Report on the Euorpean Financials for the week ending July 8, 2011
Summary: The seigniorage of neoliberalism came from the money good rating of debt and the collateral provided …. the seigniorage of neofascism will come from respect for and fear of the Sovereign and the Seignior.
1) … The age of leverage and the seigniorage of neoliberalism was based upon central bank intervention with low interest rates, quantitative easing 1 and 2, and the securitization of GSE debt into Ginnie Mae debt by REITS such as Annaly Capital Management, NLY, along with bank solvency support and real estate provided by the FDIC as well as financial deregulation with the repeal of Glass Steagall Act, the Mark To Fantasy Ruling of FASB 157, and carry trade lending, ICI, by Austria Banks, and Japanese Banks.
The age of deleveraging and the seigniorage of neofascism operating through regional economic governance will be based upon Leaders’ Framework Agreements which wave naive national sovereignty. The new seigniorage will be political diktat, where in Europe, a Chancellor, The Sovereign, and a Banker, the Seignior, will impose austerity on all in a federalized authority, that is a United States of Europe.
Garner Ted Armstrong saw this coming decades ago when he spoke consistently of a United States Of Europe in fulfillment of the bible prophecy of Daniel Chapter 2 where there would be a ‘progression of kingdoms’ resulting in a ten toed kingdom of global governance which according to Daniel Chapter 7:7 falls to world government of the anti-Christ and the false prophet,where they rule from Jerusalem for 3 and one half years, that is for 42 months
2) … Automatic Earth in article July 4th Serfdom Day writes: Independence, right? Fireworks and all, fighter jet fly-overs. Boy, are we ever free! Got to wonder, though, how much longer these celebrations make any sense.
A) … See, in Greece they’re fast losing their freedom and independence.
The country may still be a sovereign nation in name, but are the Greeks still a sovereign people? According to Erik Kirschbaum at Reuters, Eurogroup chairman Jean-Claude Juncker thinks not as Reuters reports
Greek sovereignty to be massively limited: Juncker Greece faces severe restrictions on its sovereignty and must privatize state assets on a scale similar to the sell off of East German firms in the 1990s after communism fell [..] “The sovereignty of Greece will be massively limited,” he told Germany’s Focus magazine in the interview released on Sunday, adding that teams of experts from around the euro zone would heading to Greece. [..]
The Greek parliament voted on Thursday to set up a privatization agency under austerity plans agreed with the European Union and IMF which have provoked violent protests on the streets of Athens. Greeks are acutely sensitive to any infringement of their sovereignty or suggestions of foreign “commissars” getting involved in running the country. “One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone,” Juncker said.
Athens must sell off five billion euros in state assets this year alone or risk missing targets set under its EU/IMF program, which could cut off its funding needed to keep the government running and avoid a debt default. A repeat of Germany’s Treuhand experience may prove bitter for Greeks, who are already suffering soaring unemployment as a recession drags into its third year.
Once the world’s biggest holding company, Treuhand was supposed to sell off state property at a profit but closed its books with a huge deficit and a legacy of bitterness among the legions of workers whose jobs it destroyed. Four million Germans were employed by Treuhand-owned companies in 1990 but only about 1.5 million jobs were left in 1994 when the agency closed. Instead of reaping profits to be distributed to all east Germans, as it was designed to do, it ran up debts of 270 billion marks ($172 billion) in the fire sale of assets.
B) … Ilargi: To call Treuhand an abject failure would be a gross understatement.
Still, Juncker cites it as an example for Greece. Lovely. Well, to be honest, it was a failure only for the people. Not for banks and industries. Viewed from that angle, it all makes sense. As does openly stating that Greece will be massively limited in its sovereignty. It all depends whose interests you’re protecting, after all.
And no, we’re not just talking Greece here. From the Guardian Sell, sell, sell: everything must go in great fire sale
Europe’s most ambitious sell-off is taking place in its most indebted nation: Athens plans to sell €50bn (£45bn) of state assets by 2015.
