End game Europe approaching.

[Nate]

“Who is the AIG this time?”

Em… isn’t it AIG this time too?

Nate

[jmc]

“Who is the AIG this time?”

Em… isn’t it AIG this time too?

Nate

Nope. Have not seem the numbers for a while but it think you’ll find Soc Gen and DB subsidiaries are pretty high on the list of net exposure on CDS like instruments on Euro zone bonds. Its not the Greeks or PIIGS they are worried about. My guess is it will be the increased collateral requirements on the inevitable downgrade cascade on other euro zone country bonds and related derivative instruments. Its collateral cash calls that finally killed AIG, Lehmans et al and increased collateral calls can come from the most unexpected directions. I dont think anyone is quite as naked as AIG was in 2008 but I suspect there is no more cash to cover a major collateral cash call. The cheapest solution by this stage is have the credit event, net out all the positions and for the ECB to stump up the 10B or 20B to cover the net losses. And then dont let the bastards write any more contracts on margin and have weekly collateral adjustments on all open positions.

[bokonon]

@Cuchullainn

@bokonon

@sorehead

He mentioned that Trichet yesterday said that the ECB wouldn’t pull support from the Greek banks in the event of default. Considering the consequences it seems unlikely the ECB will ever by choice take the nuclear option of pulling support.

Hmm, so the banks and the sovereign are being treated separately…?

Is that a green light for Ireland to throw the bank debt back at the [ECB]? Good luck to the Lenny’s Guarantee…….

Well here’s my working theory:

• Greece is brought through an ordered sovereign default to 30%/40% of current debts
• Greece’s creditors fight over the spoils
• Sovereigns (eg NTMA etc) have to shore up any losses from sovereign exposure to the Greek default. A “Greece default levy” is added to PAYE slips all over the world
• ECB runs a “compensation fund” for any banks - Greek, French, Landesbank, non-European - affected

Geithner and Trichet get to isolate the Greek default and leave it to the next guy to tip over precarious banking/CDS house of cards (with Italy or whoever).

Greece itself will be put into a state of emergency. It will receive fixed funding amounts on short schedules and will not be permitted to go over, so there will be periods of blackouts etc. Possible anarchy, but the banks will be OK. And witnessing anarchy will dissuade the other PIGS from following the Greek example.

There will be no immediate effect on Ireland. The rules will be (1) The ECB rescues the banks in the event of a sovereign default. (2) The country rescues the banks in the case of a banking crisis. (There won’t be another banking crisis because of (1), but we’ll be stuck with the one we have.)

(I’m not saying it’s a good theory now…)

[What_Goes_Up]

Yanis Varoufakis, Greek Economics Professor, predicting the end of the Euro on “Tonight With Vincent Browne” on TV3.

[bokonon]

Yanis Varoufakis, Greek Economics Professor, predicting the end of the Euro on “Tonight With Vincent Browne” on TV3.

Crikey. He was even more bleak than our local bunch of Economics Profs.

[What_Goes_Up]

[onlyone]

https://i38.photobucket.com/albums/e146/vgupload/Zorba.jpg

WGU, you are a genius.

[jmc]

“Who is the AIG this time?”

Em… isn’t it AIG this time too?

Nate

Nope. Have not seem the numbers for a while but it think you’ll find Soc Gen and DB subsidiaries are pretty high on the list of net exposure on CDS like instruments on Euro zone bonds. Its not the Greeks or PIIGS they are worried about. My guess is it will be the increased collateral requirements on the inevitable downgrade cascade on other euro zone country bonds and related derivative instruments. Its collateral cash calls that finally killed AIG, Lehmans et al and increased collateral calls can come from the most unexpected directions. I dont think anyone is quite as naked as AIG was in 2008 but I suspect there is no more cash to cover a major collateral cash call. The cheapest solution by this stage is have the credit event, net out all the positions and for the ECB to stump up the 10B or 20B to cover the net losses. And then dont let the bastards write any more contracts on margin and have weekly collateral adjustments on all open positions.

I posted earlier this summer regarding AIGs CDS holdings. Go to the net notional amounts.

Where are Soc Gen and DB CDS holdings at right now?

I’ll go dig up Soc Gen et al’s numbers. The AIG edgar was pretty interesting. Looks like a controlled liquidation. Should be all shut down in 3 or 4 years as all the contracts are let run out. The $65B notional would probably translate into < $1B real. Which by this stage in the game is how much the Fed loses down the back of the sofa after a particularly boisterous Friday evening beer bust.

[yoganmahew]

Yanis Varoufakis, Greek Economics Professor, predicting the end of the Euro on “Tonight With Vincent Browne” on TV3.

Crikey. He was even more bleak than our local bunch of Economics Profs.

Well, it always looks like the end of something bigger when your tiny rat-infested sewer collapses. Are Greece and Ireland systemic? Probably not. Are they symptomatic of what could be wrong in Italy and Spain respectively? That’s the concern, I reckon…

[bokonon]

UBS, already bailed out, and after announcing 3500 job losses, is back in the news for all the wrong reasons:

UBS rogue trader loses $2 billion
(Reuters) - Switzerland’s UBS said on Thursday it had discovered unauthorized trading by a trader in its investment bank had caused a loss of some $2 billion.

