http://globaleconomicanalysis.blogspot.com/2012/07/social-media-panic-in-italy-enough-of.html
The tones on social networks are apocalyptic: "This is not a crisis, it's the end of capitalism." On the forum of the economics of printing a black player sees: "Folks, we begin to pray, after Greece's up to us. We are at the end titles, to every man for himself."
Then there are the usual conspiracy theories regarding the IMF, ECB, Germany, the White House, U.S. investment banks, the Bilderberg and the Trilateral Commission. All guilty of "working for the failure of Italy and Spain." "We must defend ourselves from the American speculation, but Merkel holds us hostage," Roberto tweets.
Everyone looks to Mario Draghi: The "ECB needs to intervene at once" says David Sassoli MEP [Member of European Parliament].
"We're towards the end of the line like Greece and Spain?" Asks Matthew.
The stubborn "spread" climbs the ranking of most used words in the blogosphere. [Presumably spread refers to interest rate differentials between Italy and Germany]
Catherine accuses the government, political parties, unions, and banks. "It takes courage," writes Catherine on the Facebook page of La Stampa. Catherine then rattles off a recipe based on "Electoral Law, priority to industry, limiting immigration, elimination of environmental bulls**t, and zero bureaucracy."
Please note that Italian provinces warn cuts may close schools
In case you missed it, please consider Ten Major Italian Cities On Verge of Financial Collapse
Also note a Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy.
In terms of sheer panic, I bet eurocrats in Brussels are in a bigger state of panic than what you saw on Twitter.
Here is a thought of mine that is worth repeating:
Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.
Beppe Grillo may be just that person.
and.....
http://www.zerohedge.com/news/its-back-italian-regulator-reintroduces-financial-stock-short-selling-ban
Submitted by Tyler Durden on 07/23/2012 07:39 -0400
http://www.nakedcapitalism.com/2012/07/randy-wray-why-were-screwed.html
The fraud cannot be reduced much less eliminated. First, there are no regulators to stop it, and no prosecutors to punish it. But, far more importantly, fraud is the business model. Further, even if a financial institution tried to buck the trend it would fail. As Bill says, fraud is always the most profitable game in town. So Gresham’s Law dynamics ensure that fraud is the only game in town.
As Sherrill said, without regulation, capitalism is thievery. We stopped regulating the financial system, so thieves took over.
A century ago Veblen analyzed religion as the quintessential capitalist undertaking. It sells an inherently ephemeral product that cannt be quality tested. Most of the value of that product exists only in the minds of the purchasers, and most of that value cannot be realized until death. Dissatisfied customers cannot return the purchased wares to the undertakers who sold them—there is no explicit money back guarantee and in any event, most of the dissatisfied have already been undertaken. The value of the undertaker’s institution is similarly ephemeral, mostly determined by “goodwill”. Aside from a fancy building, very little in the way of productive facilities is actually required by the religious undertaker.
But modern finance has replaced religion as the supreme capitalistic undertaking. Again, it has no need for production facilities—a fancy building, a few Bloomberg screens, greasy snake-oil salesmen, and some rapacious traders is all that is required to separate widows and orphans from their lifesavings and homes. Religious institutions only want 10%; Wall Street currently gets 20% of all the nation’s output (and 40% of profits), but won’t stop until it gets everything.
There is rarely any recourse for dissatisfied customers of financial institutions. Few customers understand what it is they are buying from Wall Street’s undertakers. The product sold is infinitely more complicated than the Theory of the Trinity advanced by Theophilus of Antioch in 170 A.D., let alone the Temple Garments (often called Magic Underwear by nonbelievers) marketed today. That makes it so easy to screw customers and to hide fraud behind complex instruments and deceptive accounting.
A handful of thieves running a modern Wall Street firm can easily run up $2 trillion in ephemeral assets whose worth is mostly determined by whatever value the thieves assign to them.
