DanHan: Comes A Point When You Run Out Of Track...

OS watched in horror a few years ago as Clarkson and the boys undertook their ill-advised journey through Florida, across the Gulf Coast, terminating their travels in NawLeenz. It got so ugly, so quickly.

There was, however, a truly funny moment when the boys were told they were to engage in the classic timed quarter-mile straight sprint in their junker cars, on a track that was only a quarter-mile plus about fifty yards. At yard fifty-one lay the ditch full of alligators.

Fahr-'em-up boyz!! And off they went, with brakes that were definitely not up to the task. No one was injured, blessedly, but things ended badly for one of the cars, if memory serves.

This episode is not unlike what we now see happening in both the United States and Europe. February 2012 was the highest monthly deficit this nation has ever recorded, in over two hundred years since the Constitution was ratified. The Senate will not pass a budget. The White House is a runaway freight train.

This can only end badly, and OS, in his darker moments, wonders if perhaps folks in the White House have some sort of train-over-the-cliff moment in mind for us all. It explains their behavior, when nothing else will.

Meanwhile, DanHan (as always) states the case succinctly. OS does wish we could lease this gent for a couple of decades. Sort of a reverse Lend-Lease back to Great Britain. We'll even give them Puerto Rico in the bargain, since we took some islands from them in the 1940's.

Eurozone? We Don't Need No Effin' EuroZone! Iceland Stands Tall, And Is Recovering

As Robert Peston so succinctly phrased it a few years back, the bankers and government of Iceland had essentially transformed the country into a large hedge fund, backed by the taxpayers (without telling them about it).

As these things always do, it all blew up, and instead of paying to bail out the bankers, and the politicians, and the Eurocrats, the Icelanders reverted back to their traditional life of freedom, told them all to stuff it, and got on with their business.

It worked. Which is why you hear so little news of it in general. 


Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.

Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.

Activists say the banks should go even further in their debt relief. Andrea J. Olafsdottir, chairman of the Icelandic Homes Coalition, said she doubts the numbers provided by the banks are reliable.
“There are indications that some of the financial institutions in question haven’t lost a penny with the measures that they’ve undertaken,” she said. 

It was painful, and to some extent still is. But no one from Brussels has arrived to install their own government in a defacto coup, as has happened in Greece and Italy.  Or, it may be argued, here.

Just sayin'...

JDA Says It Best: Why Didn't We Untangle Ourselves From Europe THREE YEARS AGO?'

OS' favorite potty-mouth economist sez it all. No comment necessary.

'The whole affair is complete theatre, of course.': Detlev Schlichter

This article has been making the rounds, and deserves to be shared. Schlichter cuts through the verbiage, the grandstanding, and the blatant falsehoods, and succinctly tells us the truth.

The problems around the world are essentially the same. After decades of ongoing and generous expansion of the fiat money supply, of artificially low interest rates and cheap credit, banks are hopelessly overextended, asset markets are distorted, and sovereign states are bust. I sometimes get pushback on the last point. Are they really bust? – Yes, most of them are. They have acquired debt loads and spending habits – now very deep-rooted and practically impossible to eradicate – that require constant new borrowing at fairly low interest rates – cheap credit forever. Obviously, that is not going to happen. The end of the forty-year credit boom has arrived. The private sector is no longer playing ball.

Remember OS's meme about culture shaping economy? We have a culture that assumes that we all will have unlimited access--it's our right--to all good things of life, and somebody else somewhere sometime will foot the bill. Thus, our present conundrum.

That being said, 'nuff said.

This is unsustainable. Math is math, and TheGreatAndGood refuse to acknowledge it, believing themselves to be immune from its inexorable consequences.

Thus, either there is a God in charge, whose providential will is in the process of being worked out via this human folly, or there isn't. OS thinks we are on the verge of finding out, one way or t'other. He's not predicting TheEndOfTheWorld, but we are in for a very rough slog here in the West, and for his part, plans to work for its preservation in a healthy form, for the restoration of Christendom.

