Tuesday, September 6, 2011

Scrambling to contain the bankster's mess

When the math shows that the big banks are in massive trouble (again) it should come as no surprise that the scramble to save their sorry butts becomes increasingly desperate (and amusing if one is into train wrecks).

First some housecleaning.  Recently, I posted an article describing the problems the Swiss Producers are having because the Franc has soared so high.  Because the Swiss have never stopped bragging about their powerful currency during my lifetime, I wasn't at all sure that they would do anything about the current situation because bankers tend to throw Producers under the bus all the time.  Well, surprise, surprise, surprise.  The Swiss are actually trying to devalue the Franc and the traditional economic pundits are reacting with the sort of horror normally reserved for a small-town preacher deciding to open a brothel.

Swiss bid to peg 'safe haven' franc to the euro stuns currency traders
Move – which effectively devalues the Swiss franc in an attempt to protect the economy – sparks fears of new currency war

Graeme Weardenguardian.co.uk, Tuesday 6 September 2011 10.44 BST

Switzerland sparked fears of a new currency war on Tuesday after it pegged the Swiss franc against the euro in an attempt to protect its economy from the European debt crisis. 
The Swiss National Bank in effect devalued the franc, pledging to buy "unlimited quantities" of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 – equivalent to SFr1.20 to the euro – having watched the two currencies move closer to parity as Switzerland became a "safe haven" from the ravages of the eurozone crisis. 
The move stunned currency traders, and sent the Swiss franc tumbling against other currencies. Jeremy Cook, chief economist at currency brokers World First, said it was "intervention on a grand scale", and the start of a "new battle in the currency wars". 
"That was the single largest foreign exchange move I have ever seen … The Swiss franc has lost close on 9% in the past 15 minutes. This dwarfs moves seen post Lehman brothers, 7/7, and other major geo-political events in the past decade," Cook said. 
The SNB pledged to enforce a "substantial and sustained weakening of the Swiss franc", adding that it might move to an even lower exchange rate against the euro if needed. 
"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," said Switzerland's central bank. 
The Swiss franc settled around SFr1.2026 against the euro, having earlier hit SFr1.1020. Stock markets rallied on the news, with the FTSE 100 jumping 87 points or 1.7%. The main Swiss stock market gained more than 5%. 
Jennifer McKeown of Capital Economics, said the SNB's intervention was a "bold move", but warned that Swiss exports will probably still suffer as the franc still remains strong in historical terms. 
Giles Watts, head of equities at City Index, warned that Switzerland could find itself in a battle with currency speculators to hold the value of its currency down. more

Swiss National Bank weakens franc with euro cap
EXCHANGE RATES | 06.09.2011 
Switzerland has taken the extraordinary step of setting a minimum rate for the franc against the euro and has pledged to buy unlimited quantities of foreign exchange in a high-stakes bid to contain its surging currency.

The Swiss National Bank (SNB) announced Tuesday it would "no longer tolerate" an exchange rate below the minimum of 1.20 francs per euro with immediate effect, and would enforce this minimum rate by purchasing foreign currency in "unlimited quantities." 
The central bank is exercising what many analysts in recent weeks had called the last-ditch "nuclear option" because of the uncertain effects and risks to the normally strong Swiss economy. 
"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," the SNB said in a statement that described its goal as "a substantial and sustained weakening of the Swiss franc."
The euro, which had been trading around 1.10 francs before the announcement, shot up to 1.2024 francs afterwards.

Last ditch 
The SNB said even the rate of 1.20 francs per euro was too strong and "should continue to weaken over time." It added that it was prepared to take further measures to make that happen. 
The Swiss franc, considered a safe haven currency, has been rising throughout the year as investors flee economic turmoil in the US and Europe. At its peak earlier in August, the franc was up about 20 percent against the euro and 25 percent against the dollar compared to 2009.
Swiss exporters have been fretting over the rise of the franc in recent months, complaining that high prices were beginning to have a negative impact on their businesses. more
And now for the big problems.  The banks are getting so desperate, they are abandoning their normal class solidarity and are turning on each other, and their demands that governments save them have reached a level that can only be described as screeching.
"Something Is Broken" -- It's Europe
Cullen Roche, Pragmatic Capitalism | Sep. 6, 2011 
In a recent Bloomberg interview Jeff Gundlach said the corporate bond market looks as though “something” is broken. Via Bloomberg:

“Something funny is going on in the world of corporate bonds now — something looks broken,” he said. “It seems there’s less willingness all of a sudden to be lending money to corporations, maybe because the absolute yields are so low. You’re starting to see that saturation point.”

