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'...

Kelly's Corollary--Murphy Was An Optimist: The Irish Banks Admit The Extent Of Their Losses

Murphy was Irish, no doubt about it. And, in his honor, that black-humor classic 'Murphy's Law' has attained immortality. There are many versions of it floating about, but it goes like this:

1. If anything can go wrong, it will, at the most inopportune time.
2. If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong...first.
3. If anything just cannot go wrong, it will anyway.
4. If you perceive that there are four possible ways in which something can go wrong, and circumvent these, then a fifth way, unprepared for, will promptly develop.
5. If everything seems to be going well, you have obviously overlooked something.
6. It is impossible to make anything foolproof because fools are so ingenious.

The list stretches on, but OS's hands-down favorite is Kelly's Corollary: Murphy was an optimist.

All this as an introduction to Robert Peston's most recent droll post on the basket case that Ireland has become.

To prevent Irish banks toppling over one after another, the European Central Bank has lent €117bn to them and the Central Bank of Ireland has lent them a further €71bn. So that's €188bn of loans from the eurozone's taxpayers to Ireland's banks - which makes the €67.5bn lent directly by the eurozone and IMF to the Irish government look like peanuts.

And a further €20bn of bank bonds - another form of bank debt - is still guaranteed by the Irish state through the Eligible Guarantee Scheme.

So that is €208bn of taxpayer loans to Ireland's banks - equivalent to a remarkable 154% of GDP.

It gets much worse, in the tradition of Murphy, and OS hopes you take time to read the entire essay.

Today, the banks will have to announce the extent of the damage that has hitherto not been discussed in public. And then, some hard decisions will follow. The illusion spun by The Left that there is no problem, that the massive debts aren't deleterious to a culture's health, that we can just go about business as usual--is just that, and is finally seen for what it is in Eire.

When will our leadership admit the same in the US? Not anytime soon. The story about Chuckie Shumer coaching everyone on the party line within earshot of the press would normally be funny, but the time for laughter has long passed.

Tuesday's effort by the House GOP to wind down the HAMP program, a scandalous failure, in order to save a few billion and protect homeowners from disaster, was met with scorn and vitriol by House Democrats today. It was like watching bad opera, with Barney Frank holding the big spear, wearing the horned helmet.

By noon today in the US, we'll have the news. It will be interesting to see if the markets have any reaction, at all, or even a moment's reflection on what it means.

OS ain't holding his breath, but he sure ain't sitting long on the market either, if yuh know-whudd-I-mean.

The BP Dividend Suspension And Da Boyz In Da Wide-Brimmed Hats

The droll Robert Peston offers insight on the suspension of the BP dividend:

The cost of insuring its debt has gone To-The-Moon-Alice, so every bit of dry powder they can keep on hand will be needed.

The markets know what that one poor Congressman was excoriated for expressing in public:  The Obama Administration has performed a shake-down of BP, with $100 million as down-payment to cover Himself's backside for shutting down deep-water drilling for six months. At least $20 billion to follow, to flow into friendly 'third-party' hands. No moral hazard there, ya'll.

As OS continues to quietly insist: This is not about finding solutions, it's about seizing power.

Obama and friends just made BP an offer they couldn't refuse, because they were in no position to...

Welcome to the Chicago Way, big-time.

The Mexican (Well, Scottish) Standoff: The Quandry of RBS

It falls to the droll Robert Peston of the BBC to deliver bad news, especially these days. He does it with as much 'stiff upper lip' as one can reasonably muster.

But, no doubt about it, the news is bad.

RBS, now a ward of the UK taxpayer, lost another £6.2 billion last year. Lessee, at $1.60 a pop, that's....(be right back, gotta use a spreadsheet for this one)...

$2,560,000,000. Two billion, five hundred sixty million. Dollars. Or, as we say 'round here: A sheeutload of money, bubba! Sheeut!

The British taxpayer, under Gordon Brown's unelected service as PM, has been forced to pony up £45.5 billion to prop RBS up. £25.5 just last fall, and £10 billion of that has evaporated already.

Peston continues:

So what are we as taxpayers getting for the fortune we've put into RBS?

What we're not getting is oodles of credit funnelled to businesses vital to the UK's economic recovery.

By its own admission, Royal Bank has flunked the government-set target of providing £16bn of additional loans to "credit-worthy" businesses.

It insists that's not as a result of bad faith on its part.

Royal Bank says the money is there to be lent, but that bankable businesses don't want to borrow - or, at least they don't want to borrow enough.

In fact, there has been a £12.2bn reduction to £151bn during the course of the year in the total volume of loans provided by Royal Bank to companies.

These are disturbing figures - not least in the context of the shocking official statistics released this morning on investment by British business, which showed that in the last three months of 2009 business investment fell almost 6 per cent to a level not seen since 1992.

It's a classic Mexican Standoff: The lender only wants risk-free loans, and businesses will be damned if they'll borrow a penny from these clowns! Or anyone else, for that matter. They're better off downsizing, deleveraging, and hunkering down. Someone else can stick his neck and get it chopped off.

On either side of the pond, who can set up any sort of projections of production costs/sales/revenue/profit etc. when the People In Charge don't seem to believe that unbridled spending into eternity creates instability?  Then there are the tax increases that will hammer any profits.  And as-yet-unanticipated regulations. And unions. And health insurance 'reform'. Makes you wanna go out and borrow a billion or two, huh?