Looking at the sales list, it seems that very little has been left off the table. The government’s stakes in the ports of Piraeus and Thessaloniki, 39 airports, a state lottery, a horse-racing concession, a casino, a national post office, two water companies, a nickel miner and smelter, hundreds of miles of roads, a telecoms operator, shares in two banks, electricity and gas monopolies and thousands of hectares of land, including coastal stretches, are among the host of assets on offer.[..]
The national airline, ports, power stations and even the Irish National Stud, which hosted a visit by the Queen in May, face being broken up or sold off under plans to get Ireland out of the red. A government-commissioned review of state assets published in April said privatisation could raise about €5bn for the cash-strapped country. [..]
The world’s biggest annual lottery payout, Spain’s famous Christmas El Gordo (Fat One), spreads joy to tens of thousands of winners – but the biggest winners of all may soon be investors who snap up part of the state company behind the lottery. [..]
Some 30% of the state lottery will be sold as the organisation behind the 151-year-old El Gordo becomes what may be the world’s biggest listed gambling company, valued at up to €25bn. The company recorded €3bn net profit in 2009 on sales of €9.8bn – meaning the sell-off will reduce treasury income by about €1bn a year.
RBS recently won a contract to run the privatisation of up to 49% of Spain’s airports authority, AENA, which has a book value of €2.6bn. The government also plans to auction off Madrid’s Barajas airport and Barcelona’s El Prat by the end of the year. Reform of the country’s savings banks means that many will also soon be seeking stock market listings. [..]
Neighbouring Portugal is in even starker need of money after accepting a €78bn bailout. On Thursday, the newly elected centre-right prime minister, Pedro Passos Coelho, announced a rush sale of state holdings in the utility company Energias de Portugal and the power-grid operator REN by October.
Passos Coelho recently told the Financial Times that he wanted to sell off up to 49% of water utilities as well as several state media interests, reportedly including television and radio channels, plus the national news agency Lusa.
The state airline TAP and the airport owner ANA – which runs airports in Lisbon, Faro, Oporto and the Azores – are also due to be sold along with the insurance business of the state-run bank CGD [..]
The coalition government in Westminster is in the process of selling off the 49% state stake in the air traffic control service Nats, decommissioned naval ships and its own collection of fine wine.
In the March budget the chancellor, George Osborne, set a target of raising £2bn from asset sales to finance the Liberal Democrat’s idea for a green investment bank. The bulk of that is coming from the sale of its remaining stake in Nats and the Tote, the government-owned bookmakers. The private bookmakers Betfred have been chosen to buy the Tote for a reported price of £200m. [..]
C) … Ilargi: By the way, Richard Milne at the Financial times reports that S&P have said the Greek bailout will be declared a default (credit event) anyway as Financial Times reorts S&P threatens Greece with default.
French and German banks’ plan to roll over their holdings of Greek debt suffered a huge blow on Monday as Standard & Poor’s, the credit rating agency, said the move would amount to a default.
The proposal to provide up to €30bn ($43.6bn) in financing for Greece had been made conditional on rating agencies not downgrading Greece’s debt. But S&P said in a statement early on Monday that any rollover would be a “distressed” transaction and thus lead to Greece’s rating being lowered to selective default.
Such a move all but scuppers the rollover proposal in its current form. It is also likely to further heighten European scrutiny and scepticism of rating agencies, who are blamed by some for stoking the eurozone debt crisis as well as having missed the causes of the 2008 financial crisis. The euro erased all its gains against the dollar and European markets were seen opening lower on Monday morning on the news.
S&P said both proposals put out by the French banking federation last week – and broadly endorsed by both German banks and other global financial institutions – would amount to a default.
