Eurocarnage Continues - NakedCapitalism

[WillyT]

Eurocarnage Continues
Things are only going from bad to worse in Europe.
Yves Smith - NakedCapitalism
SATURDAY, NOVEMBER 26, 2011

<snip>

Reader Antifa had noted in comments that the IMF had expanded access on Thursday to borrowing facilities via a Precautionary and Liquidity Line (PLL), which would allow “responsible” borrowers to take down five or perhaps as much as ten times their normal allotment. But I don’t agree with his/her hopeful view that this meant the IMF was acting as lender of last resort. Only the ECB, an issuer of euros, can play that role. The IMF gets its budget from member nations, and my understanding in the US is that it comes from the Treasury, not the Fed, which means it is a budgetary item. New spending allocations, particularly to ‘furriners, are not likely to get much traction. China was already approached directly (for the EFSF) and was notably cool on the idea. Why would it lend indirectly, via the IMF, when it and other emerging economies are already unhappy that their voting share is out of line with their economic power? The BRICs have made it clear they want more voting rights as a condition to making bigger contributions. So I don’t see the IMF as an effective force, in general, and even on a stopgap basis given it certain to be insufficient firepower.

Mr. Market seems to think so too. Italy had a disastrously bad bond auction today, a mere €10 billion of two year notes and six month bills (remember, the day of reckoning comes in February, when Italy has to roll €300 billion). The rate on the bills was 6.50%; on the notes, 7.81%. Three year note yields rose as high as 8.13%. Even though the ECB intervened, buying both Spanish and Italian debt, it barely made a dent. Yields in Italy on two to five year paper remained in the 7.67% to 7.77%

German bond yields were also higher than they were after Wednesday’s terrible bunds auction. Stunningly, Belgian ten year yields have risen more than 1% this week, from 4.79% to 5.85%, with a downgrade of Belgium to AA by Standard & Poors no doubt contributing.

The Financial Times also reports that investors are fleeing Eurobank stocks:

Uninvestable is just about the worst word in a shareholders’ vocabulary.

The term – meaning that the market sees no point at all in investing in a certain asset – is being used increasingly when talking about European banks.

“It is an absolute disaster zone. I wouldn’t touch them. You couldn’t make me buy a bank,” says Paul Casson, director of pan-European equities at Henderson Global Equities.

Even some bank chief executives seem to agree. “I’d be very interested to see the investor who is prepared to put more capital towards UK banks. All of them are thinking that’s a dumb place to put capital,” Stephen Hester, chief executive of RBS, the part-nationalised UK lender, said this week.

<snip>

More: http://www.nakedcapitalism.com/2011/11/eurocarnage-continues.html

:wow:

:kick:

[riderinthestorm]

1. Recced to zero. Unfortunately too many people don't want to acknowledge this.

I wonder if its because it's just too damn scary.

Does anyone know why the BRIC countries are still being shut out of the equation on solving this mess? It's as though the elites are shooting themselves in the foot by not harnessing the power of these emerging markets.....

:wow: is right. Kick!

[WillyT]

2. Yep... There Is A Lot Of THIS Going Around...

And not just at DU.



:shrug:

:hi:

[dkf]

5. Or maybe they don't understand the significance.

Or they don't want to acknowledge the decline of the more generous socialist systems.

[girl gone mad]

8. It has nothing to do with socialism.

[AntiFascist]

3. Perhaps the US feels responsible (partially?) for what is happening in Europe...

selling those mysterious financial instruments that involved sliced and diced bad mortgages may have set this into motion.

[dkf]

6. Nope. This is about sovereign debts.

But it did start with the acknowledgement that debtors maybe aren't good for it.

[girl gone mad]

9. Europe's crisis is not about sovereign debt..

its about monetary non-sovereignty and out of control private banks.

[dkf]

10. Private banks who are stuck with bad sovereign debt.

I have a feeling we will see how well using the printing press to provide social services works. It won't be nearly as easy as I feel you have been portraying.

[girl gone mad]

13. Private banks who want to be constantly bailed out against any losses..

and who continually transfer their bad private debts onto the sovereigns. Private banks which effectively run their own printing presses then cower and hide from the inevitable fallout. Private banks which pushed for the insane and irresponsibly crafted EMU.

What you feel is not what is important here. Your feelings have consistently led you astray. You've given flat out wrong opinions and advice for months going on years now. You believed the Euro to be more stable than the dollar. Oops. You felt German equities were a good investment. Oops. You were worried our interest rates would soar with the downgrade. Oops. Maybe it's time to stop feeling your way through economics and to start using your brain instead.

[dkf]

14. Oh for goodness sakes things change from day to day with it all swinging based on the latest

Intervention. Playing the fundamentals has become less important than the politics of the situation. It's all bastardized.

And underlying it all is peak oil and natural resources so really it's just how you play it out till we are all screwed.

[girl gone mad]

15. What a bunch of nonsense.

There is a real economic framework underlying all of the crises and turmoil. As such, events have been highly predictable.

Acknowledging these fundamental realities means admitting to gross malfeasance, mismanagement and corruption on the part of our financial and political elites. This is why you pretend the truth doesn't exist. You only want to see a world where poor people and workers are to blame for all of life's ills.

[dkf]

4. Whoa Italian bonds are above 7%? That is the point that has been called unsustainable.

I was too distracted with black Friday ads to notice. Bad.

[Prometheus Bound]

7. 8.13% now for 3-year bonds. More than Greece.

http://www.ft.com/intl/cms/s/0/07079856-1754-11e1-b20e-00144feabdc0.html#axzz1egP9BRb4

Even so, I wonder if it's only the European Central Bank who is buying.

[dkf]

11. I wonder how much of this is due to the way they handled the Greek CDS situation.

Maybe they won't buy if they know CDS's won't work.

[Prometheus Bound]

12. I'm sure that's what usual bond buyers are thinking.

I wouldn't buy Italian bonds if they were offering 25% return. I don't see why anyone would at this point. It's pretty scary.