In the meantime, he has work to do, much travel ahead, and a long-anticipated Christmas to enjoy. He hopes his readers do the same.  A few entries in the next few days, and then likely silence over the holidays.

OS suspects there will be much to discuss in the New Year.

Ya'll take care of yohselves, and love on yer luved onez reaaaallll good.

Bank Of England Breaks Out The Firehoses

Courtesy of Paul Twigg, who is adept at noticing these things.

The BofE, having decided that the Euro is toast, has announced it will break out the liquidity firehoses to do what it can to protect UK banks when the European kitchen fire begins in earnest. 

Of course, as always, they say things much more politely...


In a crowded neighborhood, when fire breaks out, some fire crews spend their energies on putting out the blaze, and others on spraying water on the roofs of the neighboring buildings. In the US west, when a brush fire breaks out, they bulldoze firelines to clear brush, and keep close watch on the wind as they set backfires to consume the fuel in the fire's path. In short, the effort is to save what they can, and let the fire burn itself out. The art and craft of it all is to stay ahead of the path of the flames...

OS wishes the BofE well.

MF Global Quote Of The Day: Amy Klobuchar (D) Minnesota

 The MF Global scandal will eventually take its place beside Lehman, Enron, Merrill-Lynch, GM, Goldman-Sachs and the rest. Its tentacles reach far beyond Wall Street and City of London. It is landing, like an enormous cow-pie, into the lives of farmers on the American prairie.

There are legitimate participants in the commodities markets, doing legitimate business for good reasons. One reason is to stabilize feed costs for livestock producers.

From the Minnesota Star-Tribune:

Dennis Magnuson is a farmer, not a gambler. He trades in the commodity futures markets hoping to stabilize the cost of feed for the pigs he sells. The Austin, Minn., resident said he would never put his money into bonds issued by European countries flirting with economic collapse.

But the now-collapsed MF Global Holdings Ltd. may have done that for him.

Magnuson is among more than 100 Minnesota farmers estimated to have assets frozen as a result of MF Global's bankruptcy filing and an estimated $1.2 billion in missing customer funds. Most of the farmers didn't choose to do business with the huge brokerage house that has become one of the biggest financial failures in U.S. history. They invested through brokers or financial advisers who eventually used MF Global to clear trades.

On Thursday, members of the Senate agriculture committee, including Minnesota Democrat Amy Klobuchar, grilled the heads of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) over apparent loopholes in rules that allowed farmers' commodity trades to end up in risky European bonds.

What??!!!???

The article is horrifying to read, but OS hopes you read it. The final paragraph is out quote of the day:


"I don't have a scandal meter," she said. "I just think it's another example of why we just can't let these financial firms run roughshod over people on Main Street or people who are doing nothing but growing crops or raising pigs. They should not have to know every in and out of the regulatory system to protect their money."

 Ya'll--if Corzine and company don't go to jail for the rest of their lives, then Bernie Madoff is owed an apology. This is just the front end of the woes to befall this country from MF Global.

Remember who Corzine is, and who his HomeBoy in the White House is. Less than a year to go until we get to register our opinions at the ballot. OS just hopes someone can staunch the financial blood loss sufficiently until then.

Before this is over, Corzine will have loaded up the Gulfstream and high-tailed it to somewhere like Paraguay. He still has his passport, and access to all sorts of cash and assets everywhere.

Heaven help us.

What The Heck, Let's Just Flood The World With These Fresh Dollars We Conjured Up. What Could Go Wrong?

OS didn't check the news til late afternoon--DJIA up 500 points in one freaking day.

And we thought we were all in deep doo-doo, what with most of the Western World in debt to the tune of trillions of dollars, which of course will be mathematically impossible to repay.

So, solution: Just print up some more, throw it at the stock market. That will make everything just a-o-k!

Why didn't we think of this earlier?

Well, actually, Virginia; look up 'Weimar Republic' to see what occurs from massive money printing....eventually they ended up with a little guy with a funny mustache and a messianic belief in himself.  That worked out, ok, didn't it?

Well, didn't it?

So, Where Does One Go To Sell Worthless Loans On To Unsuspecting Buyers

Seems the word has gotten out about the European banks--desperate for cash, with boatloads of worthless paper for sale.

