Sep 042017
 
 September 4, 2017  Posted by at 3:34 pm Finance Tagged with: , , , , , , , , ,  2 Responses »
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Detail of a fresco from the House of the Tragic Poet, Pompeii, 2nd century BC

 

About a month ago, I finished reading former Greek finance minister Yanis Varoufakis’ book “Adults in the Room”, subtitled “My Battle With Europe’s Deep Establishment”, and published by The Bodley Head. I started writing about it right away, but noticed I was writing more about my personal ideas and experiences related to Greece than about the book. So I let it rest a bit.

I read the book in, of all places, Athens, sitting outside various old-style cafés. That got me a lot of reactions from Greeks seeing the cover of the book, most of them negative, somewhat to my surprise. Many Greeks apparently do not like Varoufakis. Of course I asked all the time why that is. “He’s arrogant” was/is a frequent one.

That’s not very helpful, I find, since first of all, it’s a purely subjective judgment, and second, I’m convinced their views come to a large extent from Greek media coverage, not only during Yanis’ term as finance minister from January to July 2015, but also in the years leading up to it. And Greek media are all controlled by ‘oligarchs’ et al, who certainly do not like either Yanis or the Syriza party he represented as minister.

The irony is that Varoufakis received more -individual- votes in the January 2015 election that brought Syriza to power than any other party member. And in the July 5 referendum 61.3% of Greeks voted against -yet- another bailout, very much in line with what Varoufakis had proposed. So there was a time when he was popular.

One guy said: ”he should be in jail”. When I asked why, the response was something like “they should all be in jail”, meaning politicians. Which is a bit curious, because whatever Varoufakis may be, a politician he is not. And the Greeks know that. They are very disappointed, and often depressed, by what has happened to them, of course they are. But why they would think Yanis is responsible for that is much less clear. Other then: “they’re all responsible”.

The best line in my opinion came from someone who said he thought Varoufakis was wrong for getting involved with Greek politics in the first place, a pit -as is the EU- replete with slithering venomous snakes. That I understand. That he should never have become minister since it could only have ended badly because of the corruption and backstabbing at all levels. I’m guessing Yanis himself has thought that too at times.

But at the same time, I remain convinced, as I’m sure he does, that he genuinely did it to help his people -who were already in terrible shape in late 2014 when he decided to run, and are much worse off now. And that’s not all. He would never have done it if he hadn’t had a plan to make things better. He did. If anything, that’s the key to his story.

And if his one-time friend, PM Tsipras, had not been paralyzed with fear at the last moment, that plan might well have worked. Yanis is an economist, and a game theorist at that. And though he has always insisted game theory was not the basis of what he did as minister, and rightly so because it’s not a game, there’s one aspect of what happened that comes straight from that field.

That is, before he agreed to run for finance minister, as he writes in the book, he tells Tsipras and his closest Syriza confidants that because Greece is very weak vs the Troika, they are not in any position to bluff. Meaning, if they are going to follow ‘the plan’, they must follow it to the end, in other words, they must be willing to walk away from the Troika, from the EU.

Not because they want to, but because the rules of the game demand it. When you’re weak, you cannot afford to blink. Yanis based his plan on letting the other side blink first, as he felt they would have to if only Greece did not. That’s what the whole thing was based on. And then, after -or rather, even before- winning the NO referendum, Tsipras blinked.

And yes, you can blame Varoufakis for that: for not making sure that would not happen. For putting trust where none was warranted. But the alternative would have been to stay in Texas and see his country perish. He was asked to join, he had a plan he believed in, what was he supposed to do?

 

“[The book] reads like a train”, says a Dutch review of Adults in the Room. And it does. Yanis proves a talented writer in the ‘genre’, which is not his by trade -so to speak-, of a day-to-day description of a series of events, conversations, confrontations with Greek, European and global political elites -with the occasional economist thrown in here and there-. The fact that he recorded many of the conversations on his iPhone, and undoubtedly made notes of many things as they happened, makes it a very compelling read. It’s obvious he’s not making it up, that he wrote down what actually happened -much of it word for word-. Seen through his eyes, of course.

As much as it reads like a train though, it also reads like a trainwreck. The portraits Yanis paints of many of the individuals he encounters, as well as of the institutions they represent, are often as painful as they are damning. Still, that is not what he sets out to do, as many of those who find their names in the book will undoubtedly claim. They are simply the portraits that emerge as events unfold.

