MF Global Domino Effect

There is a major financial hurricane coming and today's failure of MF as much as meaningless to the general media is a further tile falling on the board which could have big repercussions.




Reuters reports that "U.S. regulators are unhappy with the failure of MF Global Holdings Ltd to provide them with the required data and records, a source close to one regulator told Reuters on Monday. "So far they've been very disappointed with the cooperation in the fulsomeness of records and data from MF," the source said, noting regulators have been working with the firm since late last week. "They were supposed to be able to show us their books and they're supposed to be able to tell us what's what and where their customer funds are and how they've been segregated and protected and to date we don't have the information that we should have," the individual told Reuters." whatever MF is hiding is not something that will hurt it or much less its stakeholders.
After all the company is already dead. Whatever is on its books has huge impacts to those either behind the corporate veil, read Mr. Corzine or more probably other banks and Primary Dealers. And with even one simple affidavit still to be filed in Bankruptcy Court, the panic behind the scene is palpable.

From Reuters:

MF Global, which filed for bankruptcy protection on Monday, is the biggest U.S. casualty of Europe's debt crisis, and the seventh-largest bankruptcy by assets in U.S. history.

Regulators had expressed "grave concerns" about the viability of MF Global, which filed for bankruptcy only after "no viable alternative was available in the limited time leading up to the regulators' deadline," the company's chief operating officer, Bradley Abelow, said in a court filing.

U.S. regulators held a series of calls on Monday related to MF Global.

The Financial Stability Oversight Council, which is headed by the Treasury Department, received "a series of oral reports" from the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Reserve, according to one Treasury Department official.

No other details of the calls were provided.

So: just what secrets is the corpse of MF about to reveal?

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Italian Subprime Follies

The Italian government is designing measures to boost the economy. Amid the measures announced there is a still vague resolution trying to boost young people mortgages with a full guarantee, it seems they are thinking to give triple-A ratings to mortgages contracted by young people with temporary or occasional jobs if they want to apply for a first house mortgage, government will back up all claims acting as a guarantee to such mortgages which normally would never be approved by banks.
Does it sound familiar? Well if details will be confirmed it could be another subprime bubble in the making allowing banks to recapitalize their shattered finances with interests on loans that have a high probability of default given the precarious financial status of the borrowers but that nonetheless as in the subprime crisis will be wrapped of a sovereign guarantee.
It will certainly boost a vast range of fraudulent activities and insane speculations which will allow banks to recapitalize themselves and developers to get rid of empty estates for a while until the bubble will explode with the same consequences we have witnessed in 2008 during the subprime crisis.

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Best of TED: Pamela Meyer: How to spot a liar

On any given day we're lied to from 10 to 200 times, and the clues to detect those lie can be subtle and counter-intuitive. Pamela Meyer, author of Liespotting, shows the manners and "hotspots" used by those trained to recognize deception.

Debt Connection

The most complete picture on the economic and debt interconnections is this chart redux of who owes what to whom via the NYT. It is nothing new, and it speaks for itself.

Click image for larger picture:

Derivative Crisis Looming

An excellent article on the Derivatives market and its implication on global economy:

The word "derivatives" sounds complicated and technical, but understanding them is really not that hard.  A derivative is essentially a fancy way of saying that a bet has been made.  Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before.  Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.
Keep in mind that the GDP of the entire world is only somewhere in the neighbourhood of $65 trillion.  The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction".  For now, the financial powers are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down.  When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.
Most people don't talk much about derivatives because they simply do not understand them.
Perhaps a couple of definitions would be helpful.
The following is how a recent Bloomberg article defined derivatives....

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

The key word there is "speculation".  Today the folks down on Wall Street are speculating on just about anything that you can imagine.
The following is how Investopedia defines derivatives....

A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

A derivative has no underlying value of its own.  A derivative is essentially a side bet.  Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world.  Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it.  This system is almost entirely unregulated and it is totally dominated by the big international banks.
Over the past couple of decades, the derivatives market has multiplied in size.  Everything is going to be fine as long as the system stays in balance.  But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.
The amount of money that we are talking about is absolutely staggering. Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective....

