The Market Ticker - International

GreeceFire On Line 1 Sir!

nospam@example.com (Karl Denninger) — Thu, 18 Mar 2010 08:21:00 -0400

March 18 (Bloomberg) -- Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package.

Papandreou said he may turn to the International Monetary Fund to overcome its debt crisis unless leaders agree to set up a lending facility at a summit March 25-26.

How about this?

Your nation made the mess, now clean it up!

“It’s an opportunity to make a decision next week at the summit,” Papandreou told reporters in Brussels today. “This is an opportunity we should not miss. When you have that instrument in place, that could be enough to tell the markets hands off, no speculation, let this country do what it’s doing.”

What's wrong with speculation when you give people reason to speculate? More to the point, is it speculation if you get caught lying on your financials and taking intentional actions designed to cover up your true debt position?

I'd call that an educated guess, and it's very different than "speculation."

Greece pinned its hopes on the Brussels summit as German officials voiced qualms about an EU-led rescue, potentially backtracking on a commitment hammered out by finance ministers just three days ago. Greek bonds and the euro fell.

There was no commitment. There was an attempt to jawbone - that is, lie - by politicians who find it easy to lie.

The market, however, calls all bets. It always has and always will. If Greece learned anything from our little market collapse in 2008 it should have been this - remember, Hank (I'm gonna roll the tanks!) Paulson tried this very same game - repeatedly. It didn't work - not with Bear Stearns, not with Fannie, not with Freddie, and not with Lehman.

It didn't take long for the market to decide that he was full of the dark side and press the bet, and as soon as that happened we found out that the "Bazooka" was really nothing more than a fancy form of bankruptcy.

Oops.

If Greece doesn't like the consequences of getting caught cooking the books, one solution would be to stop doing that and come clean with the people - even if it results in your government being sacked.

The "reaction" in Greece to reality poking its head in the tent is instructive, and something that all developed nations that have decided to go down this sort of road with lying about fiscal and banking matters (cough-United States-cough-Britain-cough-Spain-cough-Germany-cough-Portugal-cough-take-your-pick) should pay attention to.

I wonder if it has sunk into the consciousness of Obama and Geithner, along with Congress, that having "replaced" 10% of consumer final demand in the economy in a ridiculous (and doomed) attempt to prevent bad debt from being defaulted, not to mention the lies told about our actual fiscal situation (holding retirement "promises" off book anyone?), we (along with a bunch of other nations that have done the same) are headed down the same road that Greece is.

Now The Truth On Greece Comes Out

nospam@example.com (Karl Denninger) — Wed, 17 Mar 2010 20:15:00 -0400

And surprise-surprise, it has nothing to do with the Euro - it is, once again, to bail out bad speculative bets made by banks:

"If the country is not stabilised, the next problem will be the banks," Ackermann in a speech to an academic audience on Wednesday, adding that German banks had "billions in the fire."

So once again we have banksters literally putting a gun to government heads and threatening them.

When does this stop?

It's not like Deutsche Bank (and the rest) didn't know Greece was cooking their books and holding debt off balance sheet! They sold them the swaps to enable the deception!

These banksters knew damn well that the nation was in trouble long before there was any public notice of it.

So why were they buying Greece's debt? Why didn't they sell it? Why are they stuck with it?

Is it because their intention was to shove a gun up the nose of the governments in the Euro Zone - just as our banks did here - and threaten to shoot unless they get bailed out?

Let's cut the crap. These "institutions" are, in my opinion, a criminal enterprise. It is my contention that they have engaged in knowing and willful frauds up and down the line, whether it be selling "swaps" that were intended to hide debt (that is, to fraudulently misrepresent an entity's finances), buying debt of nations they knew were in trouble and thus was risky (and now they want to be backstopped) or other forms of scamming as is alleged by the FHLB Seattle in their lawsuit against Deutsche Bank itself, among others.

These acts are common garden-variety swindles wrapped in fancy clothing. People think there's something magical or complex about all this "financial engineering" that led to these losses.

There is not.

The simple fact of the matter is that getting someone to overpay for a thing by lying to them is no different than the shifty used-car salesman who turns back an odometer so you think a car has fewer miles on it than it really has.

We all recognize that as an act of fraud and we arrest those engaged in it.

These actions are no different in type but have stolen from we, the people of this planet literal trillions of dollars, yet it seems to be impossible to find one law-enforcement agency that will press criminal charges against any of these clowns! At the same time if you steal $50 from a convenience store or turn back that odometer you are sentenced to hard time in prison.

This has gone far beyond the point where we, the citizens of this world - not just in The United States - must demand and put a stop to these heists by whatever means are necessary.

If our governments will not bring charges and lock up the executives in these firms then we must shut these institutions down by refusing not only to do business with them directly but by going one step further - we must refuse to do business with any firm or person that is employed by them or uses them for their financial services.

I thus call for this boycott of all banking firms that issue threats of this sort here and now, both directly of the firms and of their customers, to continue until and unless criminal indictments issue for this outrageous and repetitive conduct.