In the world of power politics, this should not be a great surprise. But the picture of the dynamics that ‘control’ the European Union and it representatives, as well as the Troika institutions, the IMF, ECB, Eurogroup and European Commission, becomes, as we read along, more and more that of one familiar to us through the Godfather and the Sopranos. For many of the ‘players’ that appear on the scene, a comparison to ‘made men’ in the mafia is hard to avoid. Only, without a proper code of honor. A conversation Yanis describes in the introduction of the book makes this ‘analogy’ even more striking. He’s talking to Larry Summers, former US Treasury Secretary, who talks about insiders and outsiders.

“I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People – powerful people – listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.”

That’s obvious stuff. Except that this quote is from another book, US Senator Elizabeth Warren’s “A Fighting Chance”, and it’s almost verbatim the same as the one in Yanis’ book. It’s just politics. In the same way that Vito Corleone says: “it’s not personal, Sonny, it’s strictly business”. And Larry Summers is a consiglieri who spreads the gospel. Like it was once spread to him.

How do you become an insider, a made man? By committing to ‘the cause’, the family, through performing acts, initiation rituals. In the mob, that act is mostly murder, in the EU it’s something else, like obliterating the Greek economy. Or, in the case of European Council president Donald Tusk or First Vice-President of the European Commission Frans Timmermans, incessantly badmouthing Vladimir Putin. That gets you in. We know this because neither Tusk nor Timmermans had any other outstanding achievements to their names before they landed their top jobs.

So that gets you in. But into what, exactly? That’s a very opaque issue, and Varoufakis’ book doesn’t shine much light on it. Which is not a criticism, that’s not what he set out to do. Still, when he writes that in many occasions, as he tries to talk to for instance the assembled Eurogroup (all EU finance ministers plus -often- ECB head Mario Draghi and IMF head Christine Lagarde) about actual policies and plans, he “might as well have been singing the Swedish national anthem”, the opaqueness is the only thing that does ‘shine’.

A question that occurred to me, repeatedly, was how many of the people he tries to discuss issues with, actually understand what he’s talking about. For instance, once you delve into the specifics of debt swaps, what the benefits of one sort of bond are over others, you need a specific kind of knowledge, something an experienced investment banker or economist would have.

Schäuble’s a lawyer. Dijsselbloem’s an ‘agricultural economist’, whatever that may be. If you want to prevent any discussion on issues, what better than to put people in place who are -by education, by intelligence- simply not able to discuss them?

 

Not even Yanis, in my view, condemns Merkel and Schäuble and Dijsselbloem and a whole host of other characters in Brussels, Athens and beyond, strongly enough. Because the mob truly resides in Brussels -and Athens is truly corrupt. And Berlin. No matter how many times you may hear, or say, that something is simply politics, or it’s simply business, and nothing personal, it is very much personal and we should never accept it as normal human behavior.

That is the most damning issue Varoufakis brings up, but he doesn’t do that strong enough. When he seals a deal with China’s ambassador to Greece for Beijing to invest in Greece’s ports and railways, Angela Merkel calls the Chinese to tell them to back off; Germany’s not done with Greece yet. When current French President Emmanuel Macron, who was Economy Minister in 2015, sought to help Greece, Merkel called then-President Hollande to order him to get Macron ‘off the case’.

The European Union is undemocratic in myriad ways. What Varoufakis lays bare in his book, and then fails to utterly condemn, is that it is also undemocratic in the ‘ultimate’ way. That is, no country has anything to say except Germany. The EU’s largest member country decides everything. Not that Berlin sweats the small stuff, mind you, others are allowed to keep the illusion of democracy alive there.

But as soon as big decisions are made, finance, defense, there is one voice only that counts. That is the final nail in Europe’s coffin, even if it remains hidden very well. But spell that out loud and clear to the French people, or the Italians, that they have nothing at all to say about their own country and their own laws anymore, that the Germans decide FOR them, and what do you think they will say?

The very concept of a sovereign country, and the Union officially has 27 of them left, has turned into a joke inside the EU. Plus, Merkel and Macron and Brussels are calling for more Europe. Go to a supreme court in any EU country and tell them their own governments have lost all power over money and economics, and what do you think their constitutions will say? Care to define sovereignty?