“The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $2 billion,” the bank said in a brief statement just before the stock market opened.

“It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected.”

UBS shares immediately tumbled 8 percent at the open and were trading down 5.8 percent at 10.30 francs at 0714 GMT (3:14 a.m. ET), compared with a flat European banking sector index.

“It is amazing that this is still possible,” said ZKB trading analyst Claude Zehnder. “They obviously have a problem with risk management. Even when the amount isn’t so high it is once more a loss of confidence that casts UBS in a poor light.”

reuters.com/article/2011/09/ … 5I20110915

[What_Goes_Up]

Well, it always looks like the end of something bigger when your tiny rat-infested sewer collapses. Are Greece and Ireland systemic? Probably not. Are they symptomatic of what could be wrong in Italy and Spain respectively? That’s the concern, I reckon…

Peter Brown, from The Irish Institute of Financial Trading, was on also and he was raging with Yanis.

You could see they both thought the other was the devil incarnate.

[yoganmahew]

Well, it always looks like the end of something bigger when your tiny rat-infested sewer collapses. Are Greece and Ireland systemic? Probably not. Are they symptomatic of what could be wrong in Italy and Spain respectively? That’s the concern, I reckon…

Peter Brown, from The Irish Institute of Financial Trading, was on also and he was raging with Yanis.

You could see they both thought the other was the devil incarnate.

I can imagine. I must have a listen back to it. There’s a faux inevitability about some things that are going on.

[ragingbear]

Even when the amount isn’t so high it is once more a loss of confidence that casts UBS in a poor light.

Sure what’s a few billion between friends?

[Puck_may_be_Famous]

Even when the amount isn’t so high it is once more a loss of confidence that casts UBS in a poor light.

Sure what’s a few billion between friends?

A billion here and a billion there, pretty soon you’re talking about serious money…

(attributed to Senator Everett Dirkson)

[bokonon]

Well, it always looks like the end of something bigger when your tiny rat-infested sewer collapses.

Indeed. I was left wondering if Yanis is future John McHale.

Bloomberg TV is suggesting the UBS loss was related to a derivative position on the Swiss Franc, which may only have taken “seconds” or “minutes”.

EDIT: 31 y.o. man arrested in London

[BoyRacer]

Where do you put your money when you fear the worst? Why, in the world’s safest bank, of course: the Federal Reserve System.*

That’s what the rest of the world has been doing in recent months, in massive quantities. And it makes perfect sense. After all, it’s hard to think of any asset that is more safe and more liquid than dollar deposits kept in a bank account with the Fed, i.e. “reserves”. And right now, banks – especially European banks – are clearly desperate for additional safe, liquid dollar assets.

So that’s why this time around, unlike during the banking crisis of late 2008, when the deposits of US banks with the Fed increased dramatically, it’s now primarily non-US banks that have been pouring the most money into their accounts with the Fed. The following graph and table tell the story.
more

[jmc]

https://1.bp.blogspot.com/-P_xYl2yOxPU/Tm-6fcKKb6I/AAAAAAAAApU/S0Myb6O3o-U/s1600/US%2Breserves%2Bw%2BFed%2B1.PNG

That is monetary sterilization in action…

Put a couple of trillion into the worlds financial system to replace the couple of trillion that disappeared with the collapse of the shadow banking system. Who then promptly deposit it back into the central bank system.

The same thing happened back in the 1930’s.

That’s why the hyper-inflationists get it so wrong. They have a very simplistic model of how the real world works. Lots of money printed is not equal to huge increases in general prices. There again, so do the central bankers. Huge amounts of liquidity do not solve debt solvency problems. Which is why the massive liquidity injections by the central banks in the 1930’s did not work either.

[BoyRacer]

European treasury needed to avoid Depression: Soros -> reuters.com/article/2011/09/ … me=topNews

As well as preparing for a default and euro zone exit by those three “peripheral nations,” Soros recommends four bold policy measures:

• Bank deposits have to be protected to prevent bank runs in weaker states;

• Some banks in the defaulting countries have to be kept functioning to keep their economies afloat;

• The European banking system would be recapitalized and put under European-, as distinct from national-, supervision;

• Government bonds of other deficit countries would have to be protected.

“All this would cost money,” writes the 81-year-old hedge fund manager and philanthropist. “There is no alternative but to give birth to the missing ingredient: a European treasury with the power to tax and therefore to borrow.”

there is more

[dolanbaker]

bbc.co.uk/news/uk-politics-14939478
Ken Clarke: US and Europe paralysed by financial crisis
Political leadership in Washington and Western Europe has suffered “paralysis” in the face of the financial crisis, former Chancellor Ken Clarke has said.

He told BBC Two’s Newsnight that governments had been “overwhelmed” by the scale of the crisis.

Mr Clarke, now justice secretary, said the UK’s fate partly depended on “how these people sort it out”.

[yoganmahew]

Don’t panic. We must be careful not to talk ourselves into an early winter. Mr. Olli Rehn said nice things about the Irish climate so there you go. The Happy Gilmore index is at ninety, so you should all stop worrying and go out and spend money.