What these people have done is in fact no different than this:

The easiest way to rob a bank is to own one.....

IT IS TIME FOR WE THE PEOPLE TO PUT A STOP TO THIS CRAP!

Wait A Second - I Thought Greece Was Done?

nospam@example.com (Karl Denninger) — Wed, 17 Mar 2010 13:38:00 -0400

Weren't we told Greece was "bailed out", "backstopped", or whatever you care to use? That's all I've heard all week on ToutTV.

So what's this about?

Greece could seek IMF funding to help overcome its debt crisis if its EU partners do not provide "clear support" next week, a government spokesman said Wednesday.

George Petalotis said the March 25-26 European Union summit on how to deal with a potential bailout for Greece will be crucial, as the country struggles to reduce a bloated budget deficit and public debt.

"I believe the summit is when it will become evident whether the European partners want to support a country ... or whether we have to resort to some other solution," Petalotis said.

Doesn't sound "done" to me!

Oh wait - what's this?

“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan, said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.”

Of course it's a fantasy. So tell me this - why are the markets going up in the belief that the Greece problem is in fact fixed, when:

Mathematically it is basically impossible to do so given the constraints that exist AND
Germany's Constitution prohibits a bailout using German public funds in any way, shape or form (including a backstop of their banks if they "help privately.")

So now we're back to the old "Bazooka" argument, eh?

“We would like to have a loaded gun on the table and hope never to have to use it,” Papaconstantinou told reporters today in Brussels. “It’s clear that the terms of refinancing the Greek debt improve as the markets and European partners see the determination of the Greek government.”

Ah, the old Paulson argument.

Remember the tape folks and Paulson's "Bazooka":

Remember folks, the "Paulson Bazooka" was good for one hundred S&P 500 handles in less than a month (hmmmm...... isn't that what we've seen here?) but in the end it failed, because as is always the case the market called the bluff.

But this time it's different, so I think you should believe our fine friends over in Greece, even though Germany says they won't violate their Constitution (Merkel has repeated this enough times now that she's got to be blue in the face) and the news reports that trickle out say that indeed, Greece has no deal - not in the bag, not on the table, just plain not.

The Grand Chinese Fraud

nospam@example.com (Karl Denninger) — Mon, 15 Mar 2010 09:59:00 -0400

Wen "cats in the kettle" Jaibao spouted:

“I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”

Oh really?

It's time that we stop the the BS here with regard to China.

The entire premise of so-called "Free Trade" with the Chinese was predicated on the belief that if we opened our borders to their products on a "no tariff" basis that we would, over time, change their political system. That is, we would import cheap Chinese plastic junk and export democracy. More or less.

Well, we got all the cheap DVD players but they didn't get any democracy. Quite to the contrary. There have been no meaningful improvements in areas of environmental protection, workers rights and wages or political freedom. Indeed, the recent dust-up with Google just underlines the reality in China: Their government is a band of murderous brigands and thugs.

Disagree with them inside their nation, refuse to censor The Internet, for example, so that people can't read about Falun Gong and China will be happy to arrest the executives of your firm inside the nation and provide this as "corrective influence" to your head:

Oh, they send the 50 cent bill for it to your family too. Isn't that special?

At least in this country they don't shoot people for talking about the evil-doing that both private parties and government engage in. If they did, well, I'd be long-dead.

Second, China hasn't changed its spots a bit. It has pursued a mercantilist policy for over two decades while at the same time stealing anything that isn't nailed down (and some things that are), including such wonders as our technological prowess in nuclear warhead design. Argue the defensive merits of nukes in a silo all you want - when they're flying, they're anything but defensive.

In short our policies have been an abject failure. We've destroyed consumer product manufacturing in The United States, we've shuffled a huge amount of wealth over to China due to their manipulated currency, we've trashed our real standard of living and replaced production with debt and the supposed benefits of an open and free market, along with a democratic political system in China have failed to materialize.

It's time to stop the stupid. It's time to force those firms who want to offshore production to return the so-called "savings" to the United States as something more than executive bonuses. And it's time to treat those who are a communist dictatorship as exactly that.

The simplest solution is to hit China with a 25% tariff on everything - literally everything - and close the market entirely to anything coming over here that contains stolen intellectual property.

China has done us one better with their "liquidity program." Instead of allowing the economy to adjust and build internal demand, they have stoked a huge bubble in fixed assets. This, coming on the back of what we just experienced in our property market, is one of the most-pernicious and outrageous series of acts I've seen out of a sovereign in a long time. Couple that with questionable (at best) "official" statistics on China's economy and you've got the ingredients for real trouble.

There are often claims that we're "hostage" to China's holdings of Treasuries and other bonds. Nonsense. First, if China sells them they cut off their own nose. Second, in an extreme circumstance we could easily institute capital controls that would effectively neuter their influence entirely - and they know it. Third, it's time for us to live within our means anyway, so if China was to provoke that, where's the foul? There's a solid argument to made for such an event being positive for America, not negative. And finally, China needs us more than we need them - should we throw up a complete barrier to their cheap junk, along with the Euro zone who is likewise tired of the manipulation their mercantilist game would collapse on their heads.

