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When Portugal “surprised” senior Novo Banco bondholders with a €2 billion bail-in late last month, the market got an unwelcome reminder that euro periphery banks are far from “solid.”

Novo was supposed to house the “good” assets salvaged from the wreckage of failed lender Banco Espirito Santo, but as it turned out, a lot of those “good” assets were actually bad, and Novo ended up needing to plug a €1.4 billion hole. Initially, the plan was to sell assets but seizing €2 billion from bondholders ended up being a whole lot easier and far more efficient.

News of the bail-in came just a week after Lisbon announced that a second bank – Banif – would need state aid after running out of cash to repay a previous cash injection from the government.

As we head into the weekend, periphery banks are back in the spotlight, only this time in Italy where PM Matteo Renzi is scrambling to put the finishing touches on a plan to guarantee hundreds of billions of NPLs sitting on the books of Italian banks.

Talks with the EU Commission “have already dragged on for two years,” FT notes and need to be concluded over the next few days lest “the whole initiative should collapse.”

Of course Renzi missed what amounted to a deadline on “fixing” the problem under the old rules governing bank resolutions.

One reason the Novo Banco and Banif bail-in and bailout (respectively) were pushed through in what appeared to be a kind of haphazard, ad hoc fashion was because new rules came into effect on January 1 that would have put uninsured depositors on the hook for losses. The same rules require 8% “of a bank’s liabilities to be wiped out before public money can be used,” FT adds.

…click on the above link to read the rest of the article…

We Know How This Ends, Part 2

January 20, 2016

We Know How This Ends, Part 2

In March 1969, while Buba was busy in the quicksand of its swaps and forward dollar interventions, Netherlands Bank (the Dutch central bank) had instructed commercial banks in Holland to pull back funds from the eurodollar market in order to bring up their liquidity positions which had dwindled dangerously during this increasing currency chaos. At the start of April that year, the Swiss National Bank (Swiss central bank) was suddenly refusing its own banks dollar swaps in order that they would have to unwind foreign funds positions in the eurodollar market. The Bank of Italy (the Italian central bank) had ordered some Italian banks to repatriate $800 million by the end of the second quarter of 1969. It also raised the premium on forward lire at which it offered dollar swaps to 4% from 2%, discouraging Italian banks from engaging in covered eurodollar placements.

The “rising dollar” of 1969 had somehow become anathema to global banking liquidity even in local terms.

The FOMC, which had perhaps the best vantage point with which to view the unfolding events, documented the whole affair though stubbornly and maddeningly refusing to understand it all in greater context of radical paradigm banking and money alterations. In other words, the FOMC meeting MOD’s for 1968 and 1969 give you an almost exact window into what was occurring as it occurred, but then, during the discussions that followed, degenerating into confusion and mystification as these economists struggled to only frame everything in their own traditional monetary understanding – a religious-like tendency that we can also appreciate very well at this moment.

At the April 1969 FOMC meeting, Charles A. Coombs, Special Manager of the System Open Market Account, reported that the bank liquidity issue then seemingly focused on Germany was indeed replicated in far more countries.

…click on the above link to read the rest of the article…

We Know How This Ends, Part 1

January 20, 2016

We Know How This Ends, Part 1

The finance ministers and representatives of central banks from the world’s ten largest “capitalist” economies gathered in Bonn, West Germany on November 20, 1968. The global financial system was then enthralled by a third major currency crisis of the past year or so and there was great angst and disagreement as to what to do about it. While sterling had become something of a recurring devaluation tendency and francs perpetually, it seemed, in disarray, this time it was the Deutsche mark that was the great object of conjecture and anger. What happened at that meeting, a discussion that lasted thirty-two hours, depends upon which source material you choose to dissect it. From the point of view of the Germans, it was a convivial exchange of ideas from among partners; the Americans and British, a sometimes testy and perhaps heated debate about clearly divergent merits; the French were just outraged.