And that is just the start. They also place tens of trillions of dollars of bets on derivatives whose value is purely “notional”. The thieves get paid when something goes wrong—the death of a homeowner, worker, firm, or country triggers payments on Death Settlements, Peasant Insurance, or Credit Default Swaps. To ensure that death comes sooner rather than later, the undertaker works with the likes of John Paulson to handpick the most sickly households, firms and governments to stand behind the derivative bets.
And the value of the Wall Street undertaker’s firm is almost wholly determined by euphemistically named “goodwill”—as if there is any good will in betting on death.
With these undertakers running the show, it is no wonder that we are buried under mountains of crushing debt—underwater mortgages, home equity loans, credit card debt, student loans, healthcare debts, and auto-related finance. Simply listing the kinds of debts we owe makes it clear how far along the path of financialization we have come: everything is financialized as Wall Street has its hand in every pot.
Thirty years ago we could still write of a dichotomy– industry versus finance—and categorize GE and GM as industrial firms, with Goldman Sachs as a financial firm. Those days are gone, with GM requiring a bail-out because of its financial misdealings (auto production was just a sideline business used to burden households with debt owed to GMAC, the main business line), and Goldman Sachs buying up all the grain silos to run up food prices in a speculative bubble. Obamacare simply fortifies the Vampire Squid’s control of the healthcare industry as it inserts its strangling tentacles into every facet of life.
Food? Financialized. Energy? Financialized. Healthcare? Financialized. Homes? Financialized. Government? Financialized. Death? Financialized. There no longer is a separation of the FIRE (finance, insurance, and real estate) and the nonFIRE sectors of the economy. It is all FIRE.
Everything is complexly financed. In the old days a municipal government would sell a twenty year fixed rate bond to finance a sewage system project. Now they hire Goldman to create complex interest rate swaps (or even more complex constant maturity swaps, swaptions, and snowballs) in which they issue a variable rate municipal bond and promise to pay the Squid a fixed rate while the Squid pays them a floating rate linked to LIBOR—which is rigged by the Squid to ensure the municipality gets screwed. Oh, and the municipal government pays upfront fees to Goldman for the sheer joy of getting screwed by Wall Street’s finest.
The top four US Banks hold $171 Trillion worth of derivative deals like this. Derivatives are really just bets by Wall Street that we will get screwed—it is all “insurance” that pays off when we fail. Everything is insured—by them against us.
What is healthcare “insurance”, really? You turn over your salary to Wall Street in the hope that should you need healthcare, they will allow your “service provider” to provide it. But when you need the service, Wall Street will decide whether it can be provided.
Oh, and Wall Street’s undertakers have also placed a bet that you will die sooner than you expect, so it wins twice by denying the coverage.
Finally, US real estate—the RE of the FIRE–underlies the whole kit and caboodle. That is the real story behind the GFC: given President Clinton’s budget surpluses and the simultaneous explosion of private finance, there simply was not enough safe federal government debt to collateralize all the risky debt issued by financial institutions to one another back in the mid 1990s. Wall Street needed another source of collateral.
You see, all the top financial institutions are dens of thieves, and thieves know better than to trust one another. So lending to fellow thieves has to be collateralized by safe financial assets—which is the traditional role played by Treasuries. But there were not enough of those to go around so Wall Street securitized home mortgages that were sliced and diced to get tranches that were supposedly as safe as Uncle Sam’s bonds. And there were not enough quality mortgages, so Wall Street foisted mortgages and home equity loans onto riskier borrowers to create more product.
Never content, in order to suck more profit out of mortgages, Wall Street created “affordability” products—mortgages with high fees and exploding interest rates—that it knew would go bad. Even that was not enough, so the Squids created derivatives of the securities (collateralized debt obligations—CDOs) and then derivatives squared and cubed—and then we were off and running straight toward the GFC.
Wall Street bet your house would burn, then lit a firebomb in the basement.
Mortgages that were designed to go bad would go bad. CDOs that were designed to fail would fail.