Ilargi: That would indeed seem to be the only logical conclusion. But the IMF and ECB may have more up their sleeves yet. The best way to look at the bailout plan, meanwhile, is provided by Wolfgang Münchau at the Financial Times writes The Greek rollover pact is like a toxic CDO
It was always clear that European politicians would ultimately end up trying a complex debt product to solve the crisis. If you want to “kick the can down the road”, as the wearily favourite metaphor of the crisis goes, if you want to obfuscate facts and circumvent rules, then a variant of a collateralised debt obligation seems the perfect choice. I wonder what took them so long.
I have no space for a large drawing with lots of boxes and arrows to explain the complexity of the vehicle, through which eurozone governments want to involve the private-sector banks in its next loan package.
So here is my best attempt in words: if you own a Greek bond that matures by June 2014, you keep 30 per cent of the redemption as cash, and roll over 70 per cent into a 30-year Greek government bond. The Greeks will have to pay an annual coupon, or interest rate, of between 5.5 per cent and 8 per cent. The precise rate will depend on future economic growth.
Of the money received, Greece will lend on 30 per cent to a special purpose vehicle, another well-known construction from the subprime mortgage crisis. The SPV invests into AAA-rated government or agency bonds, and issues a 30-year zero coupon bond. The purpose of this is to guarantee the principal of the 30-year Greek government bond that you just bought.
With this construction, the downside to your losses is limited. Depending on how some of the parameters of this agreement evolve, you will probably make a small loss, relative to the par value of your holding. If you are lucky, you might come out positive. You will probably not be lucky. But you will still be better off than if you sold today, or if Greece were to default. More important, the accounting rules allow you to pretend that you are not making any losses at all.
If this was any other field of human activity, you would go to jail if you accepted, let alone made such an indecent offer. [..]
D) … Ilargi: So when everybody sells everything, where do we draw the line between a sovereign nation and one that is “occupied”?
It’s hard to say, granted, but I would think that a people that wants to be in charge of its own destiny would want to always retain control of its transport and energy infrastructure: roads, waterways and ports, energy sources and supplies, etc. Control over health care services and schools seems obvious too, if you want to be and feel independent. And we haven’t even mentioned land yet.
The prevailing ideology, however, has become the privatization of everything that’s not bolted down (and even then…) The underlying notion, of course, is that private business is more efficient than government in running all sorts of services. Whether that’s true or not is up for debate, but there’s another factor at play as well: private businesses are run for profit, and profit implies growth. The question than must be asked if we really want our hospitals and prisons to be run as growth industries.
After all, that would at some point necessarily mean we need more sick people, and more criminals. Yeah, you’re right, that does look a lot like what we already have in the US, doesn’t it?
And while the examples above deal with European nations selling off their goodies, the same happens stateside of course. Individual states, as well as counties and municipalities, are auctioning off roads and buildings as fast as they can, in desperate and doomed attempts to make budgets whole. Just like Greece does. All while awaiting the economic recovery that never seems to come, or not quick enough, or not enough enough.
The problem is that this economy, these economies, will never recover. They will never return to where they once were. They won’t even return to where they are now. Because there is so much debt all around, and our leaders refuse to let the institutions that incurred it pay the bill, there’s a huge amount of downside waiting for us. And selling off what should have been our children’s inheritance is not going to change that. It will only make their lives that much harder. They will indeed not be sovereign people, they will not hold control over their own societies. And they will therefore have no reason left to celebrate their Independence Day. They will be serfs. Debt slaves.
The gutting of societies and their independence is not new by any stretch of the imagination. The gutting of our present societies, too, started a long time ago, with the ideas propagated by Milton Friedman and his Chicago School criminal racket. What cannot, however, be put at Friedman’s feet, is the devastation to the world we live in caused by the derivatives trade. And that, to repeat myself, is where today’s real danger lies. I’ll leave you with something that Chris Whalen wrote on the topic two weeks ago.
