Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Monday, December 22, 2014
Saturday, December 14, 2013
Eurozone Bank Closure Proposal as Stalking Horse for Integration
This is a very interesting proposal out of the eurozone to share the costs of closing down failed banks. I think it's unrealistic to expect a closure to take as long as ten years. Compare it to a track record of forced closures in recent history. The US's Resolution Trust Corporation took about six years to wind up the vast bulk of failed savings and loan associations it had to address.
I think the staggered time horizon for triggering European countries' participation is a good selling point for getting buy-in among the more stable northern countries. I believe the plan is a decent stalking horse for full Europe-wide integration of bank regulation. I am not clear on whether the regime will include penalties for countries that opt-in but then refuse to comply with requests to help out a failed bank in another country. Let's say Greece opts in, thinking that making a tiny contribution to a pooled resolution fund is a small price to pay for obtaining further sovereign debt bailouts. If some Spanish banks fail and Spain reaches the limit of its own portion of the Single Resolution Fund, what would happen to Greece if it refuses a request from Brussels to contribute more of its own money? Would the Board of the Single Resolution Authority assess some penalty for Greece? Would it ask Brussels to expel Greece from the eurozone? Or would it turn to Germany and the Netherlands for more than their fair share of bailout cash?
The parties to this proposed treaty have a lot to talk about in the next few weeks. Details of the mechanisms for pooling and risk management are far less important than the willingness of Germany to backstop everything if those mechanisms fall apart. Germany's appetite for such risk will in turn depend on the credibility of the dollar swap lines the Fed has extended, and whether the world's currency traders will still support the dollar if the ECB triggers those swaps.
I think the staggered time horizon for triggering European countries' participation is a good selling point for getting buy-in among the more stable northern countries. I believe the plan is a decent stalking horse for full Europe-wide integration of bank regulation. I am not clear on whether the regime will include penalties for countries that opt-in but then refuse to comply with requests to help out a failed bank in another country. Let's say Greece opts in, thinking that making a tiny contribution to a pooled resolution fund is a small price to pay for obtaining further sovereign debt bailouts. If some Spanish banks fail and Spain reaches the limit of its own portion of the Single Resolution Fund, what would happen to Greece if it refuses a request from Brussels to contribute more of its own money? Would the Board of the Single Resolution Authority assess some penalty for Greece? Would it ask Brussels to expel Greece from the eurozone? Or would it turn to Germany and the Netherlands for more than their fair share of bailout cash?
The parties to this proposed treaty have a lot to talk about in the next few weeks. Details of the mechanisms for pooling and risk management are far less important than the willingness of Germany to backstop everything if those mechanisms fall apart. Germany's appetite for such risk will in turn depend on the credibility of the dollar swap lines the Fed has extended, and whether the world's currency traders will still support the dollar if the ECB triggers those swaps.
Tuesday, October 15, 2013
JPMorgan Chase Will Bail Out Your Grandma For Uncle Sam
JPMorgan Chase announced that it will make good on its banking clients' Social Security and other benefit payments in the event Uncle Sam decides to turn deadbeat. I did a double take when I heard that on NPR this morning, and I read the article to be sure I hadn't misunderstood something. I can draw one of two implications. Scenario number one is that JPM is supremely confident that its cash horde will withstand a one-time delay of government payments and it won't get hit with any more SEC fines or forced settlements. The alternative is that JPM knows something no one else could know about whether it has its own backstop from the US government.
Such an guarantee is very unusual from a SIFI. Most investors are nonchalant about hedging the possibility of a US default on its shorter termed Treasury obligations. It sure looks like financial advisors and even portfolio managers haven't explored hedging with hard assets or futures contracts on non-US currencies. Central banks are making appropriate preparations but the mention of increasing dollar swap lines makes me LOL. If people panic and sell Treasuries the first thing they'll do is get rid of US dollar proceeds as fast as possible. Central bank dollar swaps are just as likely to amplify a run on the dollar as mitigate it.
It's too late for your grandma to open a bank account at Chase to seize on this sweet deal. The next few days will reveal whether one was necessary to bail her out.