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.
The notional value of the derivative market is roughly $1.4 QUADRILLION.
I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.
$1.4 Quadrillion is roughly:
-40 TIMES THE WORLD’S STOCK MARKET.
-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.
-23 TIMES WORLD GDP.

In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system....

Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.

Most people do not realize this, but derivatives were at the center of the financial crisis of 2008.
They will almost certainly be at the center of the next financial crisis as well.
For many, alarm bells went off the other day when it was revealed that Bank of America has moved a big chunk of derivatives from its failing Merrill Lynch investment banking unit to its depository arm.

Today, the notional value of all the derivatives held by Bank of America comes to approximately $75 trillion.
JPMorgan Chase is holding derivatives with a notional value of about $79 trillion.
It is hard to even conceive of such figures.
Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.
Morgan Stanley also has tremendous exposure to derivatives.
You may have noticed that these are some of the "too big to fail" banks.
The biggest U.S. banks continue to grow and they continue to get even more power.
Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets.  Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.
These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.
You would have thought that we would have learned our lesson back in 2008 and would have done something about this, but instead we have allowed the "too big to bail" banks to become bigger than ever.
And they pretty much do whatever they want.
A while back, the New York Times published an article entitled "A Secretive Banking Elite Rules Trading in Derivatives".  That article exposed the steel-fisted control that the "too big to fail" banks exert over the trading of derivatives.  Just consider the following excerpt from the article....

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

So what institutions are represented at these meetings?
Well, according to the New York Times, the following banks are involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

Sadly, these five banks keep pouring money into the campaigns of politicians that supported the bailouts in 2008 and that they know will bail them out again when the next financial crisis strikes.
Those that defend the wild derivatives trading that is going on today claim that Wall Street has accounted for all of the risks and they assume that the issuing banks will always be able to cover all of the derivative contracts that they write.
But that is a faulty assumption.  Just look at AIG back in 2008.  When the housing market collapsed AIG was on the wrong end of a massive number of derivative contracts and it would have gone "bust" without gigantic bailouts from the federal government.  If the bailouts of AIG had not happened, Goldman Sachs and a whole lot of other people would have been left standing there with a whole bunch of worthless paper.
It is inevitable that the same thing is going to happen again.  Except next time it may be on a much grander scale.
When "the house" goes "bust", everybody loses.  The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won't be any government on earth with enough money to put it back together again.
A horrible derivatives crisis is coming.
It is only a matter of time.
Stay alert for any mention of the word "derivatives" or the term "derivatives crisis" in the news.  When the derivatives crisis arrives, things will start falling apart very rapidly.

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European leaders on the verge of a nervous breakdown

Eurozone is in deep trouble and that was known since time but It seems that finally European leaders have aknowledged the seriousness of the situation and are starting to panic.
The weekend long Euro meeting is reaching red alert levels as European leaders are becoming nervous wrecks and going for the jugular.

The Guardian reported today the following:

The eurozone's two biggest powers, Germany and France, on Sunday launched an unprecedented attack on Italy to stop the rot by taking far more radical measures to reform its economy and get its debts under control.

The German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, held a series of face-to-face talks with the Italian prime minister Silvio Berlusconi – who was then subjected to a roasting at the hands of other European leaders who are worried that the EU as a whole is on the verge of another deep-rooted recession.

The onslaught on Berlusconi, now viewed as a liability across the whole of Europe, came as a fractious summit of the 27 members of the EU ended and an equally stormy eurozone summit began with no agreement on all three core elements of a package to solve the sovereign debt crisis and restore market confidence.

While Berlusconi was grilled another faultline opened with David Cameron embroiled in a furious row with Nicolas Sarkozy over Britain's role in talks to solve the crisis enveloping the euro.

 

The bust-up between Cameron and Sarkozy held up the conclusion of the EU-27 summit for almost two hours, with the French president expressing rage at the constant criticism and lectures from UK ministers.
Sarkozy bluntly told Cameron: "You have lost a good opportunity to shut up." He added: "We are sick of you criticising us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings."