It's time to call the curtain down on the cock-and-bull story coming from China. We have not achieved our goals with "engagement" and "trade", and won't. Our nation has been intentionally and severely damaged by these thugs who have adopted a mercantilist "raid 'em and loot 'em" approach to commerce, then hidden behind their communist ability to manipulate and even kill those who disagree with them. If we don't deal with this now, we will wind up having to deal with it militarily, and it will be even less-pleasant than telling them to stick it with the slave-labor-produced, water-fouling and air-blackening $30 DVD players.

In short, it's time for us to grow a pair of balls and tell the Chinese to put it where the sun doesn't shine, neutering their interference and intentional distortion of trade balance and currency valuation.

We didn't get what we bargained for, so it's time for us to change the bargain.

GreeceFire Out? I Don't Think So...

nospam@example.com (Karl Denninger) — Wed, 10 Mar 2010 08:20:00 -0500

The idiocy coming from the EU reeks of desperation:

“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”

Continuing...

Prodi, 70, who headed the European Commission from 1999 to 2004, will teach at the China Europe International Business School in Shanghai. He said budget deficits are “a general problem for almost all the wealthy countries.”

No, really? You mean having the government be responsible for half of GDP is a problem, when everything that they actually obtain has to come, in the end, by taxing the citizens inside their borders?

The euro has weakened 5.8 percent against the dollar this year as concern Greece will struggle to finance its deficit eroded confidence in the European currency.

“Europe is more than happy,” said Prodi. “For the benefit of the European economy, the decrease of the value has been absolutely positive.”

Bah.

As in the United States, European nations more-or-less index their entitlement programs to inflation. And like the United States, they hold most of the costs of these programs off their balance sheet, where that indexing is not visible (directly) to markets, never mind that those are promises for tomorrow, not today.

It is here that the theories of all those so-called "economists" who claim that we "benefit" through currency devaluation by "inflating the debt away" have their thesis run head-on into a brick wall.

In the United States, for example, our "forward liability" for those entitlement programs is somewhere between $60-100 trillion, depending on who you ask. The on-balance sheet public float of the debt is about $8 trillion.

So let's assume we try to double that over the remainder of the decade (as the economists believe we both must and will) the only way to make that able to be carried is to devalue the currency through money-printing - "monetization", if you will.

But doing so, because of the indexing in these entitlement programs, causes their forward costs to explode.

Let's take an example and run the "forwards" on it. We will assume that the "current" cost of a set of entitlement programs is $5 trillion, but it is to be delivered in 30 years. If the forward implied inflation rate is 2%, as Bernanke claims is the "goal" (1-2% annually) then the 30-year forward implied cost of this program can be easily calculated since it is simply the compound growth rate over that time. In this case, that program has a "forward" (or "as delivered in 30 years") cost of $9.06 trillion.

But now let's assume we decide to "inflate away" the debt as "suggested" by the IMF (and on which point, I might add, Bernanke was grilled in his last testimony before Congress) by raising the inflation target to 5%. That's not all that bad, right? It's only three more percent!

Well, except for one small problem - that inflation rate drives the delivered cost of this entitlement from $9.06 trillion to $21.6 trillion, well more than a doubling, and what's worse is that this additional cost totally destroys any "savings" in debt payment ability that would otherwise be generated by attempting to inflate away the "on balance sheet" debt amount.

In the case of the United States, of course, the forward cost is already $100 trillion. Attempting to "inflate away" our $8 trillion (today) of public float, or the $17 trillion that the CBO says we'll have by 2020, would cause that $100 trillion to explode upward. Indeed, simply trying to get "a bit of relief" with a 5% inflation policy would more than double it, and an actual attempt to inflate it off over the course of ten years (which would require approximately a 7% inflation rate) would cause that $100 trillion forward liability to balloon to more than $300 trillion.

With that it should be obvious that any attempt to play "inflate it away" will simply never work. It will and must cause the immediate detonation of all forward-promised social entitlement programs, and when you have placed half or more of the population at the time in a position of effective dependence on those programs attempting such a foolhardy path of action is guaranteed to lead to the total destitution of half or more of the populace.

Since it is an essential certainty that a population so-impoverished will inexorably rise in violent revolution there is a clear argument that can be made that any such suggestion or policy, whether made publicly or "in the dark of the House Cloak Room", is in fact a violation of US Code, Title 18 Chapter 115 Sec2385, which provides in part:

Whoever knowingly or willfully advocates, abets, advises, or teaches the duty, necessity, desirability, or propriety of overthrowing or destroying the government of the United States or the government of any State, Territory, District or Possession thereof, or the government of any political subdivision therein, by force or violence, or by the assassination of any officer of any such government; or

Whoever, with intent to cause the overthrow or destruction of any such government, prints, publishes, edits, issues, circulates, sells, distributes, or publicly displays any written or printed matter advocating, advising, or teaching the duty, