what should have been plentiful warning signs.

It started in 1999, when I was managing director (the equivalent of partner) at Credit Suisse First Boston. At the time, what gave me the biggest concern was a sense that stocks within the banking sector were likely to turn downward.

Five years after the interstate banking law of 1994, which allowed banks to operate across state lines, the easy gains from consolidation were over. When banks couldn't maintain their growth momentum through mergers and cost cuts, they took the next logical step—they made more consumer loans. Logic dictated that this meant the quality of those loans would probably decrease, and, in turn, create a greater risk that some of them would result in losses. At the same time, executive pay was soaring, aided by stock options, which can encourage executives to take on greater risk.

For my 1,000-page report on the entire banking industry, with detailed reports of 47 banks, I wasn't just going to go negative on a few main stocks but the entire sector. This was completely the opposite of what most analysts were saying, not just about banks but about all sectors.

In decades past, the ratio of buy ratings to sell ratings had not been this lopsided, and in theory it should be roughly 50-50. That seems right, doesn't it? Some stocks go up, some go down, because of the overall market direction or competitive threats or issues specific to each company. In the late 1990s, though, the ratio was 100 buys or more for every sell. Merrill Lynch had buy ratings on 940 stocks and sell ratings on just 7. Salomon Smith Barney: 856 buy ratings, 4 sells. Morgan Stanley Dean Witter: 670 buys and exactly 0 sells.

Analysts almost never said to sell specific companies, because that would alienate those firms, which then might move business for bond offerings, equity deals, acquisitions, buybacks or other activity away from the analyst's brokerage firm. Say the word "sell" enough times, and you win a long, awkward elevator ride out of the building with your soon-to-be-former boss. And here I was, ready to go negative on the entire banking sector.

At the company's morning meeting between analysts and the sales staff, I gave a short presentation on the report. "In no uncertain terms," I said, "sell bank stocks. I'm downgrading the group. Sell Bank One, sell Chase Manhattan…." The message went out over the "hoot," or microphone, to more than 50 salespeople around the world. They would relay my thoughts to more than 300 money managers at some of the largest institutional investment firms in the business.

Afterward, I went back to my desk. Safe so far, I thought, and picked up the phone to call some of the biggest banks that had been downgraded, to give them a heads-up, along with some of the firm's institutional-investing clients. Not long after that, I was summoned back to the hoot for a special presentation to the sales force, something that had never happened before. They wanted me to clarify my thinking. Why not just leave the ratings at hold?

I laid out my case again: declining loan quality, excess executive compensation and headwinds for the industry after five years of major growth driven by mergers.

The counterattack started almost immediately. One portfolio manager said, "What's he trying to prove? Don't you know you only put a sell on a dog?" Another yelled, "I can't believe Mayo's doing this. He must be self-destructing!" One trader at a firm that owned a portfolio full of bank shares—which immediately began falling—printed out my photo and stuck it to her bulletin board with the word "WANTED" scribbled over it. I'd poked a stick into a hornets' nest.

That morning, I got a call from a client who runs a major endowment. "Check out the TV," he said. On CNBC, the commentators had picked up on the news and were now mocking me. Joe Kernen joked: "Who's Mike Mayo, and do we know whether he was turned down for a car loan?" I even got an ominous, anonymous voice mail from someone with a strong drawl cautioning, "Be careful with what you say."

Of course, the banks that I had downgraded were even more furious, and they let me know it. Routine meetings with management are a standard part of my work, yet when I requested these meetings after my call, several banks said no. Worse, a couple of big institutions in the Midwest and Southeast threatened to cut all ties with Credit Suisse—no more investment banking deals, no more fees.

Within a few months, the market began to experience problems. The Standard & Poor's bank index peaked in July 1999 and fell more than 20% by the end of the year. Regional banks, in particular, had their worst performance compared to the overall market in half a century.

I was still negative on the sector in 2001, when I moved over to Prudential, and I initiated my coverage with nine sell ratings. This was a tough stance to take at the time because bank stocks were on the rise. Soon enough, I would run into more of the usual problems.

After one meeting in New Jersey, one of the more senior portfolio managers offered to "advise" me about my views on the banking industry. The old-timer pulled me into a semidarkened room, just the two of us.

"I've been doing this a while," he said, "and you've gotta know when to change your view. You can't be so negative." He probably meant it as kindly advice from someone who had been around the block, but it came across more like a disciplinarian father scolding his son. His argument seemed to be that as long as the stock prices were going up, the banks' management and operating strategies didn't matter.

Other companies limited my access to senior executives. An analyst without access to executives—and the one-on-one insights that investors often pay for—can be perceived to be at a disadvantage compared to his or her peers. Goldman Sachs was fairly up front about it, a rarity in the industry. I had recently initiated coverage on the firm, so I had few established relationships I could leverage.

When I told one point of contact at the company that I'd like to have more meetings with management, he told me that the firm wasn't singling me out—they treated everyone that way. When I pushed a little harder for a meeting, I received a message that we needed to "have a conversation."

Feeling like a student being reprimanded by a teacher, I was told that the most efficient use of management's time was for the executives to generate money for the firm instead of talking to the 20 or so analysts covering the company. An analyst like me would simply have to be patient.

While I could live with this—to a degree—the gatekeeper added one more point: A consideration in granting analysts meetings with management of Goldman Sachs was the analyst's standing, influence and knowledge. "In other words," the gatekeeper added, "we evaluate you." (A spokesman for Goldman Sachs declined to comment for this article.)

As the financial crisis started rumbling in 2007, I was working at Deutsche Bank and went on CNBC in November to air my concerns. I said the total cost of the crisis could approach $400 billion, a number that was much higher than anyone else's estimate to that point—though one that still turned out to be too low.

I came up with this figure by combining losses not only from banks but from everywhere else in the financial system, as well, including mortgages and related securities. The project had been difficult and tedious, and members of my team had stayed at the office until midnight each night for weeks to dig up data.

The $400 billion number was an imperfect estimate, even with all that work, but at least I could be more vocal about my stance and help investors pull their money while the stock market—and the shares of most Wall Street banks—had yet to reflect these issues.

I also said that the banking industry had to come clean about the extent of its exposure to problem mortgages and other assets. After eight years of warning about an impending storm, I was now shouting from the mountaintop, saying that it was time to take cover.

Some of the attention my calls generated was not so positive, even within my own firm. My supervisors at Deutsche Bank told me that I should avoid making those kinds of strong, negative comments about the banking sector in the press.

Not long after that, I was summoned to a meeting on an upper floor of the building with a senior manager at Deutsche Bank. He said that the firm did not like to be seen as publicly negative on the U.S. banking sector at a time when it held certain short positions.

In the end, Deutsche Bank made $1.5 billion on one of its proprietary trades during the crisis by betting against mortgage-backed securities. The firm ended up losing about $4.5 billion overall, far less than most big banks, in part because of its aggressive short positions on the U.S. housing market.

But all I understood at the time was that I was in a cone of silence. The bank wouldn't interfere with my analysis of the sector or my research reports, but there was now a gag rule when it came to any more media spots. I could no longer talk to the broader financial community or to investors at large, only to institutional investors who were clients, and as a result, banks could more easily downplay their problems. A spokesman for Deutsche Bank says, "We fully support our analysts' ability to publish independent research for the benefit of our clients."

To fix the banking sector, should we rely more on government regulation and oversight or let the market figure it out? Tougher rules or more capitalism? Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that's not capitalism.

It's easy to understand the appeal of certain regulation. If we'd had the right oversight in place, we would have limited the degree of the financial crisis, which included bailouts measured in hundreds of billions of dollars and millions of people losing their homes due to foreclosures. But we also would have sacrificed innovations in credit and a vibrant financial sector.

Moreover, the real problem with regulation is that it often doesn't work very well, in part because it's always considering problems in the rearview mirror. The financial system today is almost dizzyingly complex and moving at light speed, and new rules tend to address fairly precise things, like banning specific types of securities or deals.

The more effective solution would come from letting market forces work. That doesn't mean no rules at all—a banking system like the Wild West, with blood on the floor and consumers being routinely swindled. We need a cultural, perhaps generational, change that compels companies to better apply accounting rules based on economic substance versus surface presentation.

Even in 2011, some banks were woefully deficient in detailing the amount of their securities and loans that are vulnerable to the ravages of the European financial crisis. The solution is to increase transparency and let outsiders see what's really going on.

What we need is a better version of capitalism. That version starts with accounting: Let banks operate with a lot of latitude, but make sure outsiders can see the numbers (the real numbers). It also includes bankruptcy: Let those who stand to gain from the risks they take—lenders, borrowers and bank executives—also remain accountable for mistakes. As for regulation, the U.S. may want to look to London for ideas.

In the last decade, the U.K. equivalent of the Securities Exchange Commission (called the Financial Services Authority) fired much of its staff and hired back higher-caliber talent, at higher salaries. This reduced the motivation for regulators to jump to more lucrative private sector jobs and improved the understanding between banks and regulators.

A better version of capitalism also means a reduction in the clout of big banks. All of the third-party entities that oversee them need sufficient latitude to serve as a true check and balance. My peer group, the army of 5,000 sell-side Wall Street analysts, can help lead the way to provide scrutiny over the markets. Doing this involves a culture change to ensure that analysts can act with sufficient intellectual curiosity and independence to critically analyze public companies that control so much of our economy.

Australia’s 'super' pension funds suffer big losses
by Lachlan Colquhoun - FT

Market volatility has taken its toll on Australian pension funds, with losses of up to 9.8 per cent for the mid-placed fund in the third quarter, depending on the exposure to growth assets, according to Chant West, a Sydney-based research and consultant firm. The median growth fund (61-80 per cent exposure) fell 1.9 per cent in September, contributing to a loss of 5.1 per cent for the quarter. This is the fund category most superannuation savers use.

These losses follow smaller ones for the second quarter, of up to 2.3 per cent, and have turned longer term performance negative as well, at least for fund categories with a high exposure to growth assets. The median all growth fund (with 100 per cent exposure), for example, shows negative returns of 2.1 per cent a year over five years, while the median growth fund (61-80 per cent exposure) just tips into positive territory with 0.8 per cent a year.

The negative results are no surprise given the 11.6 per cent fall in the Australian stock market in the third quarter, and the 14.9 per cent drop in international shares in Australian dollar terms.

The Chant West analysis is corroborated by independent research company SuperRatings, which reports that the median balanced fund (60-76 per cent exposure) fell 1.8 per cent in September, the fifth month of consecutive losses. SuperRatings says since June 30 the typical balanced fund has lost A$5,000 ($5,182) for every $100,000 it held.

"For younger people who are in superannuation for the long run, this shouldn’t be so much of a concern, but for older people losing 5 per cent per quarter is really concerning," says Warren Chant of Chant West. "People in their 70s, they don’t want to wake up in the morning and see they have lost more money. To them, this is a permanent loss."