On Monday the prime minister is facing both the largest Commons revolt of his premiership and the largest rebellion of eurosceptics suffered by a Conservative prime minister when parliament votes on whether the UK should have a referendum on Europe.

Officials who witnessed the angry exchanges between Cameron and Sarkozy said the prime minister insisted that the package to be adopted on Wednesday by the 17 eurozone countries had serious implications for non-euro countries in the EU and their interests must be safeguarded. Eventually, after what Donald Tusk, the Polish prime minister, who chaired the summit, called a "stormy" discussion, the French president secured an agreement that all 27 leaders will first debate the three-pronged package of measures to recapitalise banks, build up the bailout find and write down Greek debt, but then the eurosummit would have the final say at back-to-back summits on Wednesday.

 

EU Meeting Update

The release of the Troika report seemed to bring events this weekend in Europe to an early halt, according to SudDeutsche.

The Telegraph reports on some choice turns-of-phrase among the leading players, our favorite being:

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.

SudDeutsche reports was in the Troika debt sustainability report (via Google Translate).

The numbers that the Troika on Friday evening on the debt situation in Greece is presented, have altered the agenda of the Euro-Finance completely. Really wanted the department heads to advise [if] they need to convince the country's private creditors to agree on a bigger discount on the bonds held by them, than the previously planned 21 percent.

But the "if" was suddenly a "how high?". Because the inspectors of the Greek lender describe in their "debt sustainability report," a scenario that far surpasses any fears. The country needs even under "normal" conditions, so if everything goes as planned with the reforming and saving, at least 252 billion euros , by 2020 to get back on its feet.

If the economy collapses further, state enterprises can not be privatized as hoped, nor do the reforms [produce the] € 444 billion needed to [please] the inspectors. So it is suddenly clear: the euro rescue fund EFSF is hardly sufficient for more countries to save, and his successor, the latest from 2013 operational ESM also not good.

Furthermore:


"It is clear that a substantial debt cut is necessary," however, said Swedish Finance Minister Anders Borg....

The Exchequer George Osborne sharply criticized the actions of the euro partners: "The crisis in the euro-zone causes major damage in many European economies, including Britain," he shouted in Brussels, adding: "We have had enough of short-term measures, it is enough ... with measures that bring us through the next few weeks. " Europe must tackle the causes of the crisis.

... The Luxembourg Foreign Minister Jean Asselborn announced immediately to resist. "What we need now is rest and no whip," he said.

A stronger economic cooperation is also possible on the basis of existing treaties. "It is important that we do not open another front," said Asselborn. "It can not be that domestic political considerations of even the greatest country outweigh everything."

It was clear that the reality of the size of loan required to 'solve' Greece alone will likely leave the cupboard bare:

Jan Kees de Jager, the Dutch finance minister, told colleagues: "We've got to get real. People are talking about new defences but with one gulp the whole €440 billion could be gone, leaving the eurozone with no protection at all."

Schaeuble-to-Everyone:

According to insiders, Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today.
"Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable," said one diplomat.

And Baroin (France) to IMF swiftly followed by Lagarde (France/IMF)'s slapdown:

Francois Baroin, the young and inexperienced French finance minister,
attempted to hit back, complaining that the IMF's default medicine would hit
France the hardest; the country's banks are highly exposed and could
threaten its "untouchable" AAA rating.

But Mrs Lagarde, who had held his post until taking up the IMF job this
summer, "shut him up" by brandishing the report and pointing to it
its detailed figures. "She really slapped him down - and in perfect
English too, a language he cannot speak," said a diplomat.

We suspect many of the attendees (finance ministers) have not actually spoken to one another, read any serious research, or even attempted to comprehend the whole-versus-the-single sub-optimal decisions they face (until very recently) as their voluminous outbursts were incredible:

"Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU's anthem, Ode to Joy," said an incredulous EU official.