The communique issued at the end of the “conference” only said, “The ministers and governors had a comprehensive and thorough exchange of views on the basic problems of balance-of-payments disequilibria and on the recent speculative capital movements.” In reality, none of them truly cared about the former except as may be controlled by the latter. These “speculative capital movements” became the target of focused energy which would not restore balance and stability but ultimately see the end of the global monetary system.

Some background is needed before jumping into West Germany’s financial energy. The gold exchange standard under the Bretton Woods framework had appeared to have lasted as far as this monetary conference, but it had ended in practicality long before. In the late 1950’s, central banks, the Federal Reserve primary among them, had rendered gold especially and increasingly irrelevant in settling the world’s trade finance.

…click on the above link to read the rest of the article…

Italy, Greece, Financials Crash As European Stocks, Peripheral Bonds Plunge

January 20, 2016

Italy, Greece, Financials Crash As European Stocks, Peripheral Bonds Plunge

Led by a broad-based collapse in financial stocks, European markets extended and accelerated their plunge today. Thanks to the increased systemic linkages enforced by The ECB, peripheral sovereign risk is spiking as their national banking systems crash. Every European nation is now in at least correction since the end of QE3.

Europe crashed today…

Led by utter carnage in financials…

(note that thanks to Draghi’s liquidity spigots financial credit remains suppressed -for now – relative to equity. We do note that Sub financials credit is blowing out)

And every EU nation is now in at least a correction since the end of QE3 (Italy, Spain, and Greece in bear market)

And as EU financials tank, so sovereign risk soars for peripheral nations…

Average:

Partisan hostility in society and the consequences on climate change policy

January 19, 2016

Partisan hostility in society and the consequences on climate change policy

A curious vehicle carrying a mock-up of the Soviet Sputnik satellite. It was used for political propaganda in the 1950s by the Italian Communist Party (PCI). Up to the 1980s and even later, Italy was a deeply divided country where two opposed and incompatible factions squaring off against each other: the “Reds” (the communists) and the “Whites” (the Christian Democrats). Something similar seems to be taking place in the US with the Republican and the Democratic parties.

Seen from Europe, the current Republican debate in the US looks completely incomprehensible. The presidential candidates, the debate, the press reports, everything seems to be taking place on an alien planet, somewhere in another galaxy. One would be tempted to define the situation, paraphrasing Darwin, as the “survival of the nastiest”.

Yet, there seems to be some method even in this madness. A recent paper by Iyengar and Westwood (commented in Deric Bownds’s blog) generated as small satori in my mind. There is indeed a (perverse) logic in the current US debate. To explain it, I have to start from my own personal experience of when, as a child, I understood two things: 1) that Santa Claus doesn’t exist and 2) that the Communists don’t really eat babies.

The second discovery had more important consequences than the first on my political views. When I found out that neither of the two factions dominating the political life in Italy was engaged in evil practices such as eating babies, then I started wondering what was all the fuss about. Why was Italy so sharply divided in two separated and incompatible political halves?

I never could find an answer; it was just the way things were. On the one side, there were the Christian Democrats, the whites, the churchgoers, on the other, the Communists, the reds, the anticlericals.

…click on the above link to read the rest of the article…

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

January 18, 2016

Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).

Italy’s banking index was down over 4 percent with shares in several lenders, including the country’s biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses.

Bloodbath for Italian financials in 2016…

But don’t worry:

*MONTE PASCHI CEO CONFIRMS FINANCIAL STABILITY OF BANK
*MONTE PASCHI CEO: STOCK DECLINE NOT JUSTIFIED BY FUNDAMENTALS

As Reuters reports,

Investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid.

Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.

JP Morgan said this month Italian banks should be avoided because low rates are expected to put pressure on revenues more than in other countries and credit problems limit a recovery in provisions.

Traders have suggested exiting investments that have been particularly favoured, such as Popolare di Milano and Intesa, as the stocks have reached key supports.

“I think upside on cooperative banks this year is much more limited,” said a London-based equity sales person.