The average fund is now 11 per cent below its level at the time of the Lehman failure in 2008, while some self managed funds have lost between 30 and 40 per cent. For a generation that has never seen such losses "in living memory" the impact has been salutary, says Mr Chant.

Australians aged between 55 and 70 have responded to the market turmoil with a "significant shift" in their portfolios, moving out of shares and property and minimising risk by increasing cash holdings.

According to Mr Chant: "The big losses of 2008 and 2009 made older people, and it didn’t matter if they were active or passive investors, sit back and say ‘I am not prepared to take that much risk.’ "So there was a big shift in the portfolios of older people, and while some people are disappointed with the recent performances, they are not as disappointed as they might have been."

One of the trends is a move to cash. According to recent research from CoreData, funds in cash and fixed interest products are now at record highs, accounting for almost 25 per cent of all superannuation funds and doubling since 1998.

Another survey, from the Australian Investors Association found that the average investment portfolio – not just investment in superannuation vehicles – had a cash level of 26 per cent in September, up from 21 per cent in July.

Another result of the recent market turmoil is evidence that Australians are planning to work longer. The dream of an early retirement, for many people, has evaporated. "Retiring later is not as easy as it sounds though," says Mr Chant. "There has to be a job there, and as you get older those prospects are less and less."

For the superannuation industry, however, the recent turmoil makes little difference. "Funds are in it for the long haul," says Mr Chant. "It doesn’t matter whether markets go up or down. Australia has a 9 per cent mandated contribution, so that means that every pay day 9 per cent of people’s salaries goes into the superannuation system.

"So if you are the chief investment officer of an Australian superannuation fund your problem is not liquidity, it is how to invest A$300m or so that is coming into your fund every month."

Brazil’s Long Shadow Vexes Some Neighbors
by Simon Romero - New York Times

Sandal-clad indigenous protesters have excoriated their president, calling him a “lackey of Brazil.” Angry demonstrations in front of Brazil’s embassy here denounced its “imperialist” tendencies. Bolivian intellectuals lambasted the “São Paulo bourgeoisie,” likening them to the slave hunters who expanded the boundaries of colonial Brazil.

Such heated words used to be reserved for the United States, which has wielded extraordinary influence across Latin America. But as American dominance in the region recedes and Brazil increasingly flexes its newfound political and economic might, it has begun to experience the pitfalls of the role as well: a pushback against the hemisphere’s rising power.

“Power has shifted from one side of Avenida Arce to the other,” said Fernando Molina, a local newspaper columnist, referring to the street in La Paz where the Brazilian ambassador’s residence sits opposite the towering embassy of the United States.

Brazilian endeavors are being met with wariness in several countries. A proposal to build a road through Guyana’s jungles to its coast has stalled because of fears that Brazil could overwhelm its small neighbor with migration and trade.

In Argentina, officials suspended a large project by a Brazilian mining company, accusing it of failing to hire enough locals. Tension in Ecuador over a hydroelectric plant led to bitter legal battle, and protests by Asháninka Indians in Peru’s Amazon have put in doubt a Brazilian dam project.

But perhaps no Brazilian project in the region has stirred as much ire as the one here. Financed by Brazil’s national development bank — a financial behemoth that dwarfs the lending of the World Bank and has become a principal means for Brazil to project its power across Latin America and beyond — the plan was to build a road through a remote Bolivian indigenous territory.

But it provoked a slow-burning revolt; hundreds of indigenous protesters arrived here in October after a grueling two-month march that took them up the spine of the Andes, denouncing their onetime champion, President Evo Morales, for supporting it.

“Llunk’u of Brazil,” read one of their placards, calling the president a minion of Brazil, in Quechua, an indigenous language. Mr. Morales, Bolivia’s first indigenous president and an avowed environmentalist, suddenly found himself at odds with an important part of his political base, defending a Brazilian project that could increase deforestation. He eventually yielded to the protesters’ demands and ruled out the road though the territory.

Companies from other countries, notably China, are also expanding rapidly in Latin America and occasionally confronting hostility. But Brazil is the region’s largest nation, with a population of about 200 million people, and the size and boldness of its rise over the past decade help explain some of the tension it has generated.

Hundreds of thousands of Brazilian immigrants and their descendants have settled in Paraguay, often buying up land for large-scale agriculture in a country with a much smaller population. Called Brasiguayos, they have been both celebrated for helping Paraguay’s economy boom and demonized for controlling large tracts of land, at times leading land activists to burn Brazilian flags.

More than a century ago, before it became a republic, Brazil was an empire with occasional designs on neighbors’ territory, often serving as an arbiter in disputes in Latin America. Brazil now relies on a sophisticated diplomatic corps, rising foreign aid payments and the deep pockets of its development bank, which finances projects not just in Latin America but in Africa as well.

“When Kissinger came to Brazil more than three decades ago, he warned his hosts that they could end up being feared rather than loved by their own neighbors,” said Matias Spektor, a professor at Brazil’s Fundação Getulio Vargas, an elite educational institution, referring to the former American secretary of state, Henry A. Kissinger, and his efforts to forge stronger ties with Brazil in the 1970s.

“Now Brazil is engaging Latin America more deeply, without a clear policy of addressing the anxiety that can accompany this process,” Mr. Spektor said. “There’s the real danger of being on the receiving end of anger in certain places.”

Here in Bolivia, the United States once had unrivaled influence, before Mr. Morales’s election in 2005. Since then, Mr. Morales has clashed repeatedly with Washington while warming to other countries, notably Brazil, Venezuela, Cuba and Iran. Since 2008, when Mr. Morales expelled the American envoy, Philip S. Goldberg, the United States has not had even an ambassador here.

But Brazil’s profile has grown. A Brazilian company, OAS, won the $415-million road contract in 2008, with financing coming from the National Bank for Economic and Social Development in Brazil. It is making about $83 billion in loans in 2011. The World Bank, by comparison, lent $57.4 billion.

As the protest march against the road began advancing through the lowlands in August, Brazil’s popular former president, Luiz Inácio Lula da Silva, flew to Bolivia to deliver a speech sponsored by the Brazilian company to businessmen and to meet with Mr. Morales. (Mr. da Silva’s aides argued the road dispute was not part of the trip’s agenda.)

The trip came at critical time, when talks were faltering. But Mr. da Silva’s trip failed to ease the tension, and it became known his visit was part of a three-country trip paid for by OAS and Queiroz Galvão, another Brazilian construction company, which included stops in Costa Rica and El Salvador.

“It’s obvious that Brazil just wants our resources,” said Marco Herminio Fabricano, 47, an artisan from the Mojeño indigenous group who was among the marchers to La Paz. “Evo feels like he can betray us to his Brazilian allies.”

Brazilian officials insist that the road has nothing to do with betrayals or resource grabs. “We want Brazil to be surrounded by prosperous, stable countries,” Marcel Biato, Brazil’s ambassador to Bolivia, said about infrastructure financing in Bolivia and elsewhere in South America.

Indeed, Brazilian authorities argue that their country has access to other sources of raw materials, as well as to routes across the continent through which it can send goods to ports on the Pacific. But the road does hold strategic importance for coca growers, perhaps Mr. Morales’s most loyal constituency, made up largely of Quechua- and Aymara-speaking Indians, setting up a clash between them and other indigenous groups that live in the territory.

Brazil continues to nurture an array of plans in Bolivia, including several hydroelectric projects and an ambitious antidrug policy that involves deploying drones on the border and training and equipping Bolivian security forces. But the road dispute has put Brazil on watch here. “Just as China consolidates regional hegemony in Asia, Brazil wants to do the same in Latin America,” said Raúl Prada Alcoreza, a former senior official in Bolivia’s government who is now a fierce critic of Mr. Morales.

“A Bolivian process intended to provide an alternative, and the social movements which helped make this government possible,” Mr. Prada said, “end up being trampled by Brazilian interests.”

Container ships make record losses on Asia-to-Europe route
by Michelle Wiese Bockmann - Bloomberg

Shipping lines are losing a record $141 for each container they haul to Europe from Asia, the world’s second-largest trade route for the boxes, as slowing economies dent demand, ACM/GFI said.

Companies are losing money even at a freight rate of $649 a container because of a fuel surcharge of $790 for each box, Mels Boer and Cherry Wang, container-derivatives brokers at ACM/GFI, said in a report e-mailed Oct. 28. Losses were at the highest level last week since a tally of rates began in March 2009, Wang said.

"Current rates on the route Asia to Europe are way lower than the lows seen in 2009," said ACM/GFI, a joint venture between London-based ACM Shipping Plc and GFI Group Inc., located in New York. Shipping companies were losing $41 for each 20-foot box in June that year, according to the report.

Weakening economies are cutting demand for goods shipped in containers as fuel prices rise and an expanding fleet depresses freight rates to levels last seen in 2009, Nomura Equity Research analysts including Andrew Lee said in an Oct. 24 report. Neptune Orient Lines Ltd., Asia’s third-biggest container line, reported a third straight quarterly loss Thursday.

ACM/GFI got its freight cost from a weekly index produced by the Shanghai Shipping Exchange for the rate to northwest Europe from Shanghai that includes fuel and all other surcharges. For the fuel surcharge, it cited a formula for shipping a container to Rotterdam from China used by Maersk Line, the largest operator on the route.

Freight rates for Shanghai-to-northwest Europe shipments fell 4.1 percent in the week ended Oct. 28, the eighth drop in nine, the Shanghai exchange’s index shows. Rates reached a record high of $2,165 in March 2010, according to Boer. The cost to haul a 40-foot container to the U.S. from Asia gained $8 to $1,494, ACM/GFI said, citing the exchange. Higher prices mean fuel now accounts for between 50 percent and 70 percent of container lines’ costs, compared with 30 percent in 2008-09, Wang said.

Container trade contracted for the first time in its 50- year history in 2009 as shipments to the U.S. and Europe from Asia, the world’s two largest trade lanes for the boxes, plunged 21 percent by volume before rebounding in 2010, according to Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker.

Most of the unemployed no longer receive benefits
by Christopher S. Rugaber - AP

Fewer than half the unemployed are receiving benefits as jobs crisis reduces eligibility

The jobs crisis has left so many people out of work for so long that most of America's unemployed are no longer receiving unemployment benefits. Early last year, 75 percent were receiving checks. The figure is now 48 percent -- a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America's 14 million unemployed have had no job for a year or more.

Congress is expected to decide by year's end whether to continue providing emergency unemployment benefits for up to 99 weeks in the hardest-hit states. If the emergency benefits expire, the proportion of the unemployed receiving aid would fall further. The ranks of the poor would also rise. The Census Bureau says unemployment benefits kept 3.2 million people from slipping into poverty last year. It defines poverty as annual income below $22,314 for a family of four.