It did not stop there as the pointlessness of the meeting was highlighted as it became increasingly clear that the good old Franco-German comradeship may be fraying at the core and at the edges and without them.

Finance ministers - including George Osborne, the Chancellor - expressed frustration on Saturday that their emergency meeting could take no decisions of substance until Mrs Merkel and Mr Sarkozy had buried the hatchet.

"This Ecofin meeting has been reduced to an academic seminar, an exercise with absolutely no purpose," complained one finance minister. 

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European Car Sales – Graphic of the Day

European Car Sales – Graphic of the Day

Prisoner Swaps: Israel – Arabs

Prisoner Swaps: Israel – Arabs

Global Debt Clock

From the Economist:

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock shows the global figure for all (or almost all) government debts in dollar terms.

Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.

 

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Deutsche Bank, Credit Suisse, slam Euro recovery plan

It seems major events are ready to unfold and major games are being played right now to manipulate events and critical decisions that will have to be taken this week.

First we have Credit Suisse saying 66 European banks will fail the 3rd stress test, and will need hundreds of billions in fresh capital, something the market ignored entirely last week but that may be re-evaluated now that Germany is shattering the sweet dreams of business as usual with today's Schäuble and Merkel declaration. And few hours ago inexplicably, we have Deutsche Bank warning that France may well be put on downgrade review by year end.

"We highlight in this note that the French corporate sector is already financially stretched, with poor profitability and large borrowing requirements. We consider that the deterioration in economic conditions is now creating a distinct risk that France could be put under “negative watch” by the rating agencies before the end of this year. We think that France has the wherewithal to react to such an outcome and could avoid an outright downgrade by taking corrective measures quickly, but this naturally would be a very sensitive political decision a few months before a major election."

Why Credit Suisse or Deutsche Bank are starting to fore-say doom and gloom while putting at risk the recapitalization of banks all over Europe I have no idea. But something serious and dangerous is incoming.

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Greece Absurd Bonuses

Civil servants of bankrupt Greece enjoy the most curious bonuses. Train engineers of the state-owned railroads, who make up to €7,000 a month, get an additional bonus for every driven kilometer. Their days off don't have 24 hours but 28 hours. Plus they receive €420 a month for hand hygiene, a bonus that other railroad workers also get. Bus drivers of the state-owned transportation firms in Athens are paid for the time they spend commuting, and if they show up on time, they're paid an extra €310 a month. Messengers for ministries get an extra €290 a month if they carry documents. Other ministerial workers get bonuses if they know how to use a PC. At the culture ministry, they get a clothing allowance. Workers at the partially privatized telecom OTE receive €25 a month for warming up company vehicles (investigation by Handelsblatt, article in German).

These bonuses should now be on the chopping block, even if Greece has been together with Italy the most creative country to avoid cutting senseless privileges. After having reviewed Greece's finances for the fifth time, the Troika inspectors were satisfied—unlike the prior times when they left angry—and recommended that the next bailout installment of €8 billion ($11 billion) be released. In return, Greece must chop off ever bigger parts of its budget as it is now clear that privatizations won't produce the initially expected revenues. Still, the fiscal targets for 2011 won't be achievable. Greece's national debt of €350 billion will continue to balloon and will reach 166% of GDP by 2012.

The Troika inspectors will submit their official report at the G-20 meeting in Cannes on October 23. And the transfer will likely happen in early November. If not, Greece will go bankrupt by the end of November. However, Greek dates are in flux, like its finances. The original bankruptcy-date the Greek government brandished to extort more money was mid October. But when that didn't result in more money, Greece suddenly "found" €1.5 billion.

But on the street, resistance is growing. In Athens, transportation workers, who make up part of Greece's 1.3 million civil servants, have shut down the public transportation system Thursday and Friday. Even taxis are on strike. Lawyers are on strike till October 19. Thursday, civil servants at the state-owned power company occupied its billing offices to prevent it from sending out the new electricity bills that now include a property tax—and a latent threat that if you don't pay your property tax, we'll cut off the juice. Seamen, hospital workers, and others will go on strike next week.