Suddenly there was no collateral behind the loans Wall Street’s thieves had made to one another. Each Wall Street thief looked in the mirror and realized everything he was holding was crap, because he knew all of his own debt was crap.
Hello Uncle Sam, Uncle Timmy, and Uncle Ben, we’ve got a problem. Can you spare $29 Trillion to bail us out?
And that is why we are screwed.
I see two scenarios playing out. In the first, we allow Wall Street to carry on its merry way, as the foreclosure crisis continues and Wall Street steals all homes, packaging them into bundles to be sold for pennies on the dollar to hedge funds. All wealth will be redistributed to the top 1% who will become modern day feudal lords with the other 99% living at their pleasure on huge feudal estates.
You can imagine for yourselves just what you’re going to have to do to pleasure the lords.
This will take years, maybe even a decade or more, but it is the long march Wall Street has formulated for us. To be sure, “formulated” should not be misinterpreted as intention. No one sat down and planned the creation of Western European feudalism when Rome collapsed. To be sure, the modern day feudal lords on Wall Street certainly conspire—to rig LIBOR and muni bond markets, for example—and each one individually wants to take as much as possible from customers and creditors and stockholders. But they are not planning and conspiring for the restoration of feudalism. Still, that is the default scenario—the outcome that will emerge in the absence of action.
Monday, July 23, 2012 1:49 PM
Social Media Panic in Italy: "Enough of this Agony; Give Us Back the Lira"
Black Monday messages on Facebook and Twitter have gone viral in Italy as people have had enough of austerity, job losses, and uncertainty. La Stampa reports on Panic in the Network.
What follows is a Mish-revised translation of select ideas and quotes from the article. My specific comments are in brackets.
What follows is a Mish-revised translation of select ideas and quotes from the article. My specific comments are in brackets.
Black Monday breaks early in the morning on websites across the world and social networking spreads alarm. "Withdraw money from bank accounts" is the appeal of Andrew to Facebook friends.
Pseudo-analysis on the alleged benefits of a return to the lira go around the net. "Enough of this sad agony. Bring back the old money", Paul insists.
"In 2000 we had the lira. We were producing more, exporting more, and children were living better, the results of monetary sovereignty" says Magdi Cristiano Allam on Twitter.We are on the brink of the abyss and the top EU cazzeggiano [slang for F* around]," accuses Ivan.
The tones on social networks are apocalyptic: "This is not a crisis, it's the end of capitalism." On the forum of the economics of printing a black player sees: "Folks, we begin to pray, after Greece's up to us. We are at the end titles, to every man for himself."
Then there are the usual conspiracy theories regarding the IMF, ECB, Germany, the White House, U.S. investment banks, the Bilderberg and the Trilateral Commission. All guilty of "working for the failure of Italy and Spain." "We must defend ourselves from the American speculation, but Merkel holds us hostage," Roberto tweets.
Everyone looks to Mario Draghi: The "ECB needs to intervene at once" says David Sassoli MEP [Member of European Parliament].
"We're towards the end of the line like Greece and Spain?" Asks Matthew.
The stubborn "spread" climbs the ranking of most used words in the blogosphere. [Presumably spread refers to interest rate differentials between Italy and Germany]
Catherine accuses the government, political parties, unions, and banks. "It takes courage," writes Catherine on the Facebook page of La Stampa. Catherine then rattles off a recipe based on "Electoral Law, priority to industry, limiting immigration, elimination of environmental bulls**t, and zero bureaucracy."
Small investors are bewildered: "If I buy U.S. government bonds and Italy out of the Euro, those are always in dollars, right?" asks Stephanie C. on Facebook.Schools May Not Reopen After Summer Break
Please note that Italian provinces warn cuts may close schools
Italian regional authorities may not be able to open schools after the summer break if spending cuts planned in the government's latest spending review are carried through, the head of the Union of Italian Provinces (UPI) said on Monday.More Panic in Brussels Than on Social Media
"With these cuts we won't be able to guarantee the opening of the school year," UPI President Giuseppe Castiglione told reporters in Rome.