Such an guarantee is very unusual from a SIFI. Most investors are nonchalant about hedging the possibility of a US default on its shorter termed Treasury obligations. It sure looks like financial advisors and even portfolio managers haven't explored hedging with hard assets or futures contracts on non-US currencies. Central banks are making appropriate preparations but the mention of increasing dollar swap lines makes me LOL. If people panic and sell Treasuries the first thing they'll do is get rid of US dollar proceeds as fast as possible. Central bank dollar swaps are just as likely to amplify a run on the dollar as mitigate it.
It's too late for your grandma to open a bank account at Chase to seize on this sweet deal. The next few days will reveal whether one was necessary to bail her out.
Saturday, October 12, 2013
Friday, September 27, 2013
Monday, March 25, 2013
Financial Sarcasm Roundup for 03/25/13
I've been plenty sarcastic recently about life, business, and even the arts. Now it's time for my weekly official dose of sarcasm, in one full blast.
Cyprus sort of got its rescue deal. I say "sort of" because the real price it had to pay was the end of its competitive advantage as a haven for Russian hot money and multinational offshore banking. No self-respecting oligarch will ever again keep cash in a Cyprus bank. The troika is taking a big risk but has little choice. The ECB balance sheet has enough Cypriot debt to cause problems for its equity cushion if that island doesn't get a lifeline. The troika is out of ammo for now, so any further deals will be a gift to Gazprom and the Russian government (not that there's much difference between the two). One very important lesson policymakers learned is that any attempt to cram down deposits that are below the threshold of deposit insurance will trigger widespread popular resistance. Future cram-downs now have a template with a sequence of red lines to cross, each with a higher pain threshold than can now be modeled.
BP's stock buyback is not as encouraging as it seems. Any time a company buys back its own stock is a signal that it can't find new projects to generate an NPV high enough to cover its own cost of capital. Other supermajors are investing heavily in new projects in Africa and Southeast Asia, so where's BP drilling? It's also a risky move if BP is assessed a $17B contingent liability for the Macondo blowout. Making a slight adjustment to dividend policy would have been a cheaper way to send a friendly signal to shareholders.
China's new president is touring Africa to promote goodwill. If the West's multinational resource producers don't get on the ball, China will beat them to new resource discoveries in Africa. An old saying about the flag and trade alternately following each other applies here. Trading nations expand militarily to protect their trade interests. The OECD sees only the promise of China, not the threat. If East African nations grant basing rights to the Chinese military, the Indian Ocean will become contested for the first time in centuries and India will face strategic encirclement. Wake up, New Dehli, because you're about to be surrounded.
Bond market investors aren't worried at all now that Cyprus economy's ability to issue bonds has been devastated. Never before in recent memory have Fixed-income portfolio managers been so utterly stupid. They ought to see that this template will be applied in sequence to each of the PIIGS countries and them finally Northern Europe, yet they continue to talk their books. I'm really glad I don't own any European bonds right now or work with people who are dumb enough to do so. I'm also glad not to be downwind of whatever they're smoking.
Here's a hearty shout-out to my legion of new fans from concert halls and recital rooms across the nation. I'll have a lot more to say about alternatives to union strikes very soon. In the meantime, you musically-inclined folks need to go watch some old newsreels of labor unrest in the 1920s and '30s, just to know how lucky you are today.
Cyprus sort of got its rescue deal. I say "sort of" because the real price it had to pay was the end of its competitive advantage as a haven for Russian hot money and multinational offshore banking. No self-respecting oligarch will ever again keep cash in a Cyprus bank. The troika is taking a big risk but has little choice. The ECB balance sheet has enough Cypriot debt to cause problems for its equity cushion if that island doesn't get a lifeline. The troika is out of ammo for now, so any further deals will be a gift to Gazprom and the Russian government (not that there's much difference between the two). One very important lesson policymakers learned is that any attempt to cram down deposits that are below the threshold of deposit insurance will trigger widespread popular resistance. Future cram-downs now have a template with a sequence of red lines to cross, each with a higher pain threshold than can now be modeled.
BP's stock buyback is not as encouraging as it seems. Any time a company buys back its own stock is a signal that it can't find new projects to generate an NPV high enough to cover its own cost of capital. Other supermajors are investing heavily in new projects in Africa and Southeast Asia, so where's BP drilling? It's also a risky move if BP is assessed a $17B contingent liability for the Macondo blowout. Making a slight adjustment to dividend policy would have been a cheaper way to send a friendly signal to shareholders.