Does anyone out there really believe the Euro was a good idea?

It's going to be an interesting week and month to year's end...

The Broker At The Local Diner And DanHan Both Come To The Same Conclusion

OS recently treated The Sainted Mrs. OS to Saturday brunch at the local diner on Main Street, and they passed part of their time in conversation with a local broker who has strong family ties in Europe.

OldSamTheBroker told us, 'Europe is headed for a dictatorship, it's inevitable.' There was no joy in his voice.

Daniel Hannan comes to the same conclusion in today's Telegraph.

No joy in his voice, either.

Merkel's campaign for a 'New Europe' echoes much the same propoganda employed in the 1930's and '40's. She's not a crazed messianic little guy with a mustache, to be certain, and there's no intent to equate her with him.

However,  the temptation to reassemble a Greater Europe seems to never lie far from the door. 

By the way, this can only end in tears, math being what it is.

Papandreou Resigns: Gulfstream Warming Up On The Tarmac

Having won a vote of confidence, he finally admits that things have spun out of control, and he's getting of Dodge while he can, before anyone notices the missing bullion stowed in his luggage.

A quick stop-off in Zurich to lighten the luggage, and thence to the manse in Scotland, away from prying eyes.

Remember, ya'll. ThePeopleInChargeOfSuchThings have been assuring us allllll along that they have the situation firmly in hand.

Nothing to see here, move along. Ball games to enjoy, Dancing With The Stars to follow.

The Wheels On The Greek Bus Are Coming Off...

As always, there's the bad news at the lead of the article, and the really grim stuff is saved for the final few paragraphs.

Merkel, Sarkozy and company chased David Cameron off, and struck a deal to 'solve' the GreeceProblem. Problem is, they didn't check in with the Greeks...

When a country that's lived on credit cards for decades gets news that the bank wants at least part of its money back, well, folks gits all upset, and they may decide to tell the bankers and the rest of Europe to go hang. Bankers and Northern European politicians just hate dealing with uppity Southern Europeans, 'cuz no matter how you try, they just won't sit still and play nice. Why they ever decided to issue national credit cards to Greece, Italy, Spain, Portugal, and let's not forget the Irish, OS will never know. The Euro is a Fig Newton of the central bankers' imaginations, the proverbial round peg in the square hole of each nation's culture.

This droll read of the situation from BBC's Paul Mason is worth a read.

He is cynic enough to suggest that the entire exercise of late has been designed to encourage the Greeks to leave, and hopefully not have the door hit them in the keister on the way out. Of course, since any true effort to do more than paper over the mess has been a kick-the-can-down-the-road exercise, Greece's departure will be exceedingly ugly. Actually the ugly has already begun:

Anecdotal evidence suggests that the Greek elite are buying up property in London just as fast as they can find berths in Poole for their yachts. They are voting with their spinnakers, on the basis that the game is up. In any future Greece on offer, they will have to start paying taxes and they do not want to.

One banker told me the Greek super-rich have mostly left.

The one thing governments have that investment banks do not is intelligence services with the power to wiretap people. If you ever wonder why serving politicians go grey so quickly, it is in part because they see the intelligence. So Mr Papandreou may have looked at the file and said, I can't sell this to my party, nor to my voters, and the business elite are emigrating en masse, so throw the dice.


Last week's market euphoria (nice Greek word, that) has stalled. As the world runs back to the dollar, the US markets will sink again, because the entire rally since 2009 has been fueled by devaluation of the dollar.


Oops.

If You Think The Europeans Are Going To Sort Their Problems Out By Wednesday...

...you believe in the Great Pumpkin.

Chin-straps on, ya'll. This could get eventful.

Robert Peston provides a more droll summation of the conundrum:

The maths goes like this. After a recently approved expansion, the EFSF has €440bn to disburse. But €133bn of this has already been allocated to propping up Greece, Ireland and Portugal. And as I mentioned yesterday, yet more EFSF money may have to go to Greece to prevent it defaulting.
Turn away now

So right now there is just under €290bn left in the EFSF kitty. Which could go down to less than €250bn if Greece, Portugal, Spain and Italy draw on it to recapitalise their respective banks.

