Europe is falling apart---close to bringing the whole world down.

Capitalism run amok. Note where the divergence begun. Sure, a lot of bad things were propped up by plain silliness, but never forget that it was the uncontrolled shadow banks that brought the system down, and they have not even begun to pay back for what they have done.

 

http://www.reuters.com/article/2012/05/11/jpmorgan-var-idUSL1E8GBKS920120511

How can anyone still hold onto the dying notion of VaR models?

Wall Street never learns.

We'll see who's been swimming with the sharks as soon as the market takes its' bite.

 

It wouldn't have been a significant problem, or as worse as it is now, if someone hadn't sank the American banking system and torpedoed everybody's credit risk appetite, domestic banks and budgets. Ex: Crushing Lloyds and RBS.

Also, bond yields post-euro were also a reflection of fair market views of the situation---another strike for the "efficient markets" hypothesis.

With that said, I am no fan of the Euro and disguising poor debt, but the markets were, and we are all paying for it now that the tide has fallen.

 

http://www.businesslive.co.za/world...kel-buries-euro-bonds-as-summit-tension-rises

...sigh.

 

It's an open question why Merkel can't just bailout the German banks who are holding half the mess on this, instead of making other countries suffer through bleeding processes for bond-holders. It's why, ultimately, I think every solution on the table is something that will be considered. Germany can't afford to have another Eurozone member fail outright, though one wonders at the choice of protracted suffering for countries that quite honestly can't pay, and will definitely not be able to pay after austerity. A structured bankruptcy probably would be best at this point for countries that are too far down the rabbit hole (looking at you Greece.)

She's somehow managed to create a system that shafts private bond-holders (by giving the ESM et. al first scraps at the table), and sovereign bond-sellers (whose yields will rise as their private debt-holders are displaced by either the ECB, the EFSF, or the ESM). German impairments on the ECB mean it can't even act as a full central bank---exactly when Europe NEEDS a full central bank. German views on inflation are foolhardy---debt deleveraging is pulling prices down, Europe is falling apart, and Germany is concerned about inflation?! The only people benefiting from this system are the ESM et. al, but they're not profit-maximizing institutions, they're supposed to be there to benefit the system!

It makes no sense. If there are a series of lost decades in the developed world, a large part of the blame will rest squarely on the shoulders of Merkel.

 

The funny things is, the worse news gets, the better. People are starting to have to react. You referred to the 5-4 split in the BOE's decision to expand asset purchases---the Fed and China's government are in the hot-seat as well. The expectation of stimulus is the only thing keeping markets alive at this point.

Problem is, you always need to beat expectations. It's why the market jumped when Yellen pulled her best dovish speech, and was crushed when the Fed opted "merely" for expansion of Operation Twist.

 

I mean that in 2008, the American banking system failed. I don't want to get in a whodunit in this thread (outside the scope), but the cascading wave outwards definitely hurt Europe significantly by a) crushing European banks, b) putting European budgets under further strain, and c) making market agents severely risk-averse, and able to shoot yields up in a matter of seconds. In many ways, the European debt crisis is just another chapter in 2008---except, while the American banks had an unbounded Fed, and the ability to directly re-cap their troubled banks, Europe does not have that ability on a coordinated basis. Therefore, this is being played out much longer than it should be.

 

So it turns out that LIBOR, the London Interbank Offering Rate...the benchmark of world interest rates, and the foundation of private interest rates and the reference rate used in some part in the Taylor rule that is a guideline for central bank interest rates...is possibly based on a lie.

http://www.telegraph.co.uk/finance/...or-chief-executive-Bob-Diamond-to-resign.html

Cameron says Barclays has 'serious questions to answer' amid calls for chief executive Bob Diamond to resign

David Cameron said Barclays' board had "serious questions to answer" over Libor fixing as George Osborne prepared to address Parliament about the scandal amid calls for Bob Diamond, the bank's chief executive, to resign.

At this point, the Easter bunny is more believable than the s*** that is currently posing as a financial system.

 

If there are no criminal proceedings based on this, the system is completely f**ked. People are killing themselves in the street in Greece to pay the banks back their loans, and it turns out they make a nice side-line manipulating key interest rates through fraud?!?

http://www.guardian.co.uk/business/2012/jun/27/barclays-libor-trader-talk



The FSA report details numerous messages sent between Barclays traders and the bank's "submitters" – whose role was to send accurate information about interest rates to the British Banking Association. The submitters are not supposed to be influenced by traders.

Trader "When I retire and write a book about this business, your name will be written in golden letters."

Submitter "I would prefer this [to] not be in any book!"

----------------------------------------------------

Submitter "Hi all, just as an FYI, I will be in noonish on Monday."

Trader "Noonish? Who's going to put my low fixings in? hehehe."

-----------------------------------------------------

Submitter "[A manager has] asked me to put it lower than it was yesterday … to send the message that we're not in the ****."

-----------------------------------------------------

Submitter to manager: "We are therefore being dishonest by definition and are at risk of damaging our reputation in the market and with the regulators."

-----------------------------------------------------

Trader to manager, complaining about a submitter: "[He is putting in] the highest Libor of anybody … He's like, I think this is where it should be. I'm like, dude, you're killing us."

Manager to trader: "Just tell him to keep it, to put it low."

Submitter "[I will] see what I can do."

-----------------------------------------------------

External trader to a Barclays trader, asking for a lower Libor submission: "If it comes in unchanged I'm a dead man."

Barclays' trader promises to "have a chat".

External trader to Barclays' trader later that day: "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."

-----------------------------------------------------

Trader "Coffees will be coming your way, either way, just to say thank you for your help in the past few weeks."

Submitter "Done … for you big boy."

 

http://in.reuters.com/article/2012/06/28/swiss-libor-probe-idINL6E8HS3WZ20120628

Swiss Libor probe to take another two years

Barclays not among the banks being investigated

What the f**k. The whole system is looking more and more like a huge lie. What solutions there can be must first have to see as to the extent of this rot.

 

http://ftalphaville.ft.com/blog/201...ulation-done-for-you-big-boy/#comment-2380701

What...the...f**k.