E) … Happy Fourth of July. Enjoy it while it lasts. And maybe save some for your kids as Ira Bank Ratings writes The World Held Hostage by Credit Default Swaps:
The apparent bailout for the EU banks led by BNP, Societe General and the German landesbanks is shared equally by their US derivatives counterparts. Remember, as of the end of Q1 2011, it would take just a move of less than 10bp in the aggregate value of the OTC derivatives book of JPMorgan Chase [..] to wipe out the firm’s capital.
So the more accurate description is that all of the major players in the world of credit default swaps were bailed out on Friday, proof again that this financial ghetto known as OTC derivatives is adding to the systemic risk problem — and holds the entire world hostage.
The net increase in financial exposures due to the existence of the CDS market in sovereign credit risk has not made the real economy safer, but instead multiplies the dollar amount of the basis risk in all markets, real or imagined. You cannot get rid of systemic risk and “too big to fail” until you limit credit derivative products to holders of actual debt. Instead we have hedge funds and banks gambling on the end of the world.
F) … The impending damage of a mark-to-market event with respect to Greece or Ireland is such that the craven fools who inhabit public offices from Paris to Washington are forced to socialize the losses of the banks.
The free market is dead and we have all arrived at a sort of involuntary socialism, where the largest banks rape and pillage, and even hedge funds and other credulous players in the financial markets are turned into victims. [..]
The thing people need to appreciate is that the large banks today with respect to exposure to Greece and Ireland are in precisely the same position as was American International Group in 2007. In that case, AIG had written excessive credit insurance on mortgage backed securities in order to generate fictitious income. This financial fraud eventually collapsed, forcing the Fed of New York under Timothy Geithner to come riding to the rescue of JPM, Goldman Sachs and their derivatives counterparties in Europe because AIG could not make good on its liabilities.
In the most recent case, the major dealer banks in the EU end US have created mountains of new credit risk with respect to Greece and Ireland by selling insurance to their clients, both commercial hedgers and speculators. The latter group is far larger than the true commercial hedging needs for risk management, a side benefit of the expansionary policies of the Fed under Alan Greenspan and now Ben Bernanke. Thus the original sin of monetary accommodation by the Fed comes back to haunt us all in the form of an uncontrolled market panic fueled by cash settlement credit derivatives.
The refusal of the political class to imposes losses on large bank creditors since the collapse of Lehman Brothers and Washington Mutual in 2008 illustrates the extent to which the financialization of the western industrial economies has turned into a gradual coup d’etat by the banks and the global speculators who dominate their client base. The CDS market specifically has become so large and threatening that the politicians are even forced to renege on bets against Greece by the largest and most important bank clients.
So much of what goes on inside the typical investment bank today has nothing to do with the real economy as illustrated by the Greek situation. Much of finance today is beggar they neighbor speculation. But even the hedge funds that were betting on raging contagion are getting stiffed by the banksters and their political sponsors. Just as individual savers are being denied their due via low rate policies, the speculative class is also being stiffed by banks that cannot make good on their wagers in CDS.
By saying that the banks and their creditors cannot be made to take losses on even their speculative activities, technocrats such as Germany’s Angela Merkel, France’s Nicholas Sarkozy and Barack Obama have become the ambassadors for the new global ruling class. The servants of the banksters, Sarkozy, Merkel and Obama, think that they can put the entire weight of restructuring Europe and US debt on the backs of taxpayers.
G) … Do our leaders really think that they can restructure Greece and Ireland via austerity without requiring any pain from investors in bank debt or the managers of the banks?
If so, then the decision on Friday is not a solution but instead puts the western market economies on the road to further political and financial turmoil. Just as the unfair peace after WWI led to economic depression in Europe and the rise of fascism, the decision to dispense with the pretense of free market discipline in the industrial economies puts us all on the road to serfdom and political upheaval.
3) … Chart of The European Financials, EUFN, shows that these stocks entered an Elliott Wave 3 Down in July 2011
Serfdom, Debt Servitude, Neoliberalism, Neofascism, Sovereignty, Seigniorage, Glass Steagall Act, Authoritarian Rule, Regional Economic Governance, Framework Agreements, United States Of Europe