China's new president is touring Africa to promote goodwill. If the West's multinational resource producers don't get on the ball, China will beat them to new resource discoveries in Africa. An old saying about the flag and trade alternately following each other applies here. Trading nations expand militarily to protect their trade interests. The OECD sees only the promise of China, not the threat. If East African nations grant basing rights to the Chinese military, the Indian Ocean will become contested for the first time in centuries and India will face strategic encirclement. Wake up, New Dehli, because you're about to be surrounded.
Bond market investors aren't worried at all now that Cyprus economy's ability to issue bonds has been devastated. Never before in recent memory have Fixed-income portfolio managers been so utterly stupid. They ought to see that this template will be applied in sequence to each of the PIIGS countries and them finally Northern Europe, yet they continue to talk their books. I'm really glad I don't own any European bonds right now or work with people who are dumb enough to do so. I'm also glad not to be downwind of whatever they're smoking.
Here's a hearty shout-out to my legion of new fans from concert halls and recital rooms across the nation. I'll have a lot more to say about alternatives to union strikes very soon. In the meantime, you musically-inclined folks need to go watch some old newsreels of labor unrest in the 1920s and '30s, just to know how lucky you are today.
Saturday, March 23, 2013
The Haiku of Finance for 03/23/13
Moscow snubs Cyprus
Not about base or gas field
Let troika take risk
Cyprus Reaching Boiling Point After Russia Let-Down
Cyprus came away from a key meeting in Moscow with no bailout from the Russian government. This throws the ball back into Europe's court. Speculation is flying around the Web that Europe's pressure on Cyprus is designed to squeeze Russia, or alternatively that Russia is seeking a strategic breakout in the Eastern Mediterranean with a gas deal. The intersection of business and geopolitics is always fascinating
First of all, Nouriel Roubini hinted in a March 20 Tweet that Russia wants a naval base in Cyprus as part of any bailout deal. I'm not sure where Dr. Doom got that idea. Cyprus has a heavy British military presence, so a Russian base there would make about as much strategic sense as a Russian base in Gibraltar or Malta. The Atlantic Wire picked up on this idea too, citing speculation in a report from Ekathimerini. IMHO Russia doesn't have an immediate need for a Mediterranean naval base unless it is concerned about losing access to its base at the Syrian port of Tartus.
The advantage to Russia of a Cyprus base is unclear until we consider sailing distances.
Cyprus is 238 nm (one day's sail) to the west of Tartus, Syria, measured to Kyrenia.
Alternatively, Cyprus is 206 nm (0.9 days' sail) from Tartus if the closer port of Larnaca is the destination.
Cyprus is 393nm (1.6 days' sail) from the Port of Suez, Egypt.
Tartus is 432 nm (1.8 days' sail) from the Port of Suez, Egypt.
Any Russian navy power projection into the Mediterranean would probably pass through the Suez Canal, so Russia would shave about 40nm off the trip of any warships it sends (depending on where in Cyprus it wants to relocate its floating workshop). That seems like a negligible advantage unless it wants to add other things like a listening post to monitor British and/or NATO activities in the area. I just don't see the strategic impetus for Russia to make this part of a bailout deal.
A much more likely deal would be for Gazprom to acquire Cyprus' natural gas rights if Cyprus takes Russia's bailout deal. Gazprom likes its dominant pricing power over Europe's natural gas supplies. This deal is now much less likely IMHO because the Russian government is unwilling to provide a backstop by bailing out Cyprus' banks. It is also noteworthy that Russia is deferring to the European troika on further details of a Cyprus bailout and that European Commission head Jose Barroso was in Moscow together with Prime Minister Dmitry Medvedev when Cyprus came away empty-handed. If there is any intrigue between Brussels and Moscow over Cyprus, or any daylight between their public stances, it is not apparent from these indications.
Cyprus' precarious finances pose an immediate economic threat to Europe. S&P downgraded Cyprus' sovereign debt again. No one but crazy hedge fund managers is going to buy that debt without a bailout from Brussels. Europe is going to have increasing difficulty with further bailouts as its industrial activity continues to decline. Cyprus is now scrambling to impose severe capital controls on its citizens and Germany is warning that Cypriot banks may be shut permanently if the country won't accept the troika's bailout offers.
