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by Ashraf Laidi
Posted: Feb 20, 2010 5:00
Comments: 30765
Posted: Feb 20, 2010 5:00
Comments: 30765
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EUR
Discuss EUR in this thread
The Banana Republic of the United States. We're not there yet, but we're certainly sliding in that direction. One of the characteristics of a banana republic is that its run by a few powerful rich people, who use their influence to get whatever they want from the folks who write the lawslaws that are tailor made just for the elite.
The deal-making is really at the heart of the way these societies work: Well-connected fat cats scheme and make deals with the politicians; then the politicians make deals with each other behind closed doors; and then laws are proclaimedkind of like what happened with the health care bill. And kind of like what's happening now with the financial reform bill.
Nebraska Sen. Ben Nelson was one of the chief deal makers with the health care bill, and that cost him dearly with his fellow Nebraskans, who thought his deal making stunk. But old habits die hard, and now Sen. Nelson is pushing for a special deal in financial reform law that would overwhelmingly benefit Sen. Nelson's richest constituent: one, Warren Buffett.
Mr. Buffett's Nebraska-based Berkshire Hathaway has a $63 billion derivatives portfolio, and derivatives are one of the focal points of this bill. The proposed bill would have forced Berkshire to put aside a huge reserve fund to cover the potential losses from these derivatives if they went bad. But Sen. Nelson's trying to change the law to make it apply just to those folks who buy derivatives from now on. In other words, not only would Mr. Buffett get off the hook in coming up with new reserves, but it would put a heavy burden on Mr. Buffett's future competitors. In some ways, this kind of banana republic deal is worse than what happens under socialism...at least socialists are clear about their intentions to take over all private property.
It reminds us of something Milton Friedman used to say:
"The biggest enemy of the free market is not the socialist, but the businessman who wants a free market for everyone but himself."
These are the deals and the carve outs that describe so much of what goes on in Washington these days. Of course, this kind of deal making isn't new. But the dollar amounts are now so huge in relation to the overall economy that they take on whole new dimension...the old political pork we used to rail against on Scoreboard, as bad as it was, was relatively puny in comparison.
Portuguese-German spread at 284 bps from 178 last week #gold remains well bid.
Ashraf
GGB 2yr yield at 14.99%. Still too cheap.
April 27 (Bloomberg) -- Greeces banks may run out of the collateral used to get funding from the European Central Bank as Greek sovereign debt falls in value, according to Citigroup Inc. Chief Economist Willem Buiter.
Greek banks probably get most of their short-term funding from the ECB, using mainly Greek sovereign debt as collateral, Buiter wrote in a report yesterday. When the value of the state debt falls in the secondary market, the decline in the mark-to- market value of the collateral may trigger margin calls -- or demands for more collateral, Buiter said.
Eventually the Greek banks could run out of additional collateral acceptable to the ECB/Eurosystem, Citigroup said. Their funding needs are likely to be exacerbated by a withdrawal of deposits that could become a run.
Greeces economic crisis has raised funding costs for Greek banks and forced them to borrow from the ECB rather than in the market. The ECB said on March 25 that it would extend emergency lending rules, adding that Greek bonds wont be cut off from ECB refinancing operations next year. The bank had been scheduled to reintroduce pre-crisis rules at the end of 2010, which sparked concerns over the Greek banks abilities to raise funding.
National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank SA and Piraeus Bank SA, Greeces largest lenders, have been the worst-performing stocks in the 52-member Bloomberg Europe Banks and Financial Services Index this year, led by National Banks 42 percent decline and a 37 percent drop in Piraeus.
Greek Banks Slide
National Bank fell 5.6 percent to 10.49 euros as of 1:58 p.m. in Athens trading today. Eurobank lost 5.7 percent to 5.11 euros, Alpha slid 6.2 percent to 5.65 euros and Piraeus sank 6.4 percent to 5.09 euros.
If Greeces lenders run out of collateral and suffer an outflow of deposits, the ECB would have to reduce the minimum quality threshold on securities acceptable as collateral, currently BBB- or the equivalent, or refuse to lend to the Greek banks, Citigroups Buiter said. That would spark a funding crisis and possible bank failures, he said.
Greek Prime Minister George Papandreou triggered his countrys 45 billion-euro ($60 billion) bailout from the European Union and the International Monetary Fund on April 23 after failing to convince investors that the state could pare a surging budget deficit, which stood at 13.6 percent last year.
Earnings Outlook
Earnings at National Bank, the countrys largest lender, Eurobank, Alpha and Piraeus may suffer this year as government measures aimed at slashing the fiscal deficit curb loan demand and drive up defaults. National Bank and Piraeus posted net losses in the fourth quarter after loan losses rose. Local bank deposits fell 3.6 percent in the first two months of 2010.
Although a banking crisis would not trigger a sovereign default in any mechanical way, it could increase the reluctance of the markets to fund the sovereign and may precipitate a sudden stop, which would leave the sovereign wholly dependent on funding from the IMF and the other Euro area member governments, Citigroup said. The ECB/Eurosystem could end up with large mark-to-market losses on its loan portfolio.
European banks are seriously exposed to Greek risk and had total exposure of $193.1 billion at the end of December. French lenders have the biggest claims on the Mediterranean country, at $78.8 billion, followed by German banks with $45 billion and British lenders with $15.4 billion, Citigroup said, citing data from the Bank for International Settlements.
Ashraf