Yet for a growing share of the unemployed, a vote in Congress to extend the benefits to 99 weeks is irrelevant. They've had no job for more than 99 weeks. They're no longer eligible for benefits. Their options include food stamps or other social programs. Nearly 46 million people received food stamps in August, a record total. That figure could grow as more people lose unemployment benefits. So could the government's disability rolls. Applications for the disability insurance program have jumped about 50 percent since 2007.

"There's going to be increased hardship," said Wayne Vroman, an economist at the Urban Institute. The number of unemployed has been roughly stable this year. Yet the number receiving benefits has plunged 30 percent.

Government unemployment benefits weren't designed to sustain people for long stretches without work. They usually don't have to. In the recoveries from the previous three recessions, the longest average duration of unemployment was 21 weeks, in July 1983.

By contrast, in the wake of the Great Recession, the figure reached 41 weeks in September. That's the longest on records dating to 1948. The figure is now 39 weeks. "It was a good safety net for a shorter recession," said Carl Van Horn, an economist at Rutgers University. It assumes "the economy will experience short interruptions and then go back to normal."

Weekly unemployment checks average about $300 nationwide. If the extended benefits aren't renewed, growth could slow by up to a half-percentage point next year, economists say. The Congressional Budget Office has estimated that each $1 spent on unemployment benefits generates up to $1.90 in economic growth. The CBO has found that the program is the most effective government policy for increasing growth among 11 options it's analyzed.

Jon Polis lives in East Greenwich, R.I., one of the 20 states where 99 weeks of benefits are available. He used them all up after losing his job as a warehouse worker in 2008. His benefits paid for groceries, car maintenance and health insurance. Now, Polis, 55, receives disability insurance payments, food stamps and lives in government-subsidized housing. He's been unable to find work because employers in his field want computer skills he doesn't have. "Employers are crying that they can't find qualified help," he said. But the ones he interviewed with "weren't willing to train anybody."

From late 2007, when the recession began, to early 2010, the number of people receiving unemployment benefits rose more than four-fold, to 11.5 million. But the economy has remained so weak that an analysis of long-term unemployment data suggests that about 2 million people have used up 99 weeks of checks and still can't find work.

Contributing to the smaller share of the unemployed who are receiving benefits: Some of them are college graduates or others seeking jobs for the first time. They aren't eligible. Only those who have lost a job through no fault of their own qualify.

The proportion of the unemployed receiving benefits usually falls below 50 percent during an economic recovery. Many have either quit jobs or are new to the job market and don't qualify. Today, the proportion is falling for a very different reason: Jobs remain scarce. So more of the unemployed are exhausting their benefits.

Federal Reserve Chairman Ben Bernanke has noted that the long-term unemployed increasingly find it hard to find work as their skills and professional networks erode. In a speech last month, Bernanke called long-term unemployment a "national crisis" that should be a top priority for Congress.

Lawmakers will have to decide whether to continue the extended benefits by the end of this year. If the program ends, nearly 2.2 million people will be cut off by February. Congress has extended the program nine times. But it might balk at the $45 billion cost. It will be the first time the Republican-led House will vote on the issue.

Mike Bloomberg's Marie Antoinette Moment
by Matt Taibbi - Rolling Stone

Last year I had a chance to see New York Mayor Mike Bloomberg up close at the Huffington Post’s "Game Changers" event. I was standing right behind the guy when he was introduced by Nora Ephron, and watched as the would-be third party powerhouse wowed the liberal crowd with one zinger after another.

He started off with a crack about Ephron, saying he had agreed to say something nice about her book, which he blithely noted he hadn’t read. Still, he knew the title, "I Remember Nothing," which he said he'd "heard is also the title of a new book by Charlie Sheen." (He pronounced Sheen like "Shine"). 

From there he cracked that he was honored to be a "Game Changer," although he was only the last-minute replacement for Snooki. (Zing!) Then he went into a riff about Halloween.

"Does everyone have their costume?" he asked. (This is the old "Did you hear this? Have you heard about this?" Jimmy-Vulmer-style standup routine). "I thought about going in a... dress," he began. "But then I decided I would just go as the fiscally-conservative, pro-choice, anti-smoking, anti-trans-fat Jewish billionaire mayor of the World’s Greatest City."

The crowd roared. Bloomberg smiled, looked up, extended his hands, and said, "Maybe that’s just too much of a stretch, I don’t know."

Man, I thought. This guy is really sure of himself. If there is such a thing as infinite self-satisfaction, he was definitely approaching it that night.

And it wasn’t hard to see why. Bloomberg’s great triumph as a politician has been the way he’s been able to win over exactly the sort of crowd that was gathering at the HuffPost event that night. He is a billionaire Wall Street creature with an extreme deregulatory bent who has quietly advanced some nastily regressive police policies (most notably the notorious "stop-and-frisk" practice) but has won over upper-middle-class liberals with his stances on choice and gay marriage and other social issues.

Bloomberg’s main attraction as a politician has been his ability to stick closely to a holy trinity of basic PR principles: bang heavily on black crime, embrace social issues dear to white progressives, and in the remaining working hours give your pals on Wall Street (who can raise any money you need, if you somehow run out of your own) whatever they want.

He understands that as long as you keep muggers and pimps out of the prime shopping areas in the Upper West Side, and make sure to sound the right notes on abortion, stem-cell research, global warming, and the like, you can believably play the role of the wisecracking, good-guy-billionaire Belle of the Ball for the same crowd that twenty years ago would have been feting Ed Koch.

Anyway, I thought of all of this this morning, when I read about Bloomberg’s latest comments on Occupy Wall Street. I remembered how pleased Bloomberg looked with himself at the HuffPost ball last year when I read what he had to say about the anticorruption protesters now muddying his doorstep in Zuccotti Park:

Mayor Michael Bloomberg said this morning that if there is anyone to blame for the mortgage crisis that led the collapse of the financial industry, it's not the "big banks," but congress.

Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters.

"I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that."

To me, this is Michael Bloomberg’s Marie Antoinette moment, his own personal "Let Them Eat Cake" line. This one series of comments allows us to see under his would-be hip centrist Halloween mask and look closely at the corrupt, arrogant aristocrat underneath.

Occupy Wall Street has not yet inspired many true villains outside of fringe characters like Anthony Bologna. But Bloomberg, with this preposterous schlock about congress forcing banks to lend to poor people, may yet make himself the face of the 1%’s rank intellectual corruption.

This whole notion that the financial crisis was caused by government attempts to create an "ownership society" and make mortgages more available to low-income (and particularly minority) borrowers has been pushed for some time by dingbats like Rush Limbaugh and Sean Hannity, who often point to laws like the 1977 Community Reinvestment Act as signature events in the crash drama.

But Rush Limbaugh and Sean Hannity are at least dumb enough that it is theoretically possible that they actually believe the crash was caused by the CRA, Barney Frank, and Fannie and Freddie.

On the other hand, nobody who actually understands anything about banking, or has spent more than ten minutes inside a Wall Street office, believes any of that crap. In the financial world, the fairy tales about the CRA causing the crash inspire a sort of chuckling bemusement, as though they were tribal bugaboos explaining bad rainfall or an outbreak of hoof-and-mouth, ghost stories and legends good for scaring the masses.

But nobody actually believes them. Did government efforts to ease lending standards put a lot of iffy borrowers into homes? Absolutely. Were there a lot of people who wouldn’t have gotten homes twenty or thirty years ago who are now in foreclosure thanks to government efforts to make mortgages more available? Sure – no question.

But did any of that have anything at all to do with the explosion of subprime home lending that caused the gigantic speculative bubble of the mid-2000s, or the crash that followed?

Not even slightly. The whole premise is preposterous. And Mike Bloomberg knows it.

In order for this vision of history to be true, one would have to imagine that all of these banks were dragged, kicking and screaming, to the altar of home lending, forced against their will to create huge volumes of home loans for unqualified borrowers.

In fact, just the opposite was true. This was an orgiastic stampede of lending, undertaken with something very like bloodlust. Far from being dragged into poor neighborhoods and forced to give out home loans to jobless black folk, companies like Countrywide and New Century charged into suburbs and exurbs from coast to coast with the enthusiasm of Rwandan machete mobs, looking to create as many loans as they could.

They lent to anyone with a pulse and they didn’t need Barney Frank to give them a push. This was not social policy. This was greed. They created those loans not because they had to, but because it was profitable. Enormously, gigantically profitable -- profitable enough to create huge fortunes out of thin air, with a speed never seen before in Wall Street's history.

The typical money-machine cycle of subprime lending took place without any real government involvement. Bank A (let’s say it’s Goldman, Sachs) lends criminal enterprise B (let’s say it’s Countrywide) a billion dollars. Countrywide then goes out and creates a billion dollars of shoddy home loans, committing any and all kinds of fraud along the way in an effort to produce as many loans as quickly as possible, very often putting people who shouldn’t have gotten homes into homes, faking their income levels, their credit scores, etc.

Goldman then buys back those loans from Countrywide, places them in an offshore trust, and chops them up into securities. Here they use fancy math to turn a billion dollars of subprime junk into different types of securities, some of them AAA-rated, some of them junk-rated, etc. They then go out on the open market and sell those securities to various big customers – pension funds, foreign trade unions, hedge funds, and so on.

The whole game was based on one new innovation: the derivative instruments like CDOs that allowed them to take junk-rated home loans and turn them into AAA-rated instruments. It was not Barney Frank who made it possible for Goldman, Sachs to sell the home loan of an occasionally-employed janitor in Oakland or Detroit as something just as safe as, and more profitable than, a United States Treasury Bill. This was something they cooked up entirely by themselves and developed solely with the aim of making more money.

The government’s efforts to make home loans more available to people showed up in a few places in this whole tableau. For one thing, it made it easier for the Countrywides of the world to create their giant masses of loans. And secondly, the Fannies and Freddies of the world were big customers of the banks, buying up mortgage-backed securities in bulk along with the rest of the suckers. Without a doubt, the bubble would not have been as big, or inflated as fast, without Fannie and Freddie.

But the bubble was overwhelmingly built around a single private-sector economic reality that had nothing to do with any of that: new financial instruments made it possible to sell crap loans as AAA-rated paper.

Fannie and Freddie had nothing to do with Merrill Lynch selling $16.5 billion worth of crap mortgage-backed securities to the Connecticut Carpenters Annuity Fund, the Mississippi Public Employees' Retirement System, the Connecticut Carpenters Pension Fund, and the Los Angeles County Employees Retirement Association. Citigroup and Deutsche Bank did not need to be pushed by Barney Frank and Nancy Pelosi to sell hundreds of millions of dollars in crappy MBS to Allstate.

And Goldman, Sachs did not need Franklin Raines to urge it to sell $1.2 billion in designed-to-fail mortgage-backed instruments to two of the country’s largest corporate credit unions, which subsequently went bust and had to be swallowed up by the National Credit Union Administration.

These banks did not need to be dragged kicking and screaming to make the billions of dollars in profits from these and other similar selling-baby-powder-as-coke transactions. They did it for the money, and they did it because they did not give a fuck who got hurt.