The unraveling proceeds apace. I've criticized public officials like Ben Bernanke on this blog but I can see how even he would look for a way out of the Fed's leadership before things get really bad in Europe and the U.S. ultimately feels the effects. I'll wait until Helicopter Ben makes his resignation official before I send my resume to the Obama Administration because I don't want to look too eager.
Oh, BTW, Boris Berezovsky died today. I guess he won't be part of any bailout deal.
First of all, Nouriel Roubini hinted in a March 20 Tweet that Russia wants a naval base in Cyprus as part of any bailout deal. I'm not sure where Dr. Doom got that idea. Cyprus has a heavy British military presence, so a Russian base there would make about as much strategic sense as a Russian base in Gibraltar or Malta. The Atlantic Wire picked up on this idea too, citing speculation in a report from Ekathimerini. IMHO Russia doesn't have an immediate need for a Mediterranean naval base unless it is concerned about losing access to its base at the Syrian port of Tartus.
The advantage to Russia of a Cyprus base is unclear until we consider sailing distances.
Cyprus is 238 nm (one day's sail) to the west of Tartus, Syria, measured to Kyrenia.
Alternatively, Cyprus is 206 nm (0.9 days' sail) from Tartus if the closer port of Larnaca is the destination.
Cyprus is 393nm (1.6 days' sail) from the Port of Suez, Egypt.
Tartus is 432 nm (1.8 days' sail) from the Port of Suez, Egypt.
Any Russian navy power projection into the Mediterranean would probably pass through the Suez Canal, so Russia would shave about 40nm off the trip of any warships it sends (depending on where in Cyprus it wants to relocate its floating workshop). That seems like a negligible advantage unless it wants to add other things like a listening post to monitor British and/or NATO activities in the area. I just don't see the strategic impetus for Russia to make this part of a bailout deal.
A much more likely deal would be for Gazprom to acquire Cyprus' natural gas rights if Cyprus takes Russia's bailout deal. Gazprom likes its dominant pricing power over Europe's natural gas supplies. This deal is now much less likely IMHO because the Russian government is unwilling to provide a backstop by bailing out Cyprus' banks. It is also noteworthy that Russia is deferring to the European troika on further details of a Cyprus bailout and that European Commission head Jose Barroso was in Moscow together with Prime Minister Dmitry Medvedev when Cyprus came away empty-handed. If there is any intrigue between Brussels and Moscow over Cyprus, or any daylight between their public stances, it is not apparent from these indications.
Cyprus' precarious finances pose an immediate economic threat to Europe. S&P downgraded Cyprus' sovereign debt again. No one but crazy hedge fund managers is going to buy that debt without a bailout from Brussels. Europe is going to have increasing difficulty with further bailouts as its industrial activity continues to decline. Cyprus is now scrambling to impose severe capital controls on its citizens and Germany is warning that Cypriot banks may be shut permanently if the country won't accept the troika's bailout offers.
The unraveling proceeds apace. I've criticized public officials like Ben Bernanke on this blog but I can see how even he would look for a way out of the Fed's leadership before things get really bad in Europe and the U.S. ultimately feels the effects. I'll wait until Helicopter Ben makes his resignation official before I send my resume to the Obama Administration because I don't want to look too eager.
Oh, BTW, Boris Berezovsky died today. I guess he won't be part of any bailout deal.
Wednesday, January 16, 2013
The Haiku of Finance for 01/16/13
Mortgage help program
Just a stealth banker bailout
Caveat fine print
Just a stealth banker bailout
Caveat fine print
Friday, January 11, 2013
The Haiku of Finance for 01/11/13
Secret Fed credit
Trillions to prop up bad banks
Buffett bets on it
Trillions to prop up bad banks
Buffett bets on it
Old Bailout Lies Will Be New Again In 2013
Everything old is new again. You've probably heard me say that before but it never gets old when I'm the one saying it. The Taibblog nails the evidence behind the secret multitrillion-dollar Fed lending that saved the largest banks in 2008. Know that the largest recipients never disclosed the sums they borrowed. Know that the same bailout recipients also participate as the primary Treasury dealers. Know that those dealers earn riskless profits from the spread between their zero-cost borrowing and positive yields on Treasuries they hold. Know that the TBTF SIFIs have not changed their behavior at all.
