Financial fuckery thread

[Scribbly]

MPs are calling for the Bank of England to be brought under tighter parliamentary control.

http://www.thisismoney.co.uk/money/news/article-2058686/MPs-Bank-England-overhaul-limit-power-Governor-Sir-Mervyn-Kings-sucessor.html?ito=feeds-newsxml

The Commons Treasury select committee wants Sir Mervyn King's successor to be limited to one eight-year term of office, with the committee given the power of veto over appointment and dismissal of future Governors.

Additionally, the MPs have called for the Chancellor of the Exchequer to be handed 'temporary and limited power to direct the Bank' during times of crisis when taxpayer money is on the line, according to the report.

I'm torn on this. On the one hand, theoretically, it is hard to be against making the national bank more accountable to Parliament. On the other hand, in practice, I think that having the bank managed by an external authority that does not need to worry about the short-term interests of politicians is more useful. Plus, this is a fairly clear grab by George Osbourne for more power, and the idea of him having any at all genuinely terrifies me.

The man looks like a constipated waxwork of himself.

[Cain]

I'm not opposed to more Parliamentary control in principle....I'm just violently opposed to that inbred streak of wank Osbourne having any more say over the economy than he currently does.

[Cain]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8873041/Europes-rescue-fiasco-leaves-Italy-defenceless.html

As of late Friday, the yield spread on Italian 10-year bonds over German Bunds was a post-EMU record of 458 basis points. This is dangerously close to the point where cascade-selling begins and matters spiral out of control.

The European Central Bank has so far bought time by holding a series of retreating lines but either it has reached its intervention limits after accumulating nearly €80bn of Italian debt, or it is holding fire to force Silvio Berlusconi to resign – if so, a foolish game.

The ECB's hands are tied. A German veto and EU treaty constraints stop it intervening with overwhelming force as a genuine lender of last resort. The bank is itself at risk of massive over-extension without an EU treasury and single sovereign entity to back it up.

This lack of a back-stop guarantor is an unforgivable failing in the institutional structure of monetary union....

The spreads on EFSF 5-year bonds have already tripled to 151 above German debt, leaving Japan and other early buyers nursing a big loss. The fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand.

Gary Jenkins from Evolution Securities said the "frightening" development is that the EFSF is itself being shut out of the capital markets. "If it continues to perform like that then the bailout fund might need a bail out," he said.

Europe's attempt to widen the creditor net by drawing in the world's reserve states evoked near universal scorn in Cannes and a damning put-down by Brazil's Dilma Rousseff. "I have not the slightest intention of contributing directly to the EFSF; if they are not willing to do it, why should I?"

Europe is resorting to such antics because its richer states – above all Germany -- still refuse to face up to the shattering implications of a currency that they themselves created, and ran destructively by flooding the vulnerable half of monetary union with cheap capital.

http://seekingalpha.com/article/304761-simon-johnson-we-are-looking-straight-into-the-face-of-a-great-depression

MIT Sloan School of Management professor Simon Johnson didn't equivocate on the perils of the current global economic environment. "We have built a dangerous financial system in the United States and Europe," said the former chief economist at the International Monetary Fund. "We must step back and reform the system."

Professor Johnson cited alarming parallels with October 1931, when "people thought the worst was behind them, but the smart people were wrong and instead the crisis just broadened."

[Cain]

Berlusconi has said he is going to step down.

Italian Prime Minister Silvio Berlusconi has confirmed he intends to resign after key economic reforms have been approved.

His announcement follows a vote in parliament on the budget in which he appeared to lose his majority.

Both allies and opponents have been urging Mr Berlusconi to step down as Italy's debt crisis grows.

Borrowing rates have shot up in recent days, raising concerns over whether Italy can service its debts.

While Italy's deficit is relatively low, investors are concerned that the combination of Italy's low growth rate and 1.9tn euro (£1.63tn; $2.6tn) debt could make it the next country to fall in the eurozone debt crisis.

Who will replace him?  A small bet on Umberto Bossi probably wouldn't be amiss.

[BabylonHoruv]

Paul Ryan now apparently supports reinstating Glass-Steagal

http://thinkprogress.org/economy/2011/11/09/365419/paul-ryan-reinstate-glass-steagall/

[Cain]

http://www.guardian.co.uk/business/2011/nov/09/european-debt-crisis-eurozone-breakup

Fears that Europe's sovereign debt crisis was spiralling out of control have intensified as political chaos in Athens and Rome, and looming recession, created panic on world markets.

Reports emerging from Brussels said that Germany and France had begun preliminary talks on a break-up of the eurozone, amid fears that Italy would be too big to rescue.

Despite Silvio Berlusconi's announcement that he would step down as prime minister once austerity measures were pushed through parliament, a collapse of investor confidence in the eurozone's third-biggest economy sent interest rates in Italy to the levels that triggered bailouts in Portugal, Greece and Ireland.

