CDC was able to scrub its website of the traditional definition of a vaccine last July, but it couldn't scrub the internet

 

Martin Wolf for The Financial Times likes business historian Adam Tooze's important new book CRASHED: HOW A DECADE OF FINANCIAL CRISES CHANGED THE WORLD

See Martin Wolf, What really went wrong in the 2008 financial crisis?

Tooze has been making the rounds at places like Bloomberg (and especially here) and CNBC promoting the theses of the new book, and was notably interviewed yesterday on Bob Brinker's radio program "Money Talk" (the dismissive summary of the interview provided here is notably blind to Tooze's importance, weakly observing how Tooze maintains that "money has no tangible underpinning", which is about all that grabs the attention of libertarian fundamentalists).

Those more popular presentations give only a tantalizing hint of the narrative power this trained historian brings to the story of the 2008 panic.

To see that in action there is an important lecture available here which Tooze gave at the American Academy in Berlin earlier this year, on March 13th.

"Conservatives" will doubtlessly recoil at Tooze's characterizations of the role played by them during the financial crisis. That those conservatives are really the GOP's libertarians is a distinction the significance of which seems lost on Tooze.

That said, the value of Tooze's perspective goes far beyond the subject of the warring factions of libertarian fundamentalism and neoliberalism, however important those are for understanding our times.

For one thing, Tooze is almost unique in describing in such vivid detail the dominating role now played by the "dollar" in the global economy (American analyst Jeffrey Snider being the notable but obscure exception). It takes an historian. This is, of course, the eurodollar, the proper understanding of which permits Tooze to show how the financial crisis in the United States centered in the mortgage market was globalized via international banking through London and Frankfurt independently of the wishes of the state actors. It also reveals to him that the most important global economic relationship has not been the US with China but the US with London.

Same as it ever was. The king and his colonies still rule the world, with a little help from the Bank of England.

For another, Tooze's work shows the degree to which the global economy has been captured by the bankers in providing these eurodollars, who acted unilaterally behind the scenes, first in the US (Ben Bernanke) and regrettably only later in Europe (Mario "whatever it takes" Draghi), to provide liquidity swaps in the trillions of dollars during the financial crisis while politicians argued about how states should deploy mere billions.

One inescapable conclusion ten years after the financial crisis is that citizens of states are in larger measure no longer masters of their own destinies, and haven't been for a very long time. They are today really ruled by technocrats in charge of central banks who work now more, now less in concert with their host governments to manage economic flows. The danger of this global state capitalism is that it might one day slip back into the outright fascism it so closely resembles.

To the millions of unemployed who were not bailed out in the crisis and who lost their homes and their hope in the United States and in the PIIGS, or to the hundreds of thousands of Muslims now in Chinese reeducation camps, it already has.

The crisis for neoliberalism does not come from capitalist fundamentalism. It comes from its growing list of victims.

All PIIGS Among 14 Countries With 10 Year Borrowing Costs In Excess Of 6 Percent

As shown here:

With Deposit Guarantee Schemes in PIIGS Flat on Their Backs, ELA Stands Ready

Bloomberg here had the awful truth buried in an article at the end of May:

Spain has dipped into its guarantee fund, which stood at 6.6 billion euros in October, to cover loan losses for buyers of failed banks. It used the facility to inject 5.25 billion euros into Caja de Ahorros del Mediterraneo when it agreed to sell it to Banco Sabadell SA in December. The deposit-guarantee program will also reimburse the bank-rescue fund for the 953 million euros it paid for a stake in Unnim Banc, which was sold to Banco Bilbao Vizcaya Argentaria SA. (BBVA) The country had 931.2 billion euros of deposits at the end of March, according to ECB data.

In other words, in October 2011 Spain had at best only 7 billion euros guaranteeing roughly 931 billion euros in deposits. After covering the losses mentioned, Spain is down to 0.4 billion euros covering 931 billion euros.

As if that's not bad enough:

Italy’s deposit-insurance program is still unfunded, with banks pledging to contribute if and when necessary. Silvia Lazzarino De Lorenzo, a spokeswoman for Roberto Moretti, chairman of the Interbank Deposit Protection Fund, declined to comment. The country had 1.1 trillion euros of deposits at the end of March, ECB data show.

Compared to Italy which can cover nothing, and Spain which can't cover one tenth of one percent, Portugal looks like a veritable paragon of prudent planning with 0.85 percent of deposits covered:

Portugal has a deposit fund of 1.4 billion euros collected from banks through annual contributions, according to Barclays. The country’s total deposits stood at 164.7 billion euros at the end of March, according to the central bank.

John Mauldin, depending on David Kotok, here, must think that all that is really quite beside the point since the ECB funnels liquidity to the various European national banks through secretive ELA, "emergency liquidity assistance". These transfers then become debts on the books of the sovereigns, which only make their borrowing problems, and their euro area spending compliance problems, that much worse.

Notice the dramatic explosion in ELA funding by the ECB in May 2012.

Obviously, the ECB was getting ready for today's big event.

Between Greece with about 150 billion euros left in the banks and Portugal with a like amount, and Spain and Italy with about 2 trillion euros between them, the ELA backstop for the banks of those four countries represents at best about 10 percent of deposits.