Who cares if some schmuck carpenter in Connecticut loses the pension he’s worked his whole life to save? Who cares if he’s now going to have to work until he’s seventy, instead of retiring at fifty-five? It’s his own fault for not knowing what his pension fund manager was buying.

And, of course, in a larger sense, the entire crisis was the fault of that janitor in Oakland, who took out too big of a loan, with the help of do-gooder liberals in congress and their fans in bleeding-heart liberal la-la land – you know, the same people Bloomberg wowed with his hep jokes about Snooki and Charlie Sheen.

This is the evil lie Bloomberg is now trying to dump on the Occupy movement; this is where he's choosing to spend all that third-way cred he built up over the years with the HuffPost sect. And the mayor put a cherry on the top of his Marie-Antoinette act with the rest of his speech:

"But [congress] were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."

Bloomberg went on to say it's "cathartic" and "entertaining" to blame people, but the important thing now is to fix the problem.

Jesus … I mean, for one thing, Fannie and Freddie don’t even make loans. That’s how absurd this whole thing is.

And the condescension levels here are unbelievable, his air of aristocratic superiority almost breathtaking to behold. Listen to Bloomberg paternally conceding in one breath that it is certainly nice that some struggling people now have homes ("I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that"), just before chiding us with the next that there are sometimes negative consequences to doing something that sounds like goodness, like giving people a place of their own to live.

And then there’s this whole line in which he professes to indulgently understand the need for the "catharsis" and "entertainment" of protest, again almost like a Dad who tells his idiot teenage son that he understands the need to sow a wild oat or two, but please don’t wreck the family Mercedes next time.

Well, you know what, Mike Bloomberg? FUCK YOU. People are not protesting for their own entertainment, you asshole. They’re protesting because millions of people were robbed, by your best friends incidentally, and they want their money back. And you’re not everybody’s Dad, so stop acting like you are.


lautturi said...

Here's a video in German about the "so-called" stability mechanism, almost the same as mine in June (only in Finnish, sorry). So if you people know anybody speaking German, please pass the 1st video around (there are English subs).

RebelFarmer said...

Okay, that worked....Question. How do we vote on the four Diamonds in the Rough? I want to vote for #3 Urban gardening. I think that food security is going to be the most important issue that we face in the near term. Everything needs to become decentralized and less complex when it comes to basic human needs.

Another question. When Europe goes down in flames, China is going to be hit hard. Of course, the U.S. far along the path of destruction. With the American people already waking up and beginning to rise up, are there any clues as to how our story ends?

TAE Daily said...

@Rebel Farmer

The poll is in the upper right hand column of the page. Check the box, and hit vote.

Jack said...

One of our experts said that first it will be Europe that will go than China than Japan than the USA.
I think it was El G
The order might be not exact.
So once USA goes than the scenario will be something like when the shit hits the fan.

Jack said...

When we have Rabbis that come to our community centre it makes us happy than we have people like these who are out of touch with reality.

Nassim said...


I don't know why these Orthodox Jews are so rude towards Armenian priests. Is it because the Armenia was the first Christian state?

Do they behave the same way towards Moslem, Catholic and Coptic priests? Or, is this something reserved for Armenians?

If so, why?

Stuff like that really puts me off religion.

Jack said...

They consider the Armenian s as

I have a video on this
They have had this idea for over a 1,000 years.
They forget that Abraham was from ancient Armenia and this makes them Armenians.

-hoops said...

Sorry Illargi but I would say Taiibi gets it more right than wrong. Going after Barney Frank and Fannie & Freddie just shows that the right has been successful in polluting your mind with another distracting meme.

The Banksters and there friends on the right, and I include Clinton and a host of his neoliberal pals are fully to blame. Going after Barney Frank individually makes you and TAE look ridiculous. Will you be spouting nonsense about the CRA next?

There are much bigger assholes to blame like Gramm,Leach, Bliley. Reagan. Bush 1 and 2. Clinton, Rubin, Summers.

It has also been shown that Fannie and Freddie got to the party later. Subprime was a mess long before they got involved.

Yes it would have been great if the cops on the beat didn't look the other way. But that doesn't excuse criminality on the part of the banksters. Equating one with the other is also damaging, as it diminishes the criminal behaviour of the banks which is much worse than a a politician looking the other way or passing questionable laws.

I expect better from TAE

jal said...

Ash said ...
“... €8 billion from the IMF is disbursed to avoid "default"”
This money is not to avoid default. It is to pay operating expenses.
The gov. is not collecting enough to pay for its expenses. It cannot even pay for the interest on their loans.
Yes, this money is never going back to the IMF with interest.
Even with the projected cuts the next tranche of money will still not be enough to balance the income and expenses and that will also disappear.

I can’t wait to see what the austerity will do to the USA at 46% spending over revenues.

Nassim said...


It seems they don't know their geography either. I doubt if the ancestors of the Armenians were a desert tribe in Sinai.

I guess it is politically convenient to be surrounded by "enemies".

Some commentators have discussed the ethics of the commandment to exterminate all the Amalekites, including the command to kill all the women, children, teenagers, little girls, little boys and the notion of collective punishment.

Looks like their short-term memory is defective too.

Ash said...


When one cannot roll over or service one's loans according to the terms of the agreement, then one has defaulted. That is what will happen to Greece before year end if it does not receive the €8 billion tranche from the IMF.

The IMF will not release the money until a "credible" coalition government is formed that can ensure passage of the latest bailout agreement. That means the largest opposition party must sign on and agree to delay elections until next year. Initial reports are that such an agreement has been reached, but the party leaders must meet again tomorrow to flesh out the deals.

Between that and financial/political developments in Italy ahead of another EU meeting, tomorrow should make for another wonderful day of rumors, counter-rumors and volatility in our daily show of "crisis response".

Gravity said...

Gravitas ipsum recursio intra repetae infinitum.

Joe in NC said...


Good points.

Ash said...


Why do we insist on persisting with these false dichotomies? It's either the banks that caused the crisis, or it's the government. Are these simplistic, binary choices the only real options? Of course not.

That is just the cultural and political mentality that has evolved in the U.S. (more than anywhere else), and is the very basis for the artificial distinction between "left" and "right", "liberal" and "conservative".

The point is to escape this dualist mentality, not to promote it, which is unfortunately the common trap that Taibbi, an otherwise very astute commentator, fell into in that piece, in the process of justifiably taking down Bloomberg for doing the same on the other side.

Candace said...

It seems like the discussion of whether it's banksters or politicians is splitting hairs. The banksters buy off politicians who get rich and join the banksters who then lobby and buy off more politicians. It's basically that we allow the massive aggregation of wealth into a small number of hands who are then in a position to make all the rules so that they can aggregate more wealth. I don't know how we as a species will overcome our propensity for greed.

It seems like we are all hoarders some of us just have cleaner houses and more storage units :(.

Joe in NC said...

So the problems are split up between the politicians and the bankers. And the supreme court too - corporations are people. This will go on for awhile.

Ilargi said...

"Going after Barney Frank individually makes you and TAE look ridiculous."

No it doesn't. It's just a response to what Taibbi highlights: Barney Frank.

"Yes it would have been great if the cops on the beat didn't look the other way. But that doesn't excuse criminality on the part of the banksters."

Nobody says it does.

"Equating one with the other is also damaging, as it diminishes the criminal behaviour of the banks which is much worse than a politician looking the other way or passing questionable laws."

No, both are equally bad. One coin, two sides. It's not me who excuses the criminality of bankers, it's you who does so for politicians. And I'm supposed to be the one with the polluted mind?


Ilargi said...

"So the problems are split up between the politicians and the bankers. And the supreme court too - corporations are people. This will go on for awhile."

The US Supreme Court is but a political tool.


scrofulous said...

Papandreou, wow ! That guy sure knows about sleeping nights, no Madam Guillotine for him! When you got a debt that can't be paid, it won't be, and when you got a problem with no solution, you offer all parties all they want, then bug out and watch it on TV. Do Greeks eat popcorn?

Joe in NC said...

Ilargi - I suppose I commented on the supreme court in defense of your argument. :-)

Nassim said...

This discussion of the role of banks versus politicians is, IMHO, a little trite.

Where does the MSM's role in all of this figure? How about the Military Industrial Complex? What about a foreign country that seems to be running the USA's foreign policy? One can go on ...

I think of it more as a sort of ecology of corruption. There is a symbiosis going on between all these charlatans. One moment a guy is a banker and the next he is promoting the interests of some foreign power. The guys selling guns are trying to start wars through their media interests - that sort of thing.

p01 said...

They don't call it the blame game for nothing.

Greenpa said...

I'm still tracking the non-frackingness of the earthquake story, and it's still non. In spite of this:

I really like the report; this guy is EXPERT - and very careful about what he says, and the details are all there.

Joe in NC said...


Doesn't the MSM get back to the bankers/corporations? And doesn't the vast military complex get back to the politicians as well as Israeli thing?

RebelFarmer said...

This is like the story of three blind men trying to describe the part of the elephant that they are touching. One is by the trunk, one by the tail, one by a leg. The point, obviously is that the elephant is what it is no matter what part you get a hold of.

Matt has spent years investigating the wrong doing of the banks. That is his orientation and his expertise. Others have spent their time investigating corruption of government, the military industrial complex, the FED, etc. etc.....

The fact is that all these players are connected globally. Some more than others. The complexity of these connections is staggering. There is almost no way to unravel the thread.

From my perspective, the occupy movement picked the right target - Wall Street. It has developed the most connections and influence globally. And it has been growing for years. The most influential players go back a hundred years or more. The fact, however, is that even if you fixed Wall Street, it would just leave a vacuum that the highest ranking connections would fill. The elite are like drug cartels that way. Cut off the head and another just appears.

The global occupy movement is trying to develop a system to step in when this one collapses. At this point they are not willing to engage the existing system. They all know instinctively that it is broken beyond repair. There is no way to fix it from within. Yes, there are some targets that are clear, and attempts will be made to fix those for now. But overall, the existing power structures will completely collapse. We all know that. There is no fix.

Until the global collapse is complete, when further growth is impossible on a finite planet is accepted, then the remaining humans will get to work. Will they do the right thing? Maybe. Maybe not. But it's worth a shot.

progressivepopulist said...

Well said Rebel Farmer, I concur. It certainly becomes pointless and counterproductive when attempts to understand/describe the nature of the problems devolves into blind men shouting at each other from different ends of the elephant. But this is largely what the political theater that "passes" for representative democracy amounts to these days.

"Corporate Dems to the right of me, Republicans to the right of them, here I am #$@%^& with the 99% and you."

William K. said...

China Credit Squeeze Prompts Suicides, Violence

Joanna said...

I think of it more as a sort of ecology of corruption. There is a symbiosis going on between all these charlatans. One moment a guy is a banker and the next he is promoting the interests of some foreign power. The guys selling guns are trying to start wars through their media interests - that sort of thing.

Permaculture of evil. What looks like a sustainable closed loop, though, is actually a black hole. Eventually we'll all be sucked through, even the people with money. Unfortunately I think enough residue of this 'culture' will be left behind to multiply back into another frenzy. Seems to be the destiny of a varmint species.

Nassim said...

Doesn't the MSM get back to the bankers/corporations?

Joe in NC,

It is a creature with multiple heads.

sumacarol said...

The diamonds in the rough are fantastic this week -- a focus on somethings we can do in the face of this pretty scary economic news.

TAE Daily said...

Investors voting against Italian bonds. Today's word - desperation.

Telegraph: "Eurogroup finance ministers will hold an emergency meeting on 17 Nov amid problems with the eurozone's bailout fund the European Financial Stability Facility (EFSF).

After this evening’s meeting, the next finance ministerial had been on 29 Nov but there is growing concerns that the EFSF is not going to be big enough.

There are big problems about “putting the flesh on the bones” of the 27 Oct deal to leverage the EFSF to €1trillion as well as awful realisation that the fund needs to be two or three times larger.

..."When people see Italian borrowing costs going up like this they start to think in the €2-3trillion bracket again," said a source.

The much vaunted plan to create a euro SPIV – Special Purpose Investment Vehicle – seems to have run into a major flaw: the Chinese don’t want to invest, I have seen one EU official blush (really they do feel shame) when this idea is now mentioned."

TAE Daily said...

Throw it back to Greece.

1.34pm: "Turning attention away from Berlusconi temporarily and back to Greece - I'm afraid we must report that the talks on the formation of a coalition government have hit a snag -- the favourite candidate to replace George Papandreou isn't even in Greece.

Helena Smith, our Athens correspondent, tells me that Lucas Papademos, the front-runner for the job and former vice president of the European Central Bank, is now racing back to his homeland. This threatens to delay the vital process of choosing the new leader.

"Lucas is a thoughtful person, an honest guy, a clever person but he's also very cautious ... he's going to want to lay down his terms and as they stand I very much doubt that he will accept. I don't think for a moment he is willing to be a puppet PM."

The confusion may well mean that nothing is decided before this evening, when markets in Europe have already closed and Wall Street could be getting edgy."

So in short -- Greece is far from getting a government that will guarantee political stability."

Joe in NC said...

China appears unlikely to come to Eurozone's rescue

"People's lives in Europe are still a lot better than they are in China," said Yang Guoying, a commodities trader in Nanjing, a city in eastern Jiangsu province. "We need to be really careful with how we use our reserves, which we built up over 30 years of reform. We can't just put it anywhere without any conditions."

"Bailing out EU countries with Chinese money is hard for the Chinese people to accept," Yu Yongding, a former China central bank adviser, wrote in a Financial Times editorial that has been widely shared on Chinese microblogs.

"The tens of millions of elderly Chinese will demand to know why they should pay for rich Europeans to retire early when they do not have a decent pension system of their own," Yu wrote.

TAE Daily said...

Portugal feels left out, paid a "friendly" visit by Euro-Enforcers.

Telegraph: "14.05 It's not just Italy which is getting a hard time today - Bruno Waterfield reports that Portugal, another bail-out recipient, has had a visit from the troika heavy mob, aka the IMF, the ECB and the EU. He tweets:

'Troika officials arrived in Portugal today after govt called for 'understanding' on its plea for austerity terms to be relaxed'"

jal said...

Who wrote the financial rules that allowed the present system to get so fucked up?

Yep! That's right!

What are they going to do if those existing rules are not adequate or are going to mean that the system is going to crash?

Change the rules!
Make new rules.
Make new "tools".

Would you go back and play in the casino after winning the big jackpot if the casino declared that the machine was defective and that you would not be allowed to walk out with your winnings?


Lynford1933 said...

About Portugal: I would imagine they would like to have the bond holders to get a 50% haircut like Greece. Ireland would like that too. The question is 'why not' as long as it is voluntary?

It seems likely that sometime in the future many city, county and state bonds will blow up in the US.

Joe in NC said...

Is the Bernank:

a) Corp/banker
b) Politician/govt
c) Creature with multiple heads


Greenpa said...


"Make new rules.
Make new "tools"."

Yes. Welcome to "Real Governance 201"

A related phenomenon is winning wars by announcing "We won! Time to pack up and go home!"

And redefining things, like, "poverty" :

Just find the right "expert", and move the goal posts. Man, I'm SO relieved to find that all this poverty stuff is so overblown!

Greenpa said...

Incidentally; for students of power and corruption;

I just noticed that the highly expert writer of that paper connecting fracking and earthquakes - is the SAME expert now being cited by MSM, repeatedly, as saying "we have no clue about causes!" - and not mentioning fracking at all.

Somebody really got to him! Poor sod. My guess, from reading his paper is- he's a good, SOLID geologist/scientist. Now being squeezed, really, really hard. I do not admire his shoes.

Lynford1933 said...

Same same here: We solved the drunk driving problem by raising the legal limit to 5%. We have more accidents but no more drunk driving.

Note: Diamond? Last week we became the Reno dealer for Simple Pump. Many people around here are on wells and we are selling hand pumps. Seems like a natural industry for the future.

Greenpa said...

A nice bit of ponder-fodder from the BBC today.

A "doctor" has developed a way to burn the pigment out of your brown eye, and turn the iris blue.

His marketing research indicates lots of demand for this process; "if it is safe". He's testing in Mexico, to find out about that. He smells big money.

In a world of shrinking resources, and exponentially increasing misery- it is arguable this is not a sane use of human or world resources.

But here we are. And "Demand" conquers all, as we know.

Personally, I feel it is 'bad, stupid, destructive, and evil" for an Asian (or any) person to find themselves desiring blue eyes, instead of their own. Asians are already, at this point, having cosmetic surgery to remove the epicanthic fold and give them "round eyes" - previously an epithet among Chinese.

Why do they? And more importantly for the future of the species and world- how do we teach/raise children to NOT desire/demand bad/stupid/destructive/evil things?

TAE Daily said...

Athens and Rome are front-runners for best picture Oscar.

FT: "If Hollywood were making a film about it, it could be called – “The Decline and Fall of the Roman Empire II” and sub-titled – “This time they’re taking the rest of Europe with them.”

But, on a more contemporary note, there is another, much more contemporary, parallel between Greece and Italy that is worth highlighting. This is the level of political corruption – legal and illegal – and the way it is reflected, even now, in the privileges that parliamentarians have granted to themselves.

When I visited Greece, earlier this year, I was startled to discover that all Greek MPs still have their own cars and drivers. Their base salaries are higher than those of British MPs and – in addition – they get lavish allowances for attending committee meetings, as well as a variety of other perks. This piece from the New York Times gives a nice account of all the various perks available to Greek MPs, and what happened to one of their number who campaigned to curtail parliamentary privileges.

The Greeks, however, are on a very austere regime, compared to the Italians. Italian MPs are the best-paid in Europe. An expenses scandal earlier this year alleged that even the parliamentary hairdressers – there are nine of them – are paid over 10,000 euros a month."

Greenpa said...

"Athens and Rome are front-runners for best picture Oscar."

Ah, but we love new faces. Nobody wants to read about boring old Ireland, now, do they?

Guess who just ticked up a notch in the media buzz? I caught this on the BBC to headline "crawl' line, you know, where all the juiciest tidbits of the moment appear-

Yeeha. La belle France is in the wings, peeking out at the stage- just cutting the budget a little, and raising taxes a little, raising the retirement age a little, a little sooner than planned, to be sure things don't actually get out of hand...

I'm sure everything will be fine!

TAE Daily said...

Italy approaching yield curve inversion. 2Y yields accelerating faster than 10Y = not good.

Compare (-4.6%)

to (-9.3%)

jwhands4u said...

great questions, in behavioral therapy these would be referred to as "cognitive distortions" or "dissonance". Recently I thought about this in relation to Freud 's "Thanatos" Using the distraction of "fad", and often disaster, to deny, distract or re-create who we want to be..That who we and what we are is "human" and that as we have been born, we will die.
All-in-all it can be fairly depressing to observe this negative process (at times) and I have to ask myself why and if I can truly help my clients change how they think.

TAE Daily said...

Those Italian cars sure are fast. Gone in 60 seconds?

FT Alphaville: "As we have highlighted previously it’s worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10 year yields. The three sovereigns spent an average 43 consecutive days trading over 5.50% before they went north of 6.00% on a consistent basis this fell to an average of 24 consecutive days trading over 6.00% before they began trading over 6.50%, and just 15 days trading over 6.50% before the 7.00% level was breached on consistent basis."

Italian 10Y was around 6% a week ago, now at 6.65%.

Notmy Realname said...

I just read through the Taibbi piece, & I'm going to chime in with a couple of others here that Ilargi's feeling that Taibbi's conclusions are erroneous has me asking WTF? I mean I can see the point Ilargi is making but to me it's a distinction without a difference, & if there's any problem with Taibbi's observations it's the same one.

In any event; bankers?, politicians?, what difference does it make? The pols are the creatures of the bankers. They're sock puppets on a bankers's hand, and nothing gets brought up in Congress that hasn't been-at the very least- tacitly pre-approved. What brought about the current mess was the power structure with its various branch offices including those on Wall St. & inside the Beltway, aided & abetted by willing and or witless common folk who allowed themselves to be cajoled into thinking they could get a piece of the pie (when it clearly sounded too good to be true) through a naive trust in honor among thieves.

Greenpa said...

Truly; you gotta love the MSM, and the appetite they feed. The NYT top news blurb of the moment:

"Greek leaders agree to form a new unity government;

"Italy’s prime minister faces a crucial confidence vote;

"and Formula One racing comes to New Jersey in 2013."

They're rioting in Africa. La-lala-lala-la- la.

Ash said...

Does Freegold = the $IMFS freeing you of your gold?

TD: "We doubt we are the only ones keeping track of all this gold (most of it almost certainly 'safe and sound' about 150 feet deep under the infamous LIberty 33 location). We also doubt we are the only ones curious about its future, which we see as have five distinct possible outcomes: i) nothing; ii) it is currently being shipped quietly from The New York Fed to Italy for "general corporate purposes); iii) it has already been shipped and is currently being loaded up in Silvio's private jet; iv) the G-20 is already preparing to launch a formal demand that in order to remain in the Eurozone and to find the EFSF, which will be used to buy Italian bonds, Italy will have to do its patriotic duty and remit it to the ECB, an extortion attempt which was tried with Germany last week and which failed spectacularly; or v) it is being lent out to other countries who have long since sold their gold and continue to pretend they have some hard asset backing to the currencies issued by their own central banks."

TD (in comments): "Does FOFOA see why his defense of the euro/ECB in light of the G-20 attempt to sequester German gold makes no sense?"

The Future of Physical Gold, Part IV - Deflationary Canyons and Caves

"We could even see several large institutions, such as central banks and governments in Asia, Europe or Japan, flood the markets with (sell) a portion of their gold holdings to temporarily relieve pressure from their dire private and public funding situations. The sheer momentum of financial capitalism will lead them to conduct their "re-capitalization" efforts through established fiat currency and debt mechanisms, rather than through an ongoing revaluation/monetization of gold by central banks such as the ECB.

...Even if we assume that the Freegold transition will be (or is being) initially attempted in some regions, then, as Darbikrash pointed out, the system will soon end up coercing economic actors (countries and large institutions) to re-adopt the "easy money" modes of accounting, exchanging and storing whatever limited value they have left. This coercion would be accomplished through both explicit regulations (capital controls, tax structures, etc.) as well as implicit incentives and the butterflies in the bellies of those who are initially hesitant to obey (i.e. the lingering threat of sanctions, asset confiscation or military force)."

jal said...

Guest Post: Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable

Submitted by Charles Hugh Smith from Of Two Minds

TAE Daily said...

Occupy Shanghai!

Chinese Banks Set for Capital Injection

"CHINA'S cash-strapped banks may soon get a injection of capital, thanks to fiscal funding not a loosening of government policy.

More than 1 trillion yuan (US$158.2 billion) of treasury deposits are expected to be allocated by the Ministry of Finance to government departments in November and December, according to a report by China International Capital Co, the country's top investment bank.

China allocated 700 billion yuan to cover a deficit in the 2011 Budget adopted in March this year.

The ministry data showed fiscal revenues at 1.2 trillion yuan between January and September. That implies fiscal expenditure will top 1.9 trillion yuan in the fourth quarter of this year."

Ilargi said...

"I just read through the Taibbi piece, & I'm going to chime in with a couple of others here that Ilargi's feeling that Taibbi's conclusions are erroneous has me asking WTF? I mean I can see the point Ilargi is making but to me it's a distinction without a difference, & if there's any problem with Taibbi's observations it's the same one. In any event; bankers?, politicians?, what difference does it make? The pols are the creatures of the bankers. They're sock puppets on a bankers's hand, and nothing gets brought up in Congress that hasn't been-at the very least- tacitly pre-approved. "

And still Taibbi claims it's not Barney Frank's or F&F's fault.

That's my point.

Just read him.

I like Taibbi, and I don't say bankers are great. But he says politicians are not the issue. And that's simply very wrong.


p01 said...

My, my, my, isn't Mish becoming a bit realistic?
History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What's the Rational Thing to Do?.
The "doomiest" article yet.

Frank said...

@p01, Mish is quite good about anything that doesn't involve his anti-union hysteria. He even has humor and perspective.

Just quit reading when you see the word "union"

p01 said...

He probably knows too well just how bad the collapse will be (I admire his intelligence and I commented on it, so I have little doubt he still believes in BAU in the near future), but he rarely comes out truly speaking his mind, unlike our hosts here (which is a trait I have admired from the beginning in Stoneleigh and Ilargi).

This is a true red alert coming from Mish, IMO. Ignore at your own risk.

Any moment now*

(*and quite a bit before 2013)

scrofulous said...

"I like Taibbi, and I don't say bankers are great. But he says politicians are not the issue. And that's simply very wrong."

AW, all of you, your mothers wear army boots! It's capitalism , PRIVATE or STATE, that is the issue and problem, not bankers or politicians and, for the present like it or don't, we are all capitalists.

TAE Daily said...

Internet = The Resentment Machine.

The Resentment Machine

"Yet for all the endless consideration of the rise of the digitally connected human species, one of the most important aspects of internet culture has gone largely unnoticed. The internet has provided tremendous functionality, for facilitating commerce, communication, research, entertainment, and more. Yet for a comparatively small but influential group of its most dedicated users, its most important feature, the killer app, is its power as an all-purpose sorting mechanism, one that separates the worthy from the unworthy — and in doing so, gives some meager semblance of purpose to generations whose lives are largely defined by purposelessness. For the postcollegiate, culturally savvy tastemakers who exert such disproportionate influence over online experience, the internet is above and beyond all else a resentment machine.

...This all sounds quite critical, I’m sure, but ultimately, this is a critique I include myself in. For this to approach real criticism I would have to offer an alternative to those trapped in the idea of the consumer as self. I haven’t got one. Our system has relentlessly denied the role of any human practice that cannot be monetized. The capitalist apparatus has worked tirelessly to commercialize everything, to reduce every aspect of human life to currency exchange. In such a context, there is little hope for the survival of the fully realized self."

But how much is "little"?

Rumor said...

I wonder what the critics of Ilargi's intro here thought he meant when he stated, repeatedly, that this is ultimately a political crisis rather than an insolvency crisis or a debt crisis.

Thanks for the gentle criticism of Taibii's essay, Ilargi.

lautturi said...

F-team takes over EUCCP. (^_^) is necessary for quick responses to markets (or whatever)...

Jack said...

America faces massive unemployment

If you are an engineer and cant find a job than there is always McDonald

scrofulous said...

Rumour said:

"I wonder what the critics of Ilargi's intro here thought he meant when he stated, repeatedly, that this is ultimately a political crisis rather than an insolvency crisis or a debt crisis."

Make what you will of what ilargi has to say, here are some of his words:

"But Taibbi's conclusions are way off mark. Bloomberg blames politicians for the financial crisis, Taibbi blames the banks. But it's the interplay between the two that has caused the mess."

Peresonaly, if you will allow another opinion and not treat it as criticism, then I say that the mess is an 'ideological' one and not a political or banking crises. Confused and confusing terms and particularly restricted frames of reference leave people without any idea where their true advantage lies.

Nassim said...

These Leaders are the Victims of the Euro Zone Crisis

I like the choice of words. I guess the public is the perpetrator of this injustice.

ben said...

yo daily, 'the resentment machine' was a great find and a platform for introspection. thanks. it is also apropos to the enjoyable debate here surrounding elephant parts.

here's a good snide little post from october 31 at l'hote, the author's blog:

"I know it can be hard to demonstrate tone in text, but if you have to write "/sarcasm" or similar, perhaps you should just rethink things."

Gravity said...

Between bankers and politicians, the command and control structures of oligarchy are encompassed by the occult hierarchies of the mystery racket. The ideological structures of the mystery schools constitute the most corruptive institutional force on this planet interfacing the entire technocracy.

If there is hope, it lies in the profane.

Gravity said...

Gravity is the killer app of the ages, the commodity of the algorithm is of infinite value as tool of control, of infinite waste when used as a weapon.

Glennjeff said...

Gravity @ 7:45

How scary true. All "mystery" & "religious" teachings are a form of hypno-propaganda. Only the core teachings of buddhist contemplative method have any "scientific" basis, being based purely on the observable.

There is nothing to be done to remedy the situation either, it has become a deep rooted "miasm" or psycho-disease, almost embedded at the genetic level.

Only a near total collapse and dieoff has any chance of curing this all pervasive illness of magical thinking.

Oh wait, what's this I'm seeing?

Glennjeff said...

My previous comment was the 66th.

Hilarious ubiquity.

ben said...

that's it, it's time for kemila.

(h/t josh at the undertow)

scrofulous said...

Hey Ben, now you're talking!!!

Eat hearty here pal:

ben said...

whoah, scrof - I don't know that kemila would take kindly to that pairing. :) having run in blind terror from cubic mathematics and white separatism into the loving arms of wikipedia, the latter enveloped me in serendipity reminiscent of glennjeff's 66th post; it turns out, lo and behold, that dr. timecube lost his marbles:

goodbye sphere hello cube


greenpa, SFV's current post is on fukushima:

the non-battle of fukushima

NZSanctuary said...

Greenpa said...
Just find the right "expert", and move the goal posts. Man, I'm SO relieved to find that all this poverty stuff is so overblown!

Sounds very familiar. "Safe" radiation doses come to mind . . .

Glennjeff said...
This comment has been removed by the author.
ben said...

pleasure, glennjeff. that was a hat tip (h/t) to the chartist and commenter, josh, at economic undertow, who recently linked to the video.

TAE Daily said...

Quote of the day.

(via The Guardian)

"The House must not supposed that, in these foreign lands, matters are settled as they would be here in England. Even here it is hard enough to keep a Coalition together…But imagine what the difficulties are in countries racked by civil war, past or impending, and where clusters of foreign parties have each their own set of appetites, misdeeds and revenges.

If we, who sit here together, had back-bitten and double-crossed each other while pretending to work together and had all put our own group or party first and the country nowhere, and had all set ideologies, slogans or labels in front of comprehension, comradeship and duty, we should certainly, to put it at the mildest, have come to a General Election much sooner than is now likely."

-Winston Churchill, to House of Commons after returning from Athens in 1944.

(may as well have been talking about Italy today, too)

TAE Daily said...

Open comments.

p01 said...

Wealth gap widest ever between young and old
According to US Census data that has been mulled over by the Pew Research Center, the average American household headed by a man or woman age 65 or older has a net worth 47 times that of a household headed by someone under the age of 35. Analysts believe this marks the widest gap in wealth between the demographics in not just the span that the country has tracked it but in the history of America.


Jack said...

For about 2 weeks we are getting a stream of bad news regarding Europe,Japan, everywhere.
You would think that this news would bring the dow and the world markets down by about a few thousand points but the reverse is happening.
This does not mean the individual stocks are going up because once some stocks go down they never go up.
The big boys on wall street are pretty much in control of the stock indexes worldwide.

Greenwood said...

Bankers and Politicians are different heads on the same Lernaean Hydra
Heracles….upon cutting off each of the Hydras heads, found that two grew back, an expression of the hopelessness of such a struggle for any but the hero.
The weakness of the Hydra was that only one of its heads was immortal.
Our utterly corrupt banking/political/military/agri-biz/big-pharma complex is also a Hydra.
It's 'Immortal Head', the one that would kill it is probably the senior bond holders of the large TBTF banks.
Track them down, expose their names and locations, then cut off their 'immortal heads'.
Focusing on either bankers or politicians is a waste of time.
Each time you cut their heads off, two will grow back.

Joe in NC said...


Thanks. Now we have a new acronym to describe this phenomenon:

MHH - Multi-Headed Hydra.


TAE Daily said...

Update: After Italian budget vote, it is clear Berlusconi has lot his majority. Opposition leader calling for his resignation. Bond yields dramatically reversing course, with 10Y breaking back over 6.7%

scrofulous said...

Prurient interest interest rates!

TAE Daily said...

BBC, 1629: "Berlusconi headed into the chamber clutching a note with his various options scribbled down, according to Corriere della Sera. "A confidence vote? I quit? A technical government? Re-election?". Each option was followed by a list of positives and negatives."

Wondering what column "CRIMINAL PROSECUTION!!" was under.

TAE Daily said...

While Berlusconi meets with Italian President, Greek opposition leader refuses to sign away sovereignty on the dotted line.

(says his oral promise should be enough)

Samaras refuses to give eurozone written commitment

"New Democracy leader Antonis Samaras, said on Tuesday evening that he is not prepared to agree to the eurozone’s demand to commit in writing to economic reforms linked to the October 26 bailout agreement.

"There is such a thing as national dignity. I have repeatedly explained that, in order to protect the Greek economy and the euro, the implementation of the October 26 agreement is inevitable,» Samaras said in the statement, referring to a new EU debt deal hammered out for Greece by EU leaders."

'I won't allow anyone to question the statements I have made.'"

Archie said...

Chris Hedges is a superb wordsmith and committed activist. His latest essay, Finding Freedom in Handcuffs is intensely personal and very much on point.

Highly recommended.

TAE Daily said...

Some IAEA report headlines are filtering through. In short, adding more fuel to the fire.

Iran Worked to ‘Miniaturize’ Weapon Design

"Iran sought to design a nuclear weapon to fit on the Persian Gulf country’s missile warheads and continued working to raise an atomic explosions yield as late as 2010, the United Nations inspectors reported today, citing “credible” intelligence from more than 10 countries.

Iran carried out “work on the development of an indigenous design of a nuclear weapon including the testing of components,” the International Atomic Energy Agency said today in a 15-page restricted document obtained by Bloomberg News. “Some activities relevant to the development of a nuclear explosive device continued after 2003” and “some may still be ongoing.”

The document, drawing on eight years of collected evidence, shows that Iran worked to re-design and miniaturize a Pakistani nuclear-weapon design by using a web of front companies and foreign experts, according to the report and an international official familiar with the IAEA’s investigation."

scrofulous said...

"Sarkozy admits he 'can't stand' Israeli premier. Obama: You're fed up with him? I have to deal with him every day!"

On script or off? You tell me!

el gallinazo said...

Boiling Frog Dept.

Always remember in this post 9/11 world:

War is peace, Freedom is slavery, Ignorance is strength

Received this in my local gringo usenet group in Mexico. Be sure to pull up the first link and examine the new passport application form in detail (but be sure that you are sitting down first). And spread it around to your friends.

I am mulling over my comment to the proposal. It will essentially read that any bureaucrat in State involved with creating and abetting this proposal should have his government employment immediately terminated and be stripped of any benefits including pension on the basis of violating his oath of office.

Note that a couple of links were converted to tinyURL due to Blogger malformatting.



A good friend of mine sent me the following information about a proposed new application for U.S. Passports. At first I thought it was a joke, but it isn't.

My friend obtained the information from the National Register. As I understand, there are less than two months left for a response from the public (Jan. 3, 2012). If you, or your family plan to renew passports in the future, I would suggest you read every line in this new form. For some the form will be considered a major invasion of your personal privacy and for others it will present an impossible task to answer all of the questions accurately.

There are two attachments, one is the proposed application and the other explains the process and methods for sending comments to the U.S. government.

Here are the two attachments:

A) for a complete printout of the proposed form -->

B) for the Dept of State's 60 day notice -->

Here's a cut and paste of the methods to submit comments:

ADDRESSES: Back to Top

You may submit comments by any of the following methods:Show citation box citation box
Mail (paper, disk, or CD-ROM submissions): PPT Forms Officer, U.S. Department of State, 2100 Pennsylvania Ave. NW., Room 3031, Washington, DC 20037.Show citation box
Fax: (202) 736-9202.Show citation box
Hand Delivery or Courier: PPT Forms Officer, U.S. Department of State, 2100 Pennsylvania Ave. NW., Room 3031, Washington, DC 20037.Show citation box

You must include the DS form number (if applicable), information collection title, and OMB control number in any correspondence.

el gallinazo said...

My two cents on Ilargi's comments on the Taibbi article.

It is beyond dispute that Wall Street is the dog and the "elected" politicians and their minions are the tail. And despite popular platitudes, I have yet to see a tail wag a dog. However, leopards do not change their spots and bankers always were and always will be shithead sociopaths. The only way to keep their economic parasitism to a non-lethal level is to control them via elected officials and throw them in jail when they break the law. Since they own 99% of the current federal officials as well as the MSM propaganda machine, whether this is still possible is unlikely.

Re Mish

I agree that if, when you are reading Mish, that the moment the word "union" appears, then you move on to his next article. Otherwise, he is a valuable analyst. However, I don't think Mish has a clue as to how severe the "coming" depression will be.

Re Jim Puplava

Puplava has been touting his theory of "financial repression" for several months now. This is the deliberate manipulation of the central banks to keep the investment grade bond market yields below their monetization inflation, resulting in net real losses to savers. The idea is that over a couple of decades federal debt will sink to viable levels through monetization. Of course, the accumulation of further federal debt must cease before has any chance to succeed. This is how the WWII war debt was brought down.

He is saying that retirees are being put in an impossible situation as they cannot live off any savings invested in bonds without rapidly cannibalizing their savings. So he is touting investing in "blue chip" stocks as the only remedy that pay dividends greater than treasuries. Like Mish, he really doesn't see the severity of the shitstorm coming.

scrofulous said...

Gal, very interesting, no stuff like that on the Canadian passport yet, but if that proposal goes through I wonder what they will be proposing in honouring foreign passports at the border? I am sure Stephan Harper will roll over doggy like in compliance.

BTW that sneaky little arrow in front of the URL threw me when I plunked the request into the address bar.

TAE Daily said...

Berlusconi is to resign *after* austerity package is shoved through.

But, his supporters lost confidence in him because he *couldn't* shove it through.

And, he says "only option" is early elections.

So, don't worry, be happy and buy EUR, because it all makes sense.

lautturi said...

@ TAE Daily

Stoking the fires of nuclear exchanges? How about Pakistan where nukes are transported more and more with less and less security. This could end with some serious unintended consequences... obviously Pakis got fed up with marine boots going any which way they wanted with OBL-issue.

TAE Daily said...


"Adding more fuel to the fire" refers to initial IAEA reports.

TAE Daily said...

Comments closing for hour or two.

TAE Daily said...

Comments open.

ogardener said...

Observations on an eight day power outage...

Hello Everyone,

As you have probably heard, parts of the Northeast USA got hammered with a twelve inch, heavy, wet snowfall on October 30th into Halloween day. Trick or treat :-)

Climate deniers everywhere except from an electric utility crew restoration supervisor from Illinois who mentioned the numerous ice storms and tornadoes out his way. He was a member of the line crew that restored my electricity. Nearly a million people without electricity the day after the late October storm and the snow was so heavy it knocked out several power transmission lines. Whoa!

I was prepared, with food, clothing, shelter, water and flashlights powered with rechargeable batteries :-)
Made it through unscathed although listening to mature hardwood trees snap and hit the ground with much force during the storm was disheartening to say the least. I love my trees. Lost my apple trees - roots out of the ground, keeled over. They still had fruit on them and all their green foliage. The local deer must have thought manna from heaven. I bathed in a galvanized washtub next to the wood stove where the air is warm and the water hot. Nice. I improvised a gravity fed fresh water delivery from one of my surface wells so excellent drinking and bathing water was freely available and in abundance.

The neighbors? Mostly on gasoline powered electricity generators but if there is no fuel available I shudder to think what may happen to them when they can't flush the toilets, obtain drinking water, heat and light their homes and cook their food. Some neighbors were not prepared at all.

So maybe you may want to think about performing a similar, voluntary thought experiment in order to observe how prepared you are when the electricity goes out and endeavor to tighten up your personal preparations before winter sets in and presents itself with more, seasonally unique problems to solve.


El Gal. Love the ape man avatar.


The Kabuki Theater in Europe should be nominated for some kind of award.

Nassim said...

re: MHH - Multi-Headed Hydra

What does a SHH look like? :)

re: FT article about Australian Superannuation:

For the superannuation industry, however, the recent turmoil makes little difference. "Funds are in it for the long haul," says Mr Chant. "It doesn’t matter whether markets go up or down. Australia has a 9 per cent mandated contribution, so that means that every pay day 9 per cent of people’s salaries goes into the superannuation system.

"So if you are the chief investment officer of an Australian superannuation fund your problem is not liquidity, it is how to invest A$300m or so that is coming into your fund every month."

Yes, this absolutely correct. To become an "investment advisor" in Australia, you have to take courses and sit exams which you can only pass by advising that the money has to go into traditional investments and funds. Of course, the punter/worker has to pay a percentage of the size of the fund in fees every year - regardless of how much the fund has lost for this "advice".

To add further ignominy, the government is raising the super deduction from salaries from 9% to 12%. Because the funds have lost collossal amounts, they are being given a 33% raise. It really blows my mind how people are accepting all this crap without a dissenting voice.

Here a typical example of the MSM propaganda-machine at work:

There's one critical reason that lifting compulsory super contributions from 9 per cent to 12 per cent is a good idea. Left to our own devices, most of us simply wouldn't save for retirement ourselves.

Getting a fix on superannuation contributions

To get out of that morass, we created a self-managed super fund which has a substantially positive return. Our accountant and his investment advisor partner are not very pleased about it, but that is another story. Right now, I am planning to invest some of it in a local business - something under my control.

scrofulous said...


"we created a self-managed super fund which has a substantially positive returnwe created a self-managed super fund which has a substantially positive return"

Nassim, I didn't take you for a gold bug! I can see why your accountant and FA are not dancing in the street. lol

Supergravity said...

I've been studying some literature on the mysteries, quite useful to understand. They seem to comprise an infinite recursive set of symbolic, philosophical and religious archetypes which form esoteric or magical value systems, moral systems. These have been in widespread institutional use since the growth of cities, predominantly used as tool of psychosocial manipulation by the priesthood.

It is problematic that structures of occult hierarchy directly inform policy in modern times. Stylised rituals like the notorious cremation of care may yield dysfunctional policy by establishing a delusional elitist mindset devoid of compassion or inducing occult fanaticism or savagery. Participants may even start to believe they're annointed to become gods and above lawful reproach.

Most esoteric sects seem innocuous enough, studying philosophical and cosmogenic systems and affirming moral discipline would by itself not be harmful.
But with the majority of technocratic elites initiated into secret societies, occult value systems actively inform and coordinate policy by means that are incompatible with basic tenants of democratic transparency and representability, and contrary to public conceptions of the common good, yielding an unnatural synchronisation of institutional corruption by transnational occultation.

There may be some truth to the notion that the transnational crime syndicate of the illuminate is the contemporary nexus of occult mischief and multilateral oligarchical control, exerting malicious psychosocial influence over most positions of power everywhere. The more powerful positions within secret societies could also be highly self-selective for sociopathic attributes.

Supergravity said...

Greek 1 year yield is down significantly, thats good.

ben said...

scrofulous said...

"Sarkozy admits he 'can't stand' Israeli premier. Obama: You're fed up with him? I have to deal with him every day!"

On script or off? You tell me!"

call me crazy but i'm gonna break with kemila on this one. the euro crisis is like an episode of 'the real world' with obama playing the role of the whiteboy and netanyahoo his heavyweight roommate.

(ad alert.)

Nassim said...

Greek 1 year yield is down significantly, thats good.

Yes, Papandreou resigned and that solved the problem. I guess the same will happen to Italy when Burlesque-oni resigns.

Supergravity said...

Its a severe diplomatic frack by Sarkozy. And why does Obama need to deal with the Israeli PM every day, are they making so much more trouble than usual? It would be a weird plot twist if its not scripted, they'd have a hard time spinning it.

I visited my local occupy place today, small gathering, but they seem savvy about the financial situation, more than I expected.

Joe in NC said...


Either You are asking me to quiet down...or is it the Sonic Hedgehog?

el gallinazo said...


"El Gal. Love the ape man avatar."


The latest evidence just in this year indicates that humans of eurozone ancestry average 5% Neanderthal genes (recent political events obviously supporting these biochemical results), but my family tree was a magnet for them.

el gallinazo said...

Supergravity said...
Its a severe diplomatic frack by Sarkozy. And why does Obama need to deal with the Israeli PM every day, are they making so much more trouble than usual?

Because this is one rare instance where the tail actually does wag the dog.

Greenpa said...

ogardener: "So maybe you may want to think about performing a similar, voluntary thought experiment"

Actually- I think you're better off performing a real world "fire drill". The storms are great reasons to recruit others to the drill "Look; this could happen to you/us. Let's pull all our plugs; for a week. It'll be like camping. Only- we'll actually find out what we can and can't do- and what we need to improve."

Would be fabulous to do it as a "neighborhood challenge" or something. Annual event? Good solid prepper fodder.

"I'm a prepper, you're a prepper, he's a prepper, she's a prepper, wouldn't you like to be a prepper, too."


Greenpa said...

Hey. Neighborhood Prep Fests. A diamond thingy?

g-minor said...

El Gallinazo,

Have you been scammed? I searched the Federal Register and could not find any proposed passport application. A Google search produced a few articles like the one you posted. Have you better links than the tiny URL?


Skip Breakfast said...

Anyone else find it odd how lazy and quiet the US Dollar is behaving in all of this? I mean, a little over a year ago, we had the first peep from Greece that there was trouble and the US dollar absolutely rocketed up. Against the NZ dollar it went up over 10%. The USD now languishes 16% below that high. Seems like it's not behaving as much of a safe haven at the moment. Given the possibility of a major Lehman style liquidity crunch from umpteen angles, I'm surprised it hasn't shot up.

Nassim said...

Joe in NC,

SHH = Single-Headed Hydra.

Sorry, a little joke. I just thought that "Multiple" was redundant - a bit like describing an elephant as being Single-Trunked.

el gallinazo said...

g-minor said...
El Gallinazo,

Have you been scammed? I searched the Federal Register and could not find any proposed passport application.


Both the tinyURL links in my posting check out. Care to be more specific?

Punxsutawney said...

El G,

That passport application to me reads more like a portion of an FBI employment application than anything else.

Punxsutawney said...


And perhaps to try to keep us from exiting the country when the time comes?

el gallinazo said...

While Greece gets a haircut, the rest of the planet gets a close shave?

NZSanctuary said...

ben said...
here's a good snide little post from october 31 at l'hote, the author's blog:

"I know it can be hard to demonstrate tone in text, but if you have to write "/sarcasm" or similar, perhaps you should just rethink things."

Of perhaps it is just a good way to avoid flaming replies polluting the comment section from those who either do not know the persona of the author or are just too serious.

ben said...

"Or perhaps it is just a good way to avoid flaming replies polluting the comment section from those who either do not know the persona of the author or are just too serious."

yeah, nzs, use of '/sarcasm' serves that specific function well. nevertheless, i think the author is saying a true thing: only when (ironic) sarcasm goes unannounced does it retain its comedic value. as a substitute for body language, the emoticon is much less invasive and often necessary.

ben said...

"as a substitute for body language the emoticon is much less invasive and often necessary."

what a bore!

Joe in NC said...


Now that I understand what a hydra is, I guess saying MHH is like saying "greedy banker" or "dishonest politician".

Joe in NC said...

Holy crap - Italian 10 yr at 7.415 as I type.

TAE Daily said...


Take a look at EUR/USD and equities...

Disconnect from credit reality. Well, that is, until today (LCH margin hike on Italian 10Y).

Question for ECB: To print or not to print?

TAE Daily said...

Remember Greece? Perhaps they know that 8bn euro won't be coming after all... (now Italy needs it)

The Guardian: "Greece's quest to find itself a prime minister has descended into farce following an all night thriller here with phones buzzing, meetings being called and cancelled, potential candidates being summoned by party leaders for closed-door talks and new names surfacing all the time.
At last count there appear to be five men (no women as far as I know) being considered for the post. Lucas Papademos, former vice president of European Central Bank who was a shoo-in last night, with the Greek media at least considering his elevation to the position "a given," now no longer seems to be the assured front-runner. Greek TV are quoting senior EU officials in Brussels as saying that Athens' quarreling politicians are "playing with fire.""

p01 said...

Greece is not Dubai. Italy is not Greece. Spain is not Italy. Wait...FRANCE?! Oh, crap!

TAE Daily said...

Germany has one question to ask itself now:

Does it want to follow in the footsteps of France?

Joe in NC said...

I imagine that if this story surfaced on ZH, they’d be clamoring “Go long rubber bullets!”

London tuition fees protest: Rubber bullets 'available'

TAE Daily said...

Euro Commission "monitoring" questionnaire already anticipating Italy bailout.

FT:"Most interestingly, however, is question number two: The Commission notes that Berlusconi’s letter commits Rome to implementing even more austerity measures “if a deterioration of the economic cycle leads to a worsening of the deficit.” Rehn’s staff says in the questionnaire that given the current economic environment, they have already determined Italy will miss its commitment to a balanced budget by 2013.

“Additional measures will be needed to achieve the targets for 2012 and 2013,” the questionnaire states. “Are contingency measures being prepared already now, and, if so, what kind of measures are they? Would they take the form of further expenditure restraint, based on the results of a thorough spending review?”

Essentially, the European Commission is asking for another round of austerity measures, a step normally only taken with bail-out countries like Greece, Ireland and Portugal, if they’re missing their bail-out targets. If Commission monitors continue in this vein, their Italy mission is unlikely to be a low-key affair."

TAE Daily said...

Russia and China going to bail out France any minute now... so it can attack Iran.

Russia rules out new Iran sanctions over nuclear report

"Deputy Foreign Minister Gennady Gatilov told Interfax news agency that extra sanctions could be interpreted as a means of regime change in Iran.

Earlier, France and the US both said they would pursue new sanctions against Iran in the wake of the IAEA report.

Iran insists that its nuclear programme is for peaceful means.

However, the US and its allies have long suspected that Iran is developing nuclear weapons, which it is feared could threaten Israel.

"Any additional sanctions against Iran will be seen in the international community as an instrument for regime change in Iran," Mr Gatilov said.

"That approach is unacceptable to us, and the Russian side does not intend to consider such proposals."

jal said...

Cough, cough.
Don't just look at Italy.

Has anyone stopped to think of how many world leaders have been replaced since the beginning of the financial crisis?

What kind of people have been replacing them?

In the Americas I would even put Haiti and Cuba on the list.

I would even consider natural disasters such as Japan and Thailand as having their leaders change.

For whatever reason, a crisis being a reason, there are a lot of changes in the world leadership.

I don't want to put on a tin hat but there are people in the shadows who can take advantage of those changes to wield their influences.


Joe in NC said...

What Happened When I Tried to Get Some Answers About the Creepy NYPD Watchtower Monitoring OWS

“Sky Watch is like one of those mechanical forest walkers from the Star Wars movies without the lasers or the walking. Imagine an 7-foot by 6-foot metal box, with blacked out windows on its four sides, bristling with cameras, spotlights, and a small spinning anemometer (to calculate wind speed), atop spindly hydraulic legs that allow it to sit on the ground or rise up two stories. Inside that climate-controlled cube is a control panel with switches to turn on the lights, a joystick to raise and lower the unit, and various other remote controls that Officer Guzman or someone like him can use to direct the cameras and watch their feeds on video screens (while they are recorded on multiple digital video recorders).”

p01 said...

I don't want to start a "diet war", because I think at this point it's completely irrelevant. Those who could be convinced have already been convinced, those who are naturally thin cannot be convinced no matter what (because they have not experienced obesity, and they just think they are morally superior). Anyway, here's "the fructose guy" admiting it's 90% the insulin (I'd say 80%, but I'm not an MD):
Beyond gluttony and sloth.

I'm finally starting to see the first pack of abs, for the first time since my 20s. :-)


Ash said...

Joe in NC,

Ah yes, the beloved panopticon. From "The Debt-Dollar Discipline" (Part I):

"The quintessence of this institutional disciplinary structure for Foucault was Jeremy Bentham's "Panopticon", which is a prison design involving a central watchtower with heavily tinted or mirrored windows. The prison cells would be located around the periphery, and prisoners would never be able to tell whether they were being observed or not. Bentham himself described the design as allowing "a new mode of obtaining power of mind over mind, in a quantity hitherto without example."

Excellent article, btw.

SteveB said...


I don't see that it matters who is to blame when these events are arguably inevitable. At root not (as some commenters here might contend) because it's a capitalist system. The existence of capitalism itself is simply an outgrowth of the true driver (fuel? catalyst?) of the system, and that is the use of money. (Note: not money, per se.)

As Byron Katie posed via facebook yesterday: "Would you rather be right or free?" I'd rather be free (and leave behind the pointless arguments.)

Not to be a party pooper, but this all begs the question of what we're all doing here shooting the shit.

g-minor said...

@ El Gallinazo
Both the tinyURL links in my posting check out. Care to be more specific?

The passport application at your link is entitled DS5513_Proposed_Form.pdf.

A search for that document on both the State Department and Federal Register websites produces nothing.


Ash said...

re: notice & comment on Orwell's passport form.

(thanks for the heads up, El G)

I believe the idea is to make it as difficult as possible for everyday people to find the form, let alone comment on it. Not that it matters, anyway. Only the voice of large, private institutions would matter, who may or may not have lobbied for the proposed regulatory change.

"Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed information collection and supporting documents, PPT Forms Officer, U.S. Department of State, 2100 Pennsylvania Ave. NW., Room 3031, Washington, DC 20037, who may be reached on (202) 663-2457 or at"

scrofulous said...

El Gal

"Both the tinyURL links in my posting check out. Care to be more specific?

As I mentioned above, I think it is the little arrow you put in front of the URL that is throwing those who are copying that link.

Ilargi said...

New post up.

Fighting like Cats in a Sack