Piero Lacorazza, president of the province of Potenza in southern Italy, said the comment was "not an exaggeration", adding that "half of the provinces are in serious financial difficulty".
In case you missed it, please consider Ten Major Italian Cities On Verge of Financial Collapse
Also note a Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy.
In terms of sheer panic, I bet eurocrats in Brussels are in a bigger state of panic than what you saw on Twitter.
Here is a thought of mine that is worth repeating:
Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.
Beppe Grillo may be just that person.
and.....
http://www.zerohedge.com/news/its-back-italian-regulator-reintroduces-financial-stock-short-selling-ban
Desperation Time: Italian Regulator Reintroduces Financial Stock Short Selling Ban
Here we go again: just like the summer of 2011, when it achieved absolutely nothing but succeeded in increasing the panic to a fever pitch, Italian regulator Consob has just reintroduced a short selling ban for financial stocks. Supposedly, it will last only a week. Last year it was also supposed to be short-term but was only removed after the LTRO fooled everyone (well, not everyone) into believing Europe was fixed, which of course it wasn't. Expect a modest blip higher, followed by the inevitable flush lower as every other European country follows suit, starting first with Spain.
and as we see Italy try to jigger the market by a snap short selling ban on financials , consider ( looking at the US but it applies in europe by extension ) , how it is that we find ourselves in the present condition.....Consob: reintroduced the ban on short selling bank stocks and insuranceThe measure immediately implement all weekThe measure immediately implement all weekIn view of recent trends in stock markets, Consob has today decided to reinstate the prohibition of short selling securities of the banking and insurance sectors listed in the annex.The measure takes effect from 13:30 pm today, July 23, 2012, and remains in force throughout the week until 18:00 pm Friday, July 27The prohibition applies both to short-selling securities backed by loans ("covered") and "bare", already banned by the previous resolution (No. 17993) 11 November 2011.
Intermediaries are required to take all necessary measures and precautions to strict compliance with the resolution.The full text of the measure (Resolution no. 18283 of July 23, 2012) and the list of affected titles are available on site www.consob.itRome, July 23, 2012
http://www.nakedcapitalism.com/2012/07/randy-wray-why-were-screwed.html
MONDAY, JULY 23, 2012
Randy Wray: Why We’re Screwed
By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City. Cross posted from Economonitor
As the Global Financial Crisis rumbles along in its fifth year, we read the latest revelations of bankster fraud, the LIBOR scandal. This follows the muni bond fixing scam detailed a couple of weeks ago, as well as the J.P. Morgan trading fiasco and the Corzine-MF Global collapse and any number of other scandals in recent months. In every case it was traders run amuck, fixing “markets” to make an easy buck at someone’s expense. In times like these, I always recall Robert Sherrill’s 1990 statement about the S&L crisis that “thievery is what unregulated capitalism is all about.”
After 1990 we removed what was left of financial regulations following the flurry of deregulation of the early 1980s that had freed the thrifts so that they could self-destruct. And we are shocked, SHOCKED!, that thieves took over the financial system
.
Nay, they took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.
Financiers are forcing schools, parks, pools, fire departments, senior citizen centers, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in firesales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known.
And since they’ve bought the politicians, the policy-makers, and the courts, no one will stop it. Few will even discuss it, since most university administrations have similarly been bought off—in many cases, the universities are even headed by corporate “leaders”–and their professors are on Wall Street’s payrolls.
We’re screwed.