…click on the above link to read the rest of the article…

A Crisis Worse than ISIS? Bail-Ins Begin

December 29, 2015

A Crisis Worse than ISIS? Bail-Ins Begin

While the mainstream media focus on ISIS extremists, a threat that has gone virtually unreported is that your life savings could be wiped out in a massive derivatives collapse. Bank bail-ins have begun in Europe, and the infrastructure is in place in the US. Poverty also kills.

At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”

The pensioner’s bank was one of four small regional banks that had been put under special administration over the past two years. The €3.6 billion ($3.83 billion) rescue plan launched by the Italian government uses a newly-formed National Resolution Fund, which is fed by the country’s healthy banks. But before the fund can be tapped, losses must be imposed on investors; and in January, EU rules will require that they also be imposed on depositors. According to a December 10th article on BBC.com:

The rescue was a “bail-in” – meaning bondholders suffered losses – unlike the hugely unpopular bank bailouts during the 2008 financial crisis, which cost ordinary EU taxpayers tens of billions of euros.

Correspondents say [Italian Prime Minister] Renzi acted quickly because in January, the EU is tightening the rules on bank rescues – they will force losses on depositors holding more than €100,000, as well as bank shareholders and bondholders.

. . . [L]etting the four banks fail under those new EU rules next year would have meant “sacrificing the money of one million savers and the jobs of nearly 6,000 people”.

…click on the above link to read the rest of the article…

The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports

December 23, 2015

The Trade Wars Begin: U.S. Imposes 256% Tarriff On Chinese Steel Imports

Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.

How did this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in “Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities.”

As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

Logically, the less domestic demand for steel, and the greater China’s steel exports, the lower the price continues to tumble, now at a 10 year low.

…click on the above link to read the rest of the article…

Bank of Italy Bails Out Four Banks

December 21, 2015

Bank of Italy Bails Out Four Banks

The European banking crisis is brewing. Last month alone, the Bank of Italy poured €3.6 billion euros into Banca Marche, Banca Etruria (PEL.MI), CariChieti, and CariFeto to prevent their collapse. The money was funded by financing from healthy banks. This is precisely how the banking crisis began in Austria back in 1931. They took a healthy bank and forced it to absorb a failed one, which was far worse than anyone realized as it took down all the banks.

When conspiracy is not a theory: an example of a false flag operation in the Italian invasion of Greece in 1940

October 30, 2015

When conspiracy is not a theory: an example of a false flag operation in the Italian invasion of Greece in 1940

The Italian attack against Greece, that started in October of 1940, was one of the greatest military blunders of history and it may be argued that it cost the axis powers the whole war. Here, I discuss how the attack provides is one of the few documented cases of a strategic “false flag” operation designed in order to create a pretext for a military attack. (Image: Italian infantryman of the Italo-Greek war, from the front cover of “Storia della Guerra di Grecia” by Mario Cervi)

False flag attacks are a popular item, nowadays: secret operations carried out by governments to place the blame on their political or military enemies. However, If you try to examine the question in any depth, you immediately find yourself facing an incredible variety of claims and counter-claims. On one side, there are those who simply laugh at the conspiracy theorists and at their funny antics, and, on the other, those who list case after case of presumed false flag attacks, including everything from the sinking of the Titanic to the blowing up of a tire of uncle Joe’s truck. So, do strategic false flag attacks exist? And, if so, how common they are?

There are several cases of strategic false flag that are almost certain or, at least, very probable. Perhaps the best example of a documented false flag attack is that of the “Gleiwitz incident” of Aug 31, 1939, when Nazi forces posing as Poles attacked a German radio station, performed in order to justify the German attack on Poland. A more recent case is that of “Operation Northwood” which, however, was never actually carried out. There are many more examples where false flag attacks are claimed, but cannot be proven. The best example, here, is the the Reichstag fire, in Berlin, in 1933; for which many details are not completely clear.