If we look at bond markets in general it’s clear that the market has come unhinged. 10 year U.S. Treasuries are yielding just 2%. Greek 2 year notes are yielding over 50%. German 10 years are yielding 1.85%. Japanese 10 years are at 0.99%. High yield bonds are sharply higher in recent weeks.

All in all, this is far from a normal environment. If one looks merely at bond markets the world appears to have been turned upside down. ”Broken” is practically an understatement. If we look under the hood at the current environment, the sovereign and corporate bond markets barely tell the story of the turmoil that is brewing. When it comes to credit, it’s clear that Europe is broken and other markets are just following their lead. As I noted a few days ago, the CDS market is already screaming that the European banking woes are worse than 2008. SocGen elaborated on this last week:

“The European debt crisis won’t be resolved with yet another summit. The new European bail-out agreement on Greece from last July pushed European AAA countries CDS higher but failed to reassure markets. On one hand, Germany is opposed to Eurobonds and considers that the only solution is more fiscal tightening, and, on the other hand, peripheral countries cannot do much more given current levels of social unrest. The ECB’s announcement that it is buying peripheral bonds has sent 10-year yields lower for these countries, but, with many elections coming soon, the eurozone will probably face further turmoil in the coming months. more

Deutsche Bank CEO Just Gave A Terrifying Speech In Frankfurt
Courtney Comstock | Sep. 5, 2011, 2:23 PM  
Josef Ackermann just gave a terrifying speech about the fragility of the Euro banking sector right now.

At a conference in Frankfurt he said, "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."
We have translated the speech based on Handelsbatt's, the organizer of the event where Ackermann spoke, account of it.

"In recent weeks, the distrust of the financial markets has spread to the banks because they are now suffering from the debt crisis in Europe and have a lot of exposure to, for example, Greek bonds."

"Since the financial crisis, some European banks have lost a third or more of their market capitalization," he said, according to Google Translate.

"Most institutions have a rating of "below the book value or at best."

There are three major stress factors crushing Euro banks right now, he says: the debt crisis, structural factors and financial regulation. With them together, it will be hard for the European banks to increase their revenues.

The implication is that not just Eurozone countries are buckling under the pressure of Greece's, France's, and Italy's debts, but banks are too. It sounds like a desperate call for a bailout. Now.

However he says, "State funds could use means to put stability back into many companies and countries, but that does not remain the only solution."

Still, the situation he describes looks dire. He says, "Many countries and households would have to reduce their debt. The mortgage business and consumer loans were [the few things] driving growth. In addition, there's the problem of shrinking populations in several European countries, which negatively affects the growth of credit markets."

"All this reminds one of the autumn of 2008," said Ackermann. "We should resign ourselves to the fact that the 'new normality' is characterized by volatility and uncertainty." more

Full-Blown Civil War Erupts On Wall Street: As Reality Finally Hits The Financial Elite, They Start Turning On Each Other
September 3rd, 2011
By David DeGraw 
Finally, after trillions in fraudulent activity, trillions in bailouts, trillions in printed money, billions in political bribing and billions in bonuses, the criminal cartel members on Wall Street are beginning to get what they deserve. As the Eurozone is coming apart at the seams and as the US economy grinds to a halt, the financial elite are starting to turn on each other. The lawsuits are piling up fast. Here’s an extensive roundup:
As I reported last week:

Collapse Roundup #5: Goliath On The Ropes, Big Banks Getting Hit Hard, It’s A “Bloodbath” As Wall Street’s Crimes Blow Up In Their Face
Time to put your Big Bank shorts on! Get ready for a run… The chickens are coming home to roost… The Global Banking Cartel’s crimes are being exposed left & right… Prepare for Shock & Awe… 
Well, well… here’s your Shock & Awe: 
First up, this shockingly huge $196 billion lawsuit just filed against 17 major banks on behalf of Fannie Mae and Freddie Mac. Bank of America is severely exposed in this lawsuit. As the parent company of Countrywide and Merrill Lynch they are on the hook for $57.4 billion. JP Morgan is next in the line of fire with $33 billion. And many death spiraling European banks are facing billions in losses as well. more
But wait--the European voters are trying their best to ensure their corrupt politicians do NOT bail out their corrupt banksters.
Italians go on strike ahead of Senate debate on controversial cuts
ITALY | 06.09.2011 
Italians take to the streets for a general strike to protest the government's austerity plans. But Rome sees little choice other than bending to the will of its eurozone partners.

As the Italian government feels increased pressure from eurozone partners and European institutions such as the European Central Bank (ECB) to get its debt under control, the country's largest trade union, the CGIL, has called for a general strike on Tuesday to protest pending austerity measures.

The union argues that the 45.5 billion.euro ($63.9 billion) package of proposed spending cuts and new taxes would hit poor families especially hard and do little to stimulate the economy.

The eight-hour strike will affect flights, trains, and busses, and many government offices will be closed.

Warning signs

The Italian parliament was due to begin debating the austerity measures that are meant to restore confidence in the country's public finances on Tuesday afternoon.

This comes a day after a high selloff of Italian government bonds sent an "alarming signal," as Italian President Giorgio Napolitano put it, that markets were losing faith in Italy's inability to manage its finances and pay back its public debts.

The ECB was the main purchaser of the bonds, a move designed to protect Italy from the full force of doubts in the market.

However, Mario Draghi, an Italian who will become head of the ECB in November, said the bank's willingness to continue purchasing Italian bonds "should not be taken for granted." more 
Half-Hearted Austerity
Berlin Rattled by Italian and Greek Foot Dragging
Chancellor Angela Merkel is having trouble finding a majority for a crucial vote this month on expanding the euro backstop fund. A key cause of skepticism can be found in Rome. Patience is wearing thin in Europe as Italy stumbles toward a half-hearted austerity package.

It was the kind of news that Chancellor Angela Merkel could have done without. Last week, an inspection team made up of representatives from the European Union, theInternational Monetary Fund and the European Central Bank left Athens early out of frustration. Greece, they found, isn't doing enough to implement the massive austerity package passed in the summer. Even simple steps haven't been taken, the group, known as the "troika," complained.

"If something isn't done immediately then no option will be excluded," the Süddeutsche Zeitung on Tuesday quoted an unnamed euro-zone source as saying. An anonymous European Commission source told the paper that "absent a strong troika report, we will see a national bankruptcy at the end of the month."

The timing for Merkel's government couldn't be worse. On Monday evening, her governing coalition held a test vote ahead of a crucial parliamentary decision later this month on extending the powers of the euro backstop fund , the European Financial Security Facility (EFSF). The result? Her majority is fragile indeed. Fourteen from her camp -- a coalition of her conservatives with the business-friendly Free Democrats -- voted against the reform and seven abstained. Her parliamentary majority is a mere 19 votes. 
The vote, of course, is by no means an indication that the EFSF reforms won't be approved in the federal parliament, the Bundestag. The center-left opposition Social Democrats, after all, have indicated that they will likely support the law. 
But it does show just how nervous many in Merkel's party have become about the worsening condition of the euro zone . Athens has fallen so far behind in its austerity measures that murmurings that Greece should exit the euro zone are no longer the exclusive domain of the political margins of Merkel's government coalition. During Monday consultations with her party, the Christian Democrats, Merkel said that the situation was "extremely fragile." At the same time, she also warned against Greece leaving the common currency, stating she feared it could trigger a domino effect "that would be extremely dangerous for our currency system." more

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