If you don't want to be scared, turn away now.

Italy needs to borrow €250bn next year just to refinance its existing debts that are coming due for repayment - and not including the new money it will need to borrow.

Or to put it another way, if Italy is shut out of markets - which is not impossible - then the EFSF in its current form will not have even enough money to tide Italy over, let alone keep alive any other eurozone governments that run into difficulties.

Which is why it is so vitally important, as I've been banging on about, for the resources of the EFSF to be massively increased.

And that is why the failure of eurozone governments, and Germany and France in particular, to agree on how to expand the EFSF is so troubling.

So as you can presumably now see, a full-scale eurozone financial crisis can't be averted by any individual initiative but requires a whole package of remedial measures, of which strengthening the banks and enlarging the bailout fund are the two most crucial.

It requires, in other words, a level of cooperation that would be difficult to achieve amongst nations ruled by saints.

Why OS Misses Margaret Thatcher, In Less Than Ninety Seconds

This gem from PMQ's--in which The Iron Lady slays Labour--declaring 'they have no competence on money', and battling against any encroachment of the EU upon British sovereignity.

Her words were prophetic. Had she been heeded, we would not be witnessing Europe coming apart at the economic seams.

Where is her successor? Cameron is a failure and a fraud, and we need a strong Great Britain as never before.

Daniel Hannan, step forward. Please.

Simon Johnson Weighs In Again: OS Wishes Someone Would Listen

Simon Johnson is one of those reasoned, credible, experienced voices that keeps repeating, 'No, no matter how much money you print up and throw at places like Greece and Italy, this will not solve the problem. It's not a money problem, it's a cultural problem.'

At least the New York Times prints his words, still.

Lech Walesa famously remarked that it was easier to make fish soup from fish than to do the reverse. So it is with fiscal crises — once fear prevails and markets start to think hard about the stress scenario, it is hard to solve the problem simply with reassuring words or financial support that never needs to be used.

Crisis veterans like to say, quoting former President Ernesto Zedillo of Mexico, that when markets overreact, policy needs to overreact in the stabilizing direction. But what really matters is not overreacting; it is making sure you do enough.

In Europe, the first thing peripheral governments need to do is stop accumulating debt, and quickly. Italian fiscal plans to balance the budget in 2012 look implausible, as they assume unrealistic growth. The planned Greek debt restructuring and increased taxes will not turn that economy around, nor prevent Greece from accumulating further debt. Despite all the reported austerity, the Irish government is still running a budget deficit near 12 percent of gross national product in 2011, while nominal G.N.P. actually declined in the first half of 2011.

Good advice for us, only insert 'state governments', 'federal government', 'Congress', 'White House', etc.

The G-7 Statement August 7: 'We Have Printing Presses, And We're Not Afraid To Use Them.'

The statement here. As per usual, the true message is buried near the bottom, after several mind-numbing paragraphs of EuroSpeak.

Sean Egan Explains The Math On CNBC

OS posts this, as much for his own reference as to share with others.

Mr. Egan calmly explains the situation, so OS really has no insight to add, except to urge his readers, and the families and friends of his readers to view this interview.

It's not long, it's conducted in PlainEnglish, not FinanceSpeak.

The news is not good, but the truth is always best.

Now The Game Of Chicken Begins: Europe (that is to say, Germany) Puts Greece On Short Rations

Hmmm....mebbe, ya'll, everbody's havin' second thoughts 'bout keeping Greece fat and happy, cuz' it shore do look like throwin' good money after bad.

Things are getting tense and ugly, and it's now down to whoever blinks first. Betcha Zimbabwe Ben's phone has been busy, with all our newest-best-friends-in-Europe, who normally hate us, tryin to find some of our money-hunney throw on the Greek bonfire.