…click on the above link to read the rest of the article…

“We Should Have Known Something Was Wrong”

October 10, 2015

“We Should Have Known Something Was Wrong”

Remember when stuff such as the following was written exclusively on “conspiracy” tin-foil blogs by deranged lunatics who could not appreciate the brilliance of the neo-Keynesian system and central-planning by academics, in all its glory? Good times.

Here is Bank of America’s Athanasios Vamvakidis channeling Tyler Durden circa 2009

The real cost of QE

QE was not a free lunch after all

If only it was that easy to print our way out of a global crisis. Eight years after the crisis, we are still debating about whether the recovery has gained enough of a momentum to allow exit from crisis-driven policies and start hiking rates from zero. The world economy has actually lost momentum this year (Chart 1), deflation risks have increased (Chart 2), and EM indicators and overall market volatility have reached crisis levels (see Chart 3). All this is despite unprecedented expansion of central bank balance sheets (Chart 4). Things may have been worse otherwise, but in hindsight we believe relying too much on unconventional monetary policies was not a free lunch after all.

We should have known something was wrong

The Fed “taper tantrum” could have been the first warning that QE had gone too far. The Fed’s announcement in June 2013 that they would consider tapering QE, contingent upon continued positive data, triggered a sharp market sell-off, particularly in EM. The aggressive search for yield, which intensified after the Fed announced QE3—or QE infinity as markets called it—came to a sudden stop. QE was not for infinity after all. The Fed tried to reassure markets that QE tapering was still policy easing and that its end would not imply rate hikes immediately, but the markets apparently thought otherwise. A key takeaway was not that QE had already gone too far, but that announcing its tapering may have been a mistake. The Fed waited until December to start tapering, although the market had already priced its beginning in September.

…click on the above link to read the rest of the article…

War Begets War Refugees: The Moral Bankruptcy of Italy and NATO

August 18, 2015

War Begets War Refugees: The Moral Bankruptcy of Italy and NATO

On April 26, 2011, a meeting that can only be described as sinister took place between the then Italian Prime Minister, Silvio Berlusconi, and French President, Nicolas Sarkozy. The most pressing issue discussed at the meeting in Rome was how to deal with African immigrants.

Sarkozy, who was under pressure from his right-wing and far-right constituencies to halt immigration originating from North Africa (resulting from the Tunisian uprising), desired to strike a deal with the opportunistic Italian leader. In exchange for an Italian agreement to join a French initiative aimed at tightening border control (Italy being accused of allowing immigrants to cross through its borders to the rest of Europe), France, in turn, would resolve major disputes involving a series of takeovers, involving French and Italian companies. Moreover, Italy would then secure French support for a bid by Italian Economist and Banker, Mario Draghi, to become the Head of the European Central Bank.

Another point on the French agenda was active Italian participation in the war on Libya, initially spearheaded by France, Britain and the United States, and later championed by NATO.

Initially, Berlusconi hesitated to take part in the war, although certainly not for any moral reasons: for example, because the war was deliberately based on a misconstrued interpretation of United Nations Security Council Resolution 1973 of March 17, 2011. The Resolution called for an ‘immediate ceasefire’, the establishment of a ‘no-fly zone’ and using all means, except foreign occupation, to ‘protect civilians’. The war, however, achieved entirely different objectives from the ones stated in the Resolution. It achieved a regime change, the bloody capture and murder of Libyan leader, Muammar al-Qaddafi, and resulted in a bloodbath in which thousands of civilians were killed, and continue to die, due to the chaos and civil war that has gripped Libya since then.

…click on the above link to read the rest of the article…

Happy August 15th (and a little rant from UB)

August 16, 2015

Happy August 15th (and a little rant from UB)

August 15th is a big holiday in Italy. Here is a translation of the post I published today on the Italian version of this blog.

Happy Aug 15th, everybody! Here, in Florence, the worst seems to be over and the forecasts tell of rain today and tomorrow. This July has been the hottest ever recorded in Italy, but we suffered, on the whole, only limited damage. We had more than a month of brutal heat, but also some rain that eased the problem of the forest fires. Now, we can hope to arrive toSeptember without big troubles, at least in terms of sheer heat.