So tell people that. Tell them that in reality Angela Merkel is their ‘leader’, not the people they have voted for. Ironically and unfortunately, the right wing regimes in eastern Europe may prove to be the ones who point this out first. Which is in line with how Brexit came about, and Trump, but in the end what all this really exposes is that we are all lied to three ways to Sunday, every day of the week.

Perhaps just as ironically, Varoufakis now leads a movement, named DiEM 25, that seeks to democratize the EU. I wish him all the good and then some with that, but I don’t see it. Because you would have to ‘overthrow’ Germany’s dictatorship of Europe, and get Germany to agree to being voluntarily ‘overthrown’. Why would Berlin ever agree to that? That’s even less likely than them agreeing to Varoufakis’ ideas about saving the Greek economy.

I’ve said it many times before, Europe’s nations can work together in many different ways, and the EU is just one of them, and it’s a very bad option. But reforming the EU from within does not look to me to be the way to go. It’s like reforming the US Republican or Democratic parties: they’re rotten to the core; why not start something new that doesn’t come with the whole deep-state-style burden?

 

You will hear and see a lot about how Yanis is naive and/or didn’t know what he was doing and proposing. But the only way in which he may have been naive is that he believed common sense would ultimately rule Europe. He might still have been right, if Tsipras et al had not choked. Which he told them repeatedly before he became Finance Minister would be fatal for Greece. He was right on that too, but he’ll find no pleasure in it.

His fault is that he didn’t – and doesn’t- want to ‘play the game’. That game is the only one in town, and it consists of keeping the established order in charge of everything, and of enhancing that power. It’s about politics, not economics. Or rather, the prevalent economic models suit the power elite just fine, so much so that their very faults help them stay in power, and nobody wants better models.

For trying to swim against that stream, you can blame Yanis, but that is the world turned upside down. Because if you look just a little bit closer, you can see that the present model is not only riddled with nonsensical assumptions, it is, because it is, destroying formerly sovereign nations.

For trying to prevent his country, Greece, from becoming the first nation in the formerly rich world to fall prey to that new-fangled colonialist model, Varoufakis deserves praise, not scorn. Do remember that when you see yet another ‘serious’ reviewer ridicule him for being naive. As in: who’s naive, you or Yanis? Is one naive for not kneeling before dictatorship disguised as democracy?

 

One last issue. It is often mentioned that the reason Brussels acts the way it does towards Greece is to scare off other EU members from ‘trying the same’, i.e. go against the rules set by the EU -which we, thanks to Yanis, know means Germany, and Germany only. But I don’t think that is true. It’s not about going against the EU; it’s doing anything. whatever it is, that would endanger the banks.

What the -scandalous- treatment of EU member and sovereign country Greece reveals is that it’s in the end not even Angela Merkel who calls the shots, but the main German, French, Dutch banks. Why the British would want to remain members of that kind of cabal will never cease to amaze me, but why their banks would does not in the least.

But yeah, so, the banks. That’s where it all started. Europe’s main banks lent Greek banks and corporations, all as corrupt as can be, money ‘up the wazoo’. When that could not be paid back this debt was not restructured, as it would be in any normal bankruptcy case, it was transferred first to the EU and then directly to Greek pensioners and other citizens. That is why Greece is in such a deplorable state.

The banks who made the loans were made whole, through a trick that hadn’t been tried before -and may not have been 100% legal but who cares about law in the EU?- and the entire mess was unloaded upon Greek society. Which is now in an even much bigger mess, with no end in sight, than when Varoufakis became finance minister. He knew that was coming and tried to prevent it.

What Merkel et al have done is to make sure that this ‘salvation’ of Deutsche Bank, Crédit Agricole et al will not be in peril. That’s more important to the system than Portugal or Italy questioning the powers of Berlin or Brussels. It’s not about scaring off other countries, it’s about safe-guarding the banks. It’s not about economics, it’s about raw political power.

In the next economic downfall, watch that dynamic. I’ve often said that the general principle of globalization/centralization, of which the EU is a good example, cannot stand in times of negative growth, because people won’t accept decisions about their lives being taken by far-away ‘leaders’ unless they think they can profit from it.

Wait till the realization dawns that Europe, like the rest of the world, only looks sort of okay because debt levels are rising everywhere. Mario Draghi still buys tens of billions of euros in ‘paper assets’ every month. That’s the European economy, that’s all that keeps it looking good, that’s the pig and that’s the lipstick, right there.