Rather like having a meth-head second cousin named Amos, whose got him a bunch-a-kids and no common sense. Shore, we'll help out, keep the lights and water on, make sure baby's got formula and diapers, food and overalls fer the others, and maybe a bit of gas for the car. But that Camaro he bought on credit has gotta get taken back to the dealership, and ain't nobuddy gunna contribute a dime to helping Amos maintain his favorite vices. Them daze iz over, ya'll.

'Course, Amos is gunna get purty hot when he hears the news, and threaten to create all sorts of chaos, and beat his wife and kids, you know.

We'll just have to take that chance. He lays a hand on our Jolene, he'll have bigger worries than having his ride repossessed, know-whud-I-mean? Shoot, he'll be relieved to see the sheriff roll up to arrest him.

Greece To Sell Assets, Surrender Sovereignity: Financial Times

Really, it's just like a bankruptcy, is it not?

European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens.

People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures.

Officials hope that as much as half of the €60bn-€70bn ($86bn-$100bn) in new financing needed by Athens until the end of 2013 could be accounted for without new loans. Under a plan advocated by some, much of that would be covered by the sale of state assets and the change in repayment terms for private debtholders.

The creditor takes a haircut, the debtor sells everything that isn't completely nailed down, and the court runs the debtor's life until the debts are all discharged.

It's a bankruptcy, pure and simple.

But, we dare not use that word, now do we?

This is what awaits us, sooner or later, in the US, if we don't develop the will to turn ourselves into a productive economy whose government exercises restraint in spending, legislating, and regulating. Only it's China toting the note. Do we wish to surrender large parts of our country and economy to the Chinese?

Really?

It will be interesting to see how this plays out in Southern Europe...

The Greek Two-Year Bond Now Yielding +25%: But, No Worries, Just Go Back To Watching 'Housewives' And 'Oprah'

What happens when a nation is run by politicians who promise to spend more and more into perpetuity, all the while simply borrowing from the rest of the world to cover its shortfalls?

It goes broke. Like Greece. And we get moon-shot charts of short-term gubbermint interest rates that look like this.

The US carries 15 trillion in debt, and Barry and Timmy insist we just must-must-must borrow 2 trillion more, lest bad-bad-bad things happen to us.

What might happen here?

OK, ya'll. Didn't wanna get nobody upset, heah? Jes' go back to that re-run of yesterday's NASCAR event, and make sure you got the tivo set up for wrasslin' tonight.

Iceland Stands Tall--Banks And Depositors Must Bear Risks, Not The Taxpayers

Good for them!

By ASSOCIATED PRESS

REYKJAVIK, Iceland -- Icelandic voters appeared Sunday to have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens' deposits in the failed online bank Icesave.

Partial results of a national referendum suggested the "no" side had gained more than half the votes -- a reflection of enduring anger over the economic havoc wrought by Iceland's risk-taking bankers.

Full results were not due until later Sunday. With partial results in from all six of Iceland's constituencies, the no side had almost 57 percent of the votes and the yes camp just over 43 percent.

"This is of course a disappointing result," said Prime Minister Johanna Sigurdardottir.

'...a disappointing result...'--but for whom?

The day is long overdue when the idea of 'risk' should be reintroduced to bankers, depositors, and borrowers. There is always the possibility that things might go wrong, since Murphy and his law are alive and well.

There is also the idea of 'moral hazard'. Lay the risk off to third parties, and an individual is allowed to behave recklessly. (Sound familiar?)

Here's a more formal definition:

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions.

In this case, British and Dutch savers had lost money when IceSave bank collapsed. Their own governments made them whole (because?), and attempted to stick the Icelandic taxpayer with the bill, threatening retaliation via the EU. Given the chaos created by the Euro, exclusion from that clown circus should be a blessing.

Next on the task list: Send the Prime Minister packing, along with the geniuses who put the country through the referendum in the first place. A few prosecutions of the bankers responsible might also prove invigorating for the health of the economy in general. It's good for everyone, top to bottom, to understand the concept of risk and the dangers of moral hazard.

Here's hoping the Irish take heart, and demand their bailout terms and EU participation be put to a vote.

OS likes fish. He'll be shopping for Icelandic cod this week...