It's not just bonuses that are on the chopping block. Salaries of civil servants are too. And now the minimum wage caught the Troika inspectors' eyes—at €750 ($1,050) a month, it's higher than that of Spain, Portugal, and Poland, countries with a similar standard of living. To make Greece competitive, the inspectors will include a demand in their final report that the minimum wage be reduced, on the theory that it would create jobs (L'Expansion, article in French). The reaction on the street will be interesting. But the worst part when it comes to Greek and Italians is the imposition of taxes.

"Tax fraud is a national crime, a national plague," announced finance minister Evangelos Venizelos in a speech to parliament on Friday (Zeit, article in German). And apparently, he is trying to do something about it, maybe. An investigation by his ministry revealed that Greeks owe €37 billion ($50 billion) in back taxes. The majority, €32 billion, is owed by companies. To remedy the situation, the finance ministry will publish a list of 15,000 people who haven't paid their taxes. It identified fraudsters who owed more than €1 million. It further determined that 3,718 Greeks moved €5.5 billion out of the country during 2009 alone. Of them, 542 declared income of less than €1,000. That's just for the tax year 2009. The investigations of tax years 2010 and 2011 are ongoing. And for what it's worth, he announced that private companies would be recruited to help in the collection efforts.

European Banks Rating

Student loan debt explained

Student loan debt, now at $830 billion, has surpassed credit card debt—a statement unheard of 20 years ago. Student loans, unlike any other form of debt, CANNOT be forgiven via bankruptcy—these loans MUST be repaid. 



Via: HealthcareAdministration.com

Hellhole cities on the rise in America

The tax base in many areas of United States has been absolutely devastated as millions of jobs have left the country.  Hundreds of cities are drowning in debt and are desperately trying to survive. 
Last year, city government revenues in the United States fell by another 2.3 percent.  That was the fifth year in a row with a decline. 
So what are cities doing to make ends meet?  Well, one big trend is that many U.S. cities have been getting rid of huge numbers of employees. 72 percent of all U.S. cities are laying workers off this year.  Social services and essential infrastructure programs are also being savagely cut back in many areas of the country.

Below an incredible collection of stories from the hellholes:

Street lights get repossessed because of unpaid electric bills
Police does no longer prosecute domestic violence cases in order to save money.
Municipality stops sending out pension checks to retired workers.
City rips up asphalt roads and replaces them with gravel because gravel is cheaper to maintain.
City eliminates the entire public bus system.
Nearly half of all the people in Detroit can't read.
One out of every ten homes sells for under $10,000.
You can literally buy a house for one dollar.
Hundreds of people living in the tunnels underneath the streets.

Nearly half of the public schools in the city shut down because of a lack of money.

10 most dangerous cities in the world.
Prostitution and drug dealing are two of the only viable businesses that remain.
Police chief announces that the police department will no longer respond to calls about burglary and identity theft due to very deep budget cuts.

Apollo 11 Custom Declaration

On July 24, 1969, the Apollo 11 astronauts were required to declare that they'd returned from the moon with "moon rock and moon dust samples."

After the fall

In the final episode of Meltdown, we hear about the sheikh who says the crash never happened; a Wall Street king charged with fraud; a congresswoman who wants to jail the bankers; and the world leaders who want a re-think of capitalism.

The financial crash of September 2008 brought the largest bankruptcies in world history, pushing over 30 million people into unemployment and bringing many countries to the brink of insolvency.

Nobel Prize Infograph

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Do-it-yourself Euro banks stress test

For those who want to experiment with financial armageddon, a useful calculator from Reuters.
Click on the image to start.

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Paying the price

The third episode of Meltdown looks at how the victims of the 2008 financial crash fight back. A protesting singer in Iceland brings down the government; in France a union leader oversees the kidnapping of his bosses; and thousands of families are made homeless in California.

Apple iPhone 4S – Graphic of the Day

Apple iPhone 4S – Graphic of the Day