But forst and foremost, read the book. Yanis Varoufakis: “Adults in the Room”, subtitled “My Battle With Europe’s Deep Establishment”, published by The Bodley Head. If you’re at all interested in Greece, politics, economics, Michael Corleone, the EU, the IMF and/or the Sopranos. It reads like a train.

And it tells you a lot about how the world does (not) work. From the inside, and you don’t get to have a lot of views from the inside. “Adults in the Room” is a rare chance. The ruling powers will keep trying to discredit Yanis, but the more they do, the more you should be alerted.

 

 

Jun 172017
 
 June 17, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Fred Lyon Broadway and Kearny Street, North Beach, San Francisco 1952

 

All Hell Is Going To Break Loose In The Bond Market (SBA)
The Fog of Markets (720G)
10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)
Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)
Special Prosecutor Mueller Is a Political Hack (Washington)
Fear of Contagion Feeds the Italian Banking Crisis (DQ)
China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)
Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)
Five Talks on Power, Populism, Politics & Europe (Varoufakis)
Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)
Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

 

 

“..the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value.”

All Hell Is Going To Break Loose In The Bond Market (SBA)

This past Wednesday we heard from the Federal Reserve with regard to monetary policy, and as I predicted they did raise the federal funds rate 25 basis points however, instead of yields rising, they are dropping. More than a year and a half ago I had said publicly that the Federal Reserve’s attempt at trying to normalize bond yields would backfire-and this is exactly what is happening. It is clear to me that the Federal Reserve has absolutely lost control of what is occurring in the bond market. Remember, this is uncharted territory, we have never been here before in the history of the financial world-so the Federal Reserve actually has no idea of how the market will react in the current environment with regard to their attempt at normalizing interest rates. The yield curve as seen in the picture above continues to flatten out, and this trend will continue until the curve inverts.

The last time the yield curve inverted, the 2008 economic meltdown occurred, and the time before that we suffered the.com bubble meltdown. The fact is we are existing in a multiple bubble economy at this time, worse, and unlike anything which has ever been seen before. The reason why these bubbles exist is simple: the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value. The Federal Reserve’s interest rate suppression cycle has not only allowed, but has been the driving force behind mass malinvestments across the entire spectrum of asset classes and as such, bubbles have been created. The Federal Reserve has created distortions across the spectrum of asset classes which is frankly beyond belief, worse than has ever been witnessed in the history of finance. What this means is when the yield curve inverts this time, we will experience a meltdown magnitudes greater then the 2008 crash.

Read more …

“..till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.”

The Fog of Markets (720G)

“The year 1915 was fated to be disastrous to the cause of the Allies and to the whole world. By the mistakes of this year the opportunity was lost of confining the conflagration within limits which though enormous were not uncontrolled. Thereafter the fire roared on till it burnt itself out. Thereafter events passed very largely outside the scope of conscious choice. Governments and individuals conformed to the rhythm of the tragedy, and swayed and staggered forward in helpless violence, slaughtering and squandering on ever-increasing scales, till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.” – Winston S. Churchill – The World Crisis: 1915

After reading that quote several times, it remains shocking that the politicians and individuals of that era unconsciously “conformed to the rhythm of the tragedy.” The paragraph above from Winston Churchill, describes the mass mindset of World War I when it was still in its infancy. War-time narratives, nationalism, destruction and the tremendous loss of life led most people to quickly accept and acclimate to an event that was beyond atrocious. Amazingly, less than a year before the period Churchill discusses, the same people likely would have thought that acceptance of such a calamity would be beyond comprehension. Wars and markets are obviously on two different planes, and we want to make it clear the purpose of this article is not to compare the evils of war to financial markets. That said, we must recognize that quick acceptance of abnormal circumstances, as Churchill describes, is a trait that we all possess.

The seemingly unabated march upwards in stock prices occurring over the last eight years has had a mind-numbing effect on investors. The relentless grind higher is backed by weak fundamentals providing little to no justification for elevated prices. Indeed, if there was no justification for such valuations during the economically superior timeframe of the late 1990’s, how does coherent logic rationalize current circumstances? For example, feeble economic growth, stagnating corporate earnings, unstable levels of debt, income and wage inequality and a host of other economic ills typically do not command a steep premium and so little regard for risk. This time, however, is different, and investors have turned a blind eye to such inconvenient facts and instead bank on a rosy future. Thus far, they have been rewarded. But as is so often the case with superficial gratification, the rewards are very likely to prove fleeting and what’s left behind will be deep regret.