We can expect the next phase of the unresolved crisis to come unannounced. The watchdogs are asleep and the crony capitalists have distracted us with self-serving platitudes. No less a personage than Warren Buffett assures us that his favorite banks will not get the country in trouble. He is too clever by half. He secured his banks with bundled campaign contributions to last year's successful Presidential contender. He will be rewarded with bailouts for his banks if they get into trouble, so he is disingenuously correct by saying the banks won't be getting the country into trouble. The country got itself into trouble by handing control of the government to Wall Street. There's no going back now.
We can expect the next phase of the unresolved crisis to come unannounced. The watchdogs are asleep and the crony capitalists have distracted us with self-serving platitudes. No less a personage than Warren Buffett assures us that his favorite banks will not get the country in trouble. He is too clever by half. He secured his banks with bundled campaign contributions to last year's successful Presidential contender. He will be rewarded with bailouts for his banks if they get into trouble, so he is disingenuously correct by saying the banks won't be getting the country into trouble. The country got itself into trouble by handing control of the government to Wall Street. There's no going back now.
Sunday, December 23, 2012
‘Twas The Night Before Christmas At Alfidi Capital
‘Twas the night before Christmas, and all through my head
Not a stock pick was stirring, ‘cuz the market was dead
The blog posts were published on the Web with no care
In hopes that some readers would soon be aware
My female admirers were home in their beds
While visions of Yours Truly danced in their heads
When on CNBC.com there arose such a clatter
I clicked on live streaming to see what was the matter
I zoomed to full screen view and turned up the sound
In case some “money honey” was hanging around
When what to my wondering eyes did appear
Why, it’s ol’ Ben Bernanke, smirking from ear to ear
More rapid than QE, his big banks all came
He read off the ticker and called them by name
“Goldman Sachs!
Morgan Stanley! JPMorgan and more!
Wells Fargo, Bank of America, more bailouts in store!
To the top of the market!
To the top of the charts!
I’ll bail you all out with fancy monetary arts!”
So out of my laptop the big bankers flew
With a sleigh full of cash, and Helicopter Ben too
He was dressed in Brooks Brothers, a well-tailored suit
No doubt it was paid for with middle-class loot
He demanded I hand him my brokerage account
I told him “No way!
I’ll give you no such amount!”
He pleaded on behalf of some fat banker elf
He was shocked when I told him, “Go eff-yourself.”
Ben remained indignant, he wanted to know
Why I wouldn’t relent, so I told him so
“I work hard for my money, and I save and invest
I pay some in taxes and keep all the rest
I’m tired of bailing out bankers and fools
You don’t know what you’re doing, even with all your
tools.”
I gave him the finger, right in front of his nose
He turned on his heel once he knew he was hosed
He slumped in his sleigh, to his team gave a whistle
They flew back to the Fed, like a heat-seeking missile
But I heard Ben exclaim, ‘ere he drove out of sight
“Christmas won’t be so merry once there’s capital flight!”
Sunday, December 16, 2012
The Limerick of Finance for 12/16/12
Crony capitalists shout hooray
For bailouts the rest of us pay
There will be some more
So quit keeping score
Just wait for the reckoning day
For bailouts the rest of us pay
There will be some more
So quit keeping score
Just wait for the reckoning day
Wednesday, November 21, 2012
Wednesday, October 10, 2012
Sunday, September 16, 2012
The Limerick of Finance for 09/16/12
German savings accounts are the source
For bailouts that will come by force
There's money to steal
Thrifty savers will squeal
Will banks grab that cash? Yes, of course!
For bailouts that will come by force
There's money to steal
Thrifty savers will squeal
Will banks grab that cash? Yes, of course!
Friday, July 20, 2012
Monday, July 16, 2012
Financial Sarcasm Roundup for 07/16/12
It's Monday. That means it's time to bust out of your workday boredom and pay attention to my bitterness.
Federal prosecutors are supposedly making a criminal case against bankers over Libor. I don't believe for a minute that DOJ is serious about prosecuting bankers who fudged Libor. This is the same DOJ that could find no criminal wrongdoing in the financial crisis of 2008 or bankers' extortion of municipalities though interest rate swaps. They haven't even indicted John Corzine for his theft of billions from MF Global clients. Puh-lease. Let's get real. Government prosecutors won't prosecute the heads of banks who will employ them in the future for corporate legal work. Expect a few eight-figure settlements later this year and nothing at all afterwards. Only smaller players get caught and punished, like the CEO of now-busted Peregrine Financial Group.