Bill Black joined our department in 2006. At UMKC (and the Levy Institute) we had long been discussing and analyzing the GFC that we knew was going to hit, using the approaches of Hyman Minsky and Wynne Godley. Bill insisted we were overlooking the most important factor, fraud. To be more specific, Bill called it control fraud, where top corporate management runs an institution as a weapon to loot shareholders and customers to the benefit of top management. Think Bob Rubin, Hank Paulson, Bernie Madoff, Jamie Dimon and Jon Corzine. Long before, I had come across Bill’s name when I wrote about the S&L scandal, and I had listed fraud as the second most important cause of that crisis. While I was open to his argument back in 2006, I could never have conceived of the scope of Wall Street’s depravity. It is all about fraud. As I’ve said, this crisis is like Shrek’s Onion, with fraud in every layer. There is, quite simply, no part of the financial system that is not riddled with fraud.
The fraud cannot be reduced much less eliminated. First, there are no regulators to stop it, and no prosecutors to punish it. But, far more importantly, fraud is the business model. Further, even if a financial institution tried to buck the trend it would fail. As Bill says, fraud is always the most profitable game in town. So Gresham’s Law dynamics ensure that fraud is the only game in town.
As Sherrill said, without regulation, capitalism is thievery. We stopped regulating the financial system, so thieves took over.
A century ago Veblen analyzed religion as the quintessential capitalist undertaking. It sells an inherently ephemeral product that cannt be quality tested. Most of the value of that product exists only in the minds of the purchasers, and most of that value cannot be realized until death. Dissatisfied customers cannot return the purchased wares to the undertakers who sold them—there is no explicit money back guarantee and in any event, most of the dissatisfied have already been undertaken. The value of the undertaker’s institution is similarly ephemeral, mostly determined by “goodwill”. Aside from a fancy building, very little in the way of productive facilities is actually required by the religious undertaker.
But modern finance has replaced religion as the supreme capitalistic undertaking. Again, it has no need for production facilities—a fancy building, a few Bloomberg screens, greasy snake-oil salesmen, and some rapacious traders is all that is required to separate widows and orphans from their lifesavings and homes. Religious institutions only want 10%; Wall Street currently gets 20% of all the nation’s output (and 40% of profits), but won’t stop until it gets everything.
There is rarely any recourse for dissatisfied customers of financial institutions. Few customers understand what it is they are buying from Wall Street’s undertakers. The product sold is infinitely more complicated than the Theory of the Trinity advanced by Theophilus of Antioch in 170 A.D., let alone the Temple Garments (often called Magic Underwear by nonbelievers) marketed today. That makes it so easy to screw customers and to hide fraud behind complex instruments and deceptive accounting.
A handful of thieves running a modern Wall Street firm can easily run up $2 trillion in ephemeral assets whose worth is mostly determined by whatever value the thieves assign to them.
And that is just the start. They also place tens of trillions of dollars of bets on derivatives whose value is purely “notional”. The thieves get paid when something goes wrong—the death of a homeowner, worker, firm, or country triggers payments on Death Settlements, Peasant Insurance, or Credit Default Swaps. To ensure that death comes sooner rather than later, the undertaker works with the likes of John Paulson to handpick the most sickly households, firms and governments to stand behind the derivative bets.
And the value of the Wall Street undertaker’s firm is almost wholly determined by euphemistically named “goodwill”—as if there is any good will in betting on death.
With these undertakers running the show, it is no wonder that we are buried under mountains of crushing debt—underwater mortgages, home equity loans, credit card debt, student loans, healthcare debts, and auto-related finance. Simply listing the kinds of debts we owe makes it clear how far along the path of financialization we have come: everything is financialized as Wall Street has its hand in every pot.
Thirty years ago we could still write of a dichotomy– industry versus finance—and categorize GE and GM as industrial firms, with Goldman Sachs as a financial firm. Those days are gone, with GM requiring a bail-out because of its financial misdealings (auto production was just a sideline business used to burden households with debt owed to GMAC, the main business line), and Goldman Sachs buying up all the grain silos to run up food prices in a speculative bubble. Obamacare simply fortifies the Vampire Squid’s control of the healthcare industry as it inserts its strangling tentacles into every facet of life.