It is sure, anyway, that this Summer we got a taste of what the “new normal” is going to be. Apart from the horrible heat, we saw a number of spectacular disasters created by bad weather. I can tell you that I had never seen the roof of a house blown away by the wind. I had seen something like that only on TV, and mainly in the US, where the wooden homes always have that look as if they were coming from the tale of the three little pigs and the big bad wolf. But seeing the roofs of concrete buildings in Florence being ripped off and deposited in the courtyards, below, well, it has been a shock.

So much the shock caused by these events, that on TV someone mentioned the term “climate change”. Fortunately, they immediately found an “expert” who appeared on screen and said that everything was fine and that it had been just a normal summer thunderstorm.

Apart from the shy, and immediately removed, intrusion of the real world on the TV screen, Italy continues to operate in conditions that I would call “political Alzheimer.” That is,conditions in which the patient continues to repeat the same things over and over, without reacting to external stimuli. So, we vaguely remember that, in the past, there was a good time in which the economy was growing and there follows that there is nothing else and nothing more than pursuing growth to fix all the problems.

…click on the above link to read the rest of the article…

The Great Greek Fudge

August 1, 2015

The Great Greek Fudge

A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the preciselocation in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two weeks before the 20th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.

If indeed there is no deal, Greece is likely to request a second so-called “bridge loan” to allow it to pay the ECB, firmly within the Eurozone tradition of the creditor providing the debtor cash in order to pay back the creditor. France, which is most eager to keep Greece inside the Eurozone, is afraid that bilateral bridge loans from Eurozone countries wouldn’t be approved by the more critical member states, as this would risk France having to foot this bill on its own, perhaps with Italy. Not exactly a rosy prospect for socialist French President Hollande, who’s already struggling to contain the far right anti-euro formation Front National.

The only European fund practically available to provide a bridge loan is the European Financial Stabilisation Mechanism (EFSM), a fund created in May 2010, which has been raising 60 billion euro on the markets, with the EU’s €1 trillion Budget as collateral. The EFSM belongs not just to Eurozone member states, but to all EU member states.

…click on the above link to read the rest of the article…

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

July 31, 2015

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

Earlier today, Eurostat released the two most important data points for Europe: inflation and unemployment. On the former, there was no surprise at the headline level which remained at 0.2% for the another month, in line with expectations, but core CPI excluding energy, food, alcohol and tobacco, rose to 1.0%, the highest print in 2015 and one which pushed Bund prices well lower.

But it was the unemployment number which showed something unexpected. While the overall unemployment rate for the Eurozone also stayed unchanged at 11.1%, fractionally worse then the consensus estimate of a decline to 11.0%…

… it was renewed concern about what is going on in Italy, where unemployment rose from 12.5% to 12.7%, proving consensus expectations about a strong improvement to 12.3% dead wrong…

… and posing a question just what is going on in the country with the biggest debt load in Europe, and more importantly how is it that Rome is still unable to benefit from the ECB’s QE which has pushed Italian yields far below those of the US despite an economy which is suddenly taking on water.

And nowhere was this more visible than in Italy’s youth unemployment rate, which surprisingly jumped by nearly 2% to 44.2%, a record level, and one which is starting to rival some of Europe’s most troubled nations, such as Spain and of course Greece.

As Bloomberg put it, “Italy’s jobless rate unexpectedly rose in June as businesses continue to dismiss workers amid concerns that the country’s exit from recession may not be sustainable. Youth unemployment jumped to a record-high 44.2 percent.

Unemployment increased to 12.7 percent from a revised 12.5 percent in May, statistics agency Istat said in a preliminary report in Rome on Friday. The median estimate in a survey of nine analysts called for a rate of 12.3 percent.

Youth unemployment in June rose to the highest rate since the series began in 2004, from 42.4 percent in May. Employment dropped for a second month in a row, with about 22,000 jobs lost in June alone, according to the report.

…click on the above link to read the rest of the article…

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