It's a stop-gap measure which might work, but the euro area's problems will only continue to fester and worsen no matter what happens today in Greece.

Who knows, maybe that spat between Merkel and Hollande was just for show so that Hollande gets what he needs today in his own elections in France, after which they'll work it on out.

Hope springs eternal. 

EU Crisis: PIIGS' Bankruptcy Could Dwarf Lehman's By Nearly Three Times

Phase One, in which Doris gets her oats, is now over.

Time to save your money. You're going to need it.

Carl Weinberg, the chief economist at High Frequency Economics is very worried about Europe. His central forecast is that the debt crisis will lead Europe into a depression that will mean soaring unemployment, deflation and zero interest rates for the foreseeable future.

After months of inaction, Weinberg believes the time to stop a Greek default has now passed. He believes that once it becomes clear that Greece has defaulted, the market will quickly come to the realization that other euro zone members like Portugal, Ireland, Spain and Italy will be allowed to fail as well.

With the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) sitting on 3 trillion euros in debt, Weinberg is assuming losses could ultimately hit 50 cents in the euro, leading to a 1.5 trillion euro hit to the financial system.

This will in Weinberg’s opinion force banks to stop lending. Governments will then be forced to bail them out, elevating debt-to-GDP ratios for national governments to "horrific levels".

Read the full story here.

How Much of Your Money Market Fund is in the Repo Market?

Just days ago it seems we were worried sick about money market exposures to European banks who are in turn exposed to the PIIGS.

Overall US money market funds have had just under half of their assets in short term European investments, meaning that US cash savers in such funds are actually providing perhaps as much as several trillions of dollars in liquidity to Europe's stressed banks and sovereigns.

Now Jim Jubak thinks money market exposures to the repo market should also worry people, here:

My big worry is that the current slow erosion of faith in U.S. Treasurys will turn into a cascade of unanticipated consequences if the debt ceiling isn't raised. Treasurys play a unique role in the global financial markets. They aren't important only because they're jammed into so many global portfolios, including the portfolios of so many of the world's countries. They're also important because they serve as collateral on a huge percentage of the complex deals that use derivatives to shift risk around the globe. ...

Treasurys are used as collateral for cash loans in the repo (repurchase) market. In a repo agreement, the seller of a security agrees to buy it back from a buyer at a higher price on a specified date in the future. Repos are, in effect, short-term loans; they are used to raise short-term cash by banks and corporations. Central banks, such as the Federal Reserve, also use them to manage the money supply. To expand the money supply, the Fed decreases the repo rate at which it buys back government debt instruments from commercial banks. To shrink the money supply, the Fed increases the repo rate.

It's a huge market. Bank of America Merrill Lynch estimates that 74% of primary dealer repo financing -- or about $2.1 trillion -- involves Treasurys as collateral. ...

Money market funds have big chunks of their cash in the repo market. (Anyone who remembers the problems that the Lehman crisis created for money market funds should regard any advice on using money market funds as a safe haven in the event of a U.S. default with extreme skepticism.)

US Money Market Funds Are Keeping The PIIGS' Banks Liquid

So says Felix Zulauf, here:

[T]he banks, particularly at the periphery, are refunding themselves via the U.S. money market that is extremely liquid, and half of the money in the U.S. money market funds is really money to fund the peripheral European banks. Once those money market funds get hit by redemptions because investors find out, then you have a funding crisis of major scale at the periphery of Europe, and that is the next step. It is a never-ending drama until it breaks in a big way.

Top Ten Countries with Direct Banking Exposure to PIIGS

Since May 2010, banks of eight countries with assets directly exposed to the PIIGS group of countries have made considerable progress in reducing that exposure, based on the figures reported here, now and previously:

IRELAND ........ down 65 percent to $  31.7 billion

Netherlands ........ down 38 percent to $150.5 billion

Belgium ............... down 34 percent to $  78.2 billion

PORTUGAL ........ down 30 percent to $  45.2 billion

France ....... down 29 percent to $646.5 billion

Germany ..... down 24 percent to $532.7 billion

U.K. ............. down 17 percent to $347.2 billion

SPAIN............ down 15 percent to $126.8 billion.

Two additional countries, Austria ($36.8 billion exposed) and Switzerland ($56.4 billion exposed), join these eight in the top ten ranked by seriousness of exposure to PIIGS as a percentage of their bank assets. These are, in descending order:

UK, France, Portugal, Belgium, Germany, Netherlands, Austria, Spain, Switzerland and Ireland.

PIIGS ranked by the most owed to the banks of these ten countries are as follows:

Italy       $780.3 billion

Spain     $594.5 billion

Ireland   $357.4 billion

Portugal $189.5 billion

Greece   $130.0 billion.

Total owed by PIIGS to the banks of just these 10 countries:  $2.052 trillion.

Irish Banks' Deposit Base Declines 15 Percent in Last Year

So says a story here for Fortune, which also asserts that foreign depositors have pulled out 100 billion Euros since 2008.

What BankRun2010 failed to accomplish on the Continent with premeditation might actually have been happening all along in Ireland. There are worries that a cascade of withdrawals might trigger runs in the rest of the PIIGS.