Food? Financialized. Energy? Financialized. Healthcare? Financialized. Homes? Financialized. Government? Financialized. Death? Financialized. There no longer is a separation of the FIRE (finance, insurance, and real estate) and the nonFIRE sectors of the economy. It is all FIRE.
Everything is complexly financed. In the old days a municipal government would sell a twenty year fixed rate bond to finance a sewage system project. Now they hire Goldman to create complex interest rate swaps (or even more complex constant maturity swaps, swaptions, and snowballs) in which they issue a variable rate municipal bond and promise to pay the Squid a fixed rate while the Squid pays them a floating rate linked to LIBOR—which is rigged by the Squid to ensure the municipality gets screwed. Oh, and the municipal government pays upfront fees to Goldman for the sheer joy of getting screwed by Wall Street’s finest.
The top four US Banks hold $171 Trillion worth of derivative deals like this. Derivatives are really just bets by Wall Street that we will get screwed—it is all “insurance” that pays off when we fail. Everything is insured—by them against us.
What is healthcare “insurance”, really? You turn over your salary to Wall Street in the hope that should you need healthcare, they will allow your “service provider” to provide it. But when you need the service, Wall Street will decide whether it can be provided.
Oh, and Wall Street’s undertakers have also placed a bet that you will die sooner than you expect, so it wins twice by denying the coverage.
Finally, US real estate—the RE of the FIRE–underlies the whole kit and caboodle. That is the real story behind the GFC: given President Clinton’s budget surpluses and the simultaneous explosion of private finance, there simply was not enough safe federal government debt to collateralize all the risky debt issued by financial institutions to one another back in the mid 1990s. Wall Street needed another source of collateral.
You see, all the top financial institutions are dens of thieves, and thieves know better than to trust one another. So lending to fellow thieves has to be collateralized by safe financial assets—which is the traditional role played by Treasuries. But there were not enough of those to go around so Wall Street securitized home mortgages that were sliced and diced to get tranches that were supposedly as safe as Uncle Sam’s bonds. And there were not enough quality mortgages, so Wall Street foisted mortgages and home equity loans onto riskier borrowers to create more product.
Never content, in order to suck more profit out of mortgages, Wall Street created “affordability” products—mortgages with high fees and exploding interest rates—that it knew would go bad. Even that was not enough, so the Squids created derivatives of the securities (collateralized debt obligations—CDOs) and then derivatives squared and cubed—and then we were off and running straight toward the GFC.
Wall Street bet your house would burn, then lit a firebomb in the basement.
Mortgages that were designed to go bad would go bad. CDOs that were designed to fail would fail.
Suddenly there was no collateral behind the loans Wall Street’s thieves had made to one another. Each Wall Street thief looked in the mirror and realized everything he was holding was crap, because he knew all of his own debt was crap.
Hello Uncle Sam, Uncle Timmy, and Uncle Ben, we’ve got a problem. Can you spare $29 Trillion to bail us out?
And that is why we are screwed.
I see two scenarios playing out. In the first, we allow Wall Street to carry on its merry way, as the foreclosure crisis continues and Wall Street steals all homes, packaging them into bundles to be sold for pennies on the dollar to hedge funds. All wealth will be redistributed to the top 1% who will become modern day feudal lords with the other 99% living at their pleasure on huge feudal estates.
You can imagine for yourselves just what you’re going to have to do to pleasure the lords.
This will take years, maybe even a decade or more, but it is the long march Wall Street has formulated for us. To be sure, “formulated” should not be misinterpreted as intention. No one sat down and planned the creation of Western European feudalism when Rome collapsed. To be sure, the modern day feudal lords on Wall Street certainly conspire—to rig LIBOR and muni bond markets, for example—and each one individually wants to take as much as possible from customers and creditors and stockholders. But they are not planning and conspiring for the restoration of feudalism. Still, that is the default scenario—the outcome that will emerge in the absence of action.
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