If you make money, you're a villain, and the tax-man comes calling, to remind you Who'sInChargeByGod.  If you lose money, you're wiped out. Unless you're a large bank, or GM, or Fannie, Freddie, or AIG. Then they give you more to play blackjack with.

Chin-straps on, friends and neighbors. It's going to be a rough ride.

The Charge Of The Light Brigade: Or How Uncle Ben Helps Big Fish Eat Little Fish While Passing The Risk On To Us

OS kept noticing what looked like an arcane bit of news from last Friday. Karl Denninger noted it, and was howling about it, with this link to footnoted.org.

As we monitored filings on Friday afternoon, we wondered why EDGAR seemed unusually sluggish. But it wasn’t until late Friday that we realized why: Blackrock (BLK) had done a massive document dump on Friday afternoon of 13G filings related to its acquisition of Barclay’s Global Investors.
We counted over 1,800 13Gs that Blackrock dumped on Friday, which explains why EDGAR might have been a tad bit pokey. The stream started at just after 2 p.m. est and didn’t let up until just after 4:30, when the last one, which reported a 6.5% stake in Vodafone came in. For those less familiar with the 13G, since we don’t often write about these filings, it’s a requirement when ownership exceeds 5% of the outstanding shares. With few rare exceptions, these filings represented new positions for Blackrock since we only counted 11 amended 13Gs, which in itself seems very surprising, given the long list of stocks.

At least a 5% stake in 1,800 publicly listed firms in the US. That's a big ole' hunk of the US economy, especially to consume at essentially one gulp, even for a big outfit like a Blackrock.

Where/how do they get that much cash?
.
Robert Peston, of the BBC, is as urbane as Denninger is passionate. Peston picks up the story for us.

In rescuing the global economy, the western central banks have rescued the traditional mega takeover.

I'm not sure whether King and Bernanke would describe this as collateral damage or just one of those things. But they have accelerated the corporate Darwinian process of reinforcing the market clout of the world's biggest and strongest businesses.

Because huge companies are currently able to raise record-breaking sums at very low interest rates by selling bonds to investors.

Kraft, for example, yesterday raised $9.5bn to finance its takeover of Cadbury.

And Berkshire Hathaway sold $8bn of notes to fund its acquisition of the railway group, Burlington Northern Santa Fe.

These are both among the 15 biggest corporate bond deals ever.

Kraft and BH may be paying a smidgeon more for this money than would have been the case if there hadn't mean a minor global tremor caused by the collapse in confidence in the ability of Greece to service its debt.

But with the interest payable on the different tranches at low to middling single-digit interest rates, this is cheap debt - cheap enough to finance the purchase of substantial companies like Cadbury with stable profits.

Here's a fascinating statistic: Bloomberg has calculated that US companies are spending the highest portion of bond-sale proceeds in more than a decade - or around 70 per cent - on takeovers and expansion.

Long story short, the money for all this is being ponied up by Zimbabwe Ben. And, we the US taxpayers (and our children and grandchildren) stand behind it all, with our money, our assets, our lives and labors, our hopes and dreams for the future. Because, if the wheels come off at Burlington Northern, for instance, the Fed and Treasury will ride to the rescue.

On our backs.

Is it any mystery that Warren Buffett showed up in Washington in late January to cheer-lead for Uncle Ben Bernanke?

Now, look again at the final lines of Peston's quote.  All that corporate debt is being floated to finance takeovers and expansion. Not expansion of manufacturing facilities or the like, but expansion of portfolios by firms like Blackrock.  And all that debt will have to be serviced, and/or at some point paid off or rolled over. And interest rates are fluid things. They are at historic lows.  Which way do you think they'll go?

Takeovers, also, almost invariably initiate the process of 'rationalization', or 'down-sizing', or 'right-sizing'.

In other words, jobs are shed, often at a prodigious rate, in the wake of a corporate merger. It's not immediate, rather takes place a year or two later. The press has moved on to the next headline, and most people, even the folks who lose their jobs and livelihoods, don't ever connect the dots on how/why that humming plant in that small town is now shuttered, why the deer, geese and turkey have taken over the property, and why the town and its people look so much shabbier. The cause and effect are too far removed, both in time and geographical distance. (Demagogues thrive in this sort of scenario, as the anger builds, but has no target upon which to focus.)

But, all the same, almost all that capital is consumed in transactions, not in creation of new businesses or products.  You know, the activities that create jobs and careers for families, and allow families to be formed, and communities to function.

And Ben Bernanke has the enthusiastic support of Barack Obama, and garnered seventy votes in the Senate. Next time TheWan begins yammering about 'jobs', head back and read Robert Peston's essay again.

Alfred, Lord Tennyson describes the situation aptly, in the opening stanzas of Charge of the Light Brigade:

Half a league half a league,
Half a league onward,
All in the valley of Death
Rode the six hundred:
'Forward, the Light Brigade!
Charge for the guns' he said:
Into the valley of Death
Rode the six hundred.

'Forward, the Light Brigade!'
Was there a man dismay'd ?
Not tho' the soldier knew
Some one had blunder'd:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do & die,
Into the valley of Death
Rode the six hundred.

Cannon to right of them,
Cannon to left of them,
Cannon in front of them
Volley'd & thunder'd;
Storm'd at with shot and shell,
Boldly they rode and well,
Into the jaws of Death,
Into the mouth of Hell
Rode the six hundred.  

Friends and neighbors, OS fears we, and our descendants, are the 'six hundred', unless Heaven intervenes on our behalf (and he prays daily for this), and/or we show up again and again at the ballot box, at every level of government.