I was embarrassed when the U.S. government elected to keep GM and Chrysler alive with pre-packaged bankruptcies and bailouts. The government still hasn't been made whole on those deals. Now France is heading down pretty much the same road if it decides to save Peugeot. Automaking gravitates to lower-cost locales, which now even includes the non-unionized southern states of the U.S. Keeping high-cost producers alive keeps their products priced artificially high, ensuring an endless cycle of government bailouts and business failure. Unionized automakers will continue in this zombie pattern until the taxpayer has had enough and allows them to fail.
It's funny that we Americans think we have the right to criticize other countries' restrictions on foreign investment. The U.S. has placed so many reporting requirements on foreign-domiciled banks that they are refusing to open accounts for American citizens who want to do business overseas. The U.S. has also declined to adopt international accounting standards that would enable investors to compare financial results across national borders. I remember the debate about U.S. GAAP versus international standards from my MBA studies a decade ago, and back then the switch to international standards seemed imminent. I can only shake my head at the wrong turns the U.S. has taken since then, with SarBox and other stuff. Doing the right thing used to be so easy.
The defense bubble I've been warning about for years is about to pop. Wall Street is finally pricing in the likelihood that forced budget cuts will hurt the earnings of major federal contractors. This is good news for cheap analysts like yours truly, because there are some decent defense stocks I'd like to pick up at a discount. It's bad news for all of the Pentagon watchers and players who are still in denial about the inevitable end of major contingency operations. I've known plenty of people on active duty who were counting on jobs with contractors as second careers. They really need to switch gears now and make other plans.
I've had enough for one Monday.
Federal prosecutors are supposedly making a criminal case against bankers over Libor. I don't believe for a minute that DOJ is serious about prosecuting bankers who fudged Libor. This is the same DOJ that could find no criminal wrongdoing in the financial crisis of 2008 or bankers' extortion of municipalities though interest rate swaps. They haven't even indicted John Corzine for his theft of billions from MF Global clients. Puh-lease. Let's get real. Government prosecutors won't prosecute the heads of banks who will employ them in the future for corporate legal work. Expect a few eight-figure settlements later this year and nothing at all afterwards. Only smaller players get caught and punished, like the CEO of now-busted Peregrine Financial Group.
I was embarrassed when the U.S. government elected to keep GM and Chrysler alive with pre-packaged bankruptcies and bailouts. The government still hasn't been made whole on those deals. Now France is heading down pretty much the same road if it decides to save Peugeot. Automaking gravitates to lower-cost locales, which now even includes the non-unionized southern states of the U.S. Keeping high-cost producers alive keeps their products priced artificially high, ensuring an endless cycle of government bailouts and business failure. Unionized automakers will continue in this zombie pattern until the taxpayer has had enough and allows them to fail.
It's funny that we Americans think we have the right to criticize other countries' restrictions on foreign investment. The U.S. has placed so many reporting requirements on foreign-domiciled banks that they are refusing to open accounts for American citizens who want to do business overseas. The U.S. has also declined to adopt international accounting standards that would enable investors to compare financial results across national borders. I remember the debate about U.S. GAAP versus international standards from my MBA studies a decade ago, and back then the switch to international standards seemed imminent. I can only shake my head at the wrong turns the U.S. has taken since then, with SarBox and other stuff. Doing the right thing used to be so easy.
The defense bubble I've been warning about for years is about to pop. Wall Street is finally pricing in the likelihood that forced budget cuts will hurt the earnings of major federal contractors. This is good news for cheap analysts like yours truly, because there are some decent defense stocks I'd like to pick up at a discount. It's bad news for all of the Pentagon watchers and players who are still in denial about the inevitable end of major contingency operations. I've known plenty of people on active duty who were counting on jobs with contractors as second careers. They really need to switch gears now and make other plans.
I've had enough for one Monday.
Wednesday, July 11, 2012
The Haiku of Finance for 07/11/12
Pay your bills on time
Don't ask for bailouts like Greece
Can't pay debt with debt
Don't ask for bailouts like Greece
Can't pay debt with debt
Friday, June 08, 2012
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