Despite our education and experience which teach the many aspects of the discipline of prudent investing, investors are still prone to become victims of the philosophy and psychology of the world around them. These lapses, where popular opinion-based investment decisions crowd out the sound logic and rationale for prudence and discipline, eventually carry a destructively high price. Investors, actually the entire population, have become mesmerized by the system as altered and put forth by the central bankers. We have somehow become accustomed to believe that debt-enabling low interest rates make even more debt acceptable. Ever higher valuations of assets are justifiable on the false premise of a manufactured and artificial economic construct.

Read more …

Long from Australia, with lots of sources. Bit confusing even.

10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)

Let’s start with the question of debt. Lord Adair Turner, who chaired the UK Financial Services Authority between 2008 and 2013 and helped redesign global banking, says the world since has not addressed this root cause of the crisis and that means it’s at risk of another one. Lord Turner, now chairman of New York-based Institute for New Economic Thinking, says the world is suffering from “irrational exuberance” and “debt overhang”. The latter term refers to countries trapped in a vicious cycle of debt, and when nations ultimately default on that debt – he predicts that the next crisis will come courtesy of China and that’s just a number of years away – it ends in their economic destruction.

The Institute of International Finance (IIF) says global levels of debt held by households, governments, and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325 per cent of global GDP. “There’s been no deleveraging,” Lord Turner says. “Once you’ve got too much debt in the economy … it’s incredibly difficult to get rid of it. “If you say, ‘I’m going to write it off’, your banks go bankrupt … if you try get rid of it by people paying down that debt … the attempt to pay it back is what drives the economy into recession.” To avoid that, interest rates then fall, and that simply encourages more borrowing, he says.

[..] Steve Keen, Professor of Economics at Kingston University in London, a long-time doomsayer on Australia’s mortgage binge, says simply: “It’s dangerous”. He says the Reserve Bank and Australian politicians ignore the dangers of private household debt today just as former US Federal Reserve chairman Ben Bernanke did before the GFC. Keen says the risk of recession is even higher now that APRA has slightly tightened lending standards. “It’s inevitable,” he says, sticking to his bold prediction that it will happen before year’s end.

Read more …

Grow your own food.

Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)

Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion. Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%. But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed: Wal-Mart Stores -6.5%; Kroger, largest supermarket chain in the US, -14%; Costco -7%; Target -10%.

Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar. Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.

With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward. But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.

Read more …

Did anyone doubt this? Safe to predict the investigation will be dragged out forever.

Special Prosecutor Mueller Is a Political Hack (Washington)

Torture FBI special agent Colleen Rowley points out: Mueller was even okay with the CIA conducting torture programs after his own agents warned against participation. Agents were simply instructed not to document such torture, and any “war crimes files” were made to disappear. Not only did “collect it all” surveillance and torture programs continue, but Mueller’s (and then Comey’s) FBI later worked to prosecute NSA and CIA whistleblowers who revealed these illegalities.

Iraq War Rowley notes: When you had the lead-up to the Iraq War … Mueller and, of course, the CIA and all the other directors, saluted smartly and went along with what Bush wanted, which was to gin up the intelligence to make a pretext for the Iraq War. For instance, in the case of the FBI, they actually had a receipt, and other documentary proof, that one of the hijackers, Mohamed Atta, had not been in Prague, as Dick Cheney was alleging. And yet those directors more or less kept quiet. That included … CIA, FBI, Mueller, and it included also the deputy attorney general at the time, James Comey.

Post 9/11 Round-Up FBI special agent Rowley also notes: Beyond ignoring politicized intelligence, Mueller bent to other political pressures. In the aftermath of the 9/11 attacks, Mueller directed the “post 9/11 round-up” of about 1,000 immigrants who mostly happened to be in the wrong place (the New York City area) at the wrong time. FBI Headquarters encouraged more and more detentions for what seemed to be essentially P.R. purposes. Field offices were required to report daily the number of detentions in order to supply grist for FBI press releases about FBI “progress” in fighting terrorism. Consequently, some of the detainees were brutalized and jailed for up to a year despite the fact that none turned out to be terrorists.