Italian bond yields surged through the critical 7% mark, at one point hitting 7.5%, amid concern that the deteriorating situation had moved the crisis into a dangerous new phase.

In Athens talks to appoint a prime minister to succeed George Papandreou were in deadlock, and will resume on Thursday morning. The Italian president, Giorgio Napolitano, sought to reassure the markets by promising that Berlusconi would be leaving office soon.

Senior policymakers in Paris, Berlin and Brussels are reported to have discussed the possibility of one or more countries leaving the eurozone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy. "France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.

Financial regulators across Europe were last night carefully monitoring the health of their heavily exposed banks, amid concern that the turmoil could lead to a debt default, or even the break-up of the euro.

Shit's hitting the fan

[Phox]

Wow.

[East Coast Hustle]

Yikes. What are the likely repercussions of all of this to the US economy?

[Cain]

Bad.  This is as uncharted territory as the original Euro was...if any of this is true, the markets are going to freak, then look around to see what everyone else is doing, and freak some more. 

In the long run, it might actually work.  But long-term financial planning is rarely rewarded by the ratings agencies.

[Mesozoic Mister Nigel]

Wowwwwww.

[BabylonHoruv]

http://www.rollingstone.com/politics/blogs/taibblog/finally-a-judge-stands-up-to-wall-street-20111110

One judge actually seems to be taking the fraud more seriously than most.  he's not pushing for prison time or revoking the corporate, so I don't think he's taking it THAT seriously, but it's still better than the others.

[Cain]

More authoritarian capitalism watch

http://chinamatters.blogspot.com/2011/11/communist-china-and-western.html

It's finally become clear to everyone the key problem in the current Eurozone crisis is just too much democracy.

Pesky voters opposed to austerity measures get in the way of efforts to cut government expenditures in order to reduce deficits and make repayment of national debts more likely.

China's Global Times on Greece, November 2:

Greece's oldest legacy may be its downfall

[E]ven at this critical moment now, the government may still be wavering between the public's demand and the country's long-term future.

...
At a time of economic difficulty, the government needs to demonstrate more determination to go against popular will.

Exactly one week later, Megan McArdle (via Kevin Drum) has her own authoritarian epiphany: democracy makes even the most advanced, free-est, smartest, most pundit-blessed, whitest countries incapable of doing "the right thing":

I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt....And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"

Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it.

Just one week! The gap between elite attitudes in China and the United States is really not that great.

And I'm not joking here.

Count the voters of Greece and Italy cowed, if not entirely convinced by media handwringing on behalf of the vengeful gods of the bond market.

Note, not many Greeks/Italians/Irish/Icelanders voted for an orgy of deregulated oligarchic greed and stupidity, followed by an economic collapse and dictatorship via the IMF.   Also, it finally took the vengeful gods of the bond markets to do what the entire Italian political and judiciary system seemed unable to, and unseat Berlusconi.

I tend to believe, in a Schmittian way, that sovereignty is located in whenever the exception to the rule of law can be forcibly made to stick.  In other words, the people who truly rule, they are the ones who can declare "exceptions" to the normal state of affairs and override the laws of the state due to some kind of emergency or other.

In an international context, then, who are the people with sovereignty?

[Triple Zero]

I suppose the corporate and financial bigshots that get away with everything?

[Cain]

That's what I'd say.

It is nice, though, that Chinese and American pundits can now finally agree on something else, rather than just "torture, is it really as bad as people make out?"  It's now "financial considerations must trump democracy".

[Cain]

Woah...I was literally just writing about this for one of my pieces of research.  That's the only reason I saw the news, because I was googling for it as a theoretical possibility

http://www.guardian.co.uk/business/2011/nov/12/chins-threatens-us-with-new-debt-downgrade

The head of China's biggest ratings agency, Dagong Global Credit Rating, is warning that it may downgrade the US's sovereign debt rating again because of Washington's failure to tackle the federal budget deficit.

The remarks by Dagong's chairman, Guan Jianzhong, to be broadcast in an interview with al-Jazeera on Saturday morning, come at the end of another week of deep turmoil for the world economy.

Dagong, which has maintained a pessimistic outlook on US fiscal policy, has been leading the charge to downgrade US debt over the last 12 months, lowering the US rating from AA to A+ a year ago.

In August it downgraded US debt again, to A. Days later, Standard & Poor's followed in its wake, becoming the first western agency to downgrade US debt after the threat of a default was narrowly avoided following weeks of political squabbling in Washington over whether President Obama should be allowed to raise the US debt ceiling.

Guan's intervention comes as another embarrassing political standoff over budget policy looms in Washington. The cross-party "supercommittee" given the job of finding ways to cut the budget deficit is reportedly deadlocked, with Republicans refusing to countenance the tax rises being suggested by Democrats. The committee is due to report by 23 November, but there are fears they could fail to reach agreement, prompting a new crisis.