9/11 Cover Up Rowley points out: The FBI and all the other officials claimed that there were no clues, that they had no warning [about 9/11] etc., and that was not the case. There had been all kinds of memos and intelligence coming in. I actually had a chance to meet Director Mueller personally the night before I testified to the Senate Judiciary Committee … [he was] trying to get us on his side, on the FBI side, so that we wouldn’t say anything terribly embarrassing. …

Read more …

EU’s post-Cyprus resolutions are being dumped whenever that’s easier.

Fear of Contagion Feeds the Italian Banking Crisis (DQ)

Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were “bailed in” before the bank was sold to Santander for the princely sum of one euro. At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the €5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout. But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim.

The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems. By contrast, Popular was also liquidity challenged but, unlike MPS, it passed all parts of the ECB’s 2016 stress test, which shows you how ineffectual these tests are — and how subjective the resolution process of a European bank can be. In a speech to the Italian Banking Association on Thursday, the Vice President of the ECB, Vítor Constâncio, suggested that under certain circumstances, it might be wiser to save a bank than to resolve it. What’s more, taxpayers should be called upon not only to save banks like MPS but also to make whole all holders of the bank’s subordinate debt, under the pretext that they were misled into purchasing them (as indeed some retail customers, but certainly not all, were).

A taxpayer-funded bailout of bondholders is also on the cards for the two mid-sized Veneto-based banks, Banca Popolare di Vicenza and Veneto Banca, which have already received billions of euros in taxpayer assistance. Italy’s Minister of Economy Pier Carlo Padoan continues to insist the two banks will not be wound down. This is the same man who insisted last year that a) there would be no need of any future bail outs; and b) Italy did not even have a banking problem on its hands. Padoan has no choice but to deny all rumors of a bail-in; otherwise there would be a massive rush for the exits. In the weeks and even days leading up to Popular’s collapse, Spain’s Economy Minister Luis de Guindos repeatedly reassured investors that the bank was perfectly safe and solvent.

All the while government agencies, including Spain’s social security fund, and regional government authorities were emptying the deposits they held with the bank as fast as they could. The total is unknown but it certain ran into billions of euros. To avoid a similar fate, Banca Popolare di Vicenza and Veneto Banca were instructed by the European Commission last week to find an additional €1.25 billion in private capital. That money still hasn’t arrived, and now Italy’s government is trying to persuade the European Commission and the ECB to water down the requirement to €600-800 million, while also urging Italian banks to chip in to the bank rescue fund. If they don’t and the two Veneto-based banks end up being wound down, they will have to cough up as much as €11 billion to refund the banks’ depositors.

Read more …

Deleveraging my donkey.

China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)

China’s smaller banks, caught between a seasonal cash squeeze and an official deleveraging drive, are stomaching record high borrowing costs to raise funds. Issuance of negotiable certificates of deposit jumped to 758 billion yuan ($111.5 billion) this week, the most since the securities were introduced in 2013 as a lifeline for smaller banks. The yield on one-month AAA rated NCDs has surged nearly one percentage point this month to an all-time high of 5.05%, while that on AA+ contracts reached 5.30%, according to data compiled by Bloomberg. The increase in NCD costs comes at a tough time for Chinese lenders, which face an unprecedented 4.5 trillion yuan of maturities this quarter. The pressure has been aggravated by the deleveraging drive, with the one-month Shanghai Interbank Offered Rate climbing for 22 days in a row to a two-year high.

The certificates are used mainly by smaller lenders – banks outside of China’s top 10 by market value accounted for 76% of total sales this year. “The smaller banks have no choice but to take the blow,” said Shan Kun, Shanghai-based head of China markets strategy at BNP Paribas. “They need to sell NCDs to get financing as they cut leverage gradually and as they have to cope with tighter liquidity this month. The rates will likely continue to climb, or at least stay elevated in the near term.” When cash supply tightens, small- and medium-sized lenders are usually among the hardest-hit because they lack the retail deposit arsenal of larger banks, said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. They also may not have enough bonds to use as collateral to borrow money in the repo market. The banks need the money to finance longer-term and less liquid assets, such as debt and investment in loans and receivables, she added.

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Grand plans going back to Osborne and Cameron.

Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)

Almost all of a central London hospital is to be sold and its services diverted to already stretched facilities around the capital under plans for NHS modernisation seen by the Guardian. Charing Cross hospital, a flagship NHS facility in the heart of London, is to be cut to just 13% of its current size under proposals contained in sustainability and transformation plans published last year in 44 areas across England. Many of the officially published plans lacked precise detail about how local services would change, but internal supporting documents seen by the Guardian reveal the scale of the closures at the London site. The proposals claim much of the care currently offered at Charing Cross can be transferred to “community settings” such as local GP services, but health campaigners and clinicians say the transformation could endanger patients.

The documents include a map detailing how 13% of the current hospital site will remain, with the rest of its prime real estate in central London sold off. The plan is to introduce the changes after 2021. NHS chiefs have stated as recently as March that “there have never been any plans to close Charing Cross hospital”, and in March 2015 the then prime minister, David Cameron, said it was “scaremongering” to suggest that the Charing Cross A&E departmentwas earmarked for closure. The health secretary, Jeremy Hunt, echoed the claims. However, in the internal NHS documents the apparent downgrading of Charing Cross is outlined in great detail. The plan is to axe 10 major services at Charing Cross – 24/7 A&E, emergency surgery, intensive care and a range of complex emergency and non-emergency medical and surgical treatments. The remaining services would be a series of outpatient and GP clinics, X-ray and CT scans, a pharmacy and an urgent care centre for “minor injuries and illnesses”. Around 300 acute beds will be lost.

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Yanis.

Five Talks on Power, Populism, Politics & Europe (Varoufakis)

1 Yanis Varoufakis on power, populism and the future of the EU
2 Can Europe Make It? – Yanis Varoufakis speaks to openDemocracy
3 Yanis Varoufakis blows the lid on Europe’s hidden agenda
4 Yanis Varoufakis and his plan to take on Europe – again
5 Greece, Austerity, Brexit and Europe’s other darlings at GFMF2016

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In the EU, there’s immunity for officials committing crimes.

Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)

The Eurogroup of finance ministers may block an 8.5-billion-euro (7.44 billion pounds) loan to Greece if it does not grant immunity to privatisation agency officials from Spain, Italy and Slovakia, Spanish Economy Minister Luis de Guindos said on Friday. In 2015, a Greek prosecutor charged three officials at the country’s privatisation agency with embezzlement for withholding interest payments and breach of duty in relation to a sale and lease-back deal of 28 state-owned buildings. The case is still pending. “If there’s not a definitive solution for the situation of these three experts, the Eurogroup will block the payment,” de Guindos said in Luxemburg.

Greece would do “whatever necessary” to immediately settle the legal case, a Greek government official said. European Economic and Monetary Affairs Commissioner Pierre Moscovici said he was confident the problem would be resolved and that he would continue to discuss the issue with Spain during his visit to Madrid next week. “The problem has to be solved. We should not over dramatise it. The disbursement will happen and at the same time will find a solution to this problem,” Moscovici said on his arrival at a meeting of EU finance ministers in Luxemburg on Friday.

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Next up: a chip that makes your kids smarter. Try and resist that.

Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

Gone are the days when an e-ticket was seen as cutting edge – one Swedish rail company is offering passengers the option of using a biometric chip implanted into their hand in lieu of a paper train ticket. SJ is the first travel company in the world to let people use this innovative method that seems straight out of a sci-fi film. The tiny chip has the same technology as Oyster cards and contactless bank cards – NFC (Near Field Communication) – to enable conductors to scan passengers’ hands. Before you pack your bags for Sweden, the scheme is only applicable to those who already have the biometric implant – SJ is not offering to chip people. Around 2,000 Swedes have had the surgical implant to date, most of them employed in the tech industry.

State-owned operator SJ has said it expects about 200 people to take up the microchip method, but users must be signed up as a loyalty programme member to access the service. Customers buy tickets in the normal way by logging onto the website or mobile app, and their membership number, which is the reference code for the ticket, is linked to their chip. There are still kinks to be ironed out with the scheme, which began in earnest last week. Some passengers’ LinkedIn profiles were appearing instead of their train tickets when conductors scanned their biometric chip, while a number of train crew haven’t got the new SJ app which facilitates the scanning of biometric chips yet. “It’s just a matter of days before everyone has it,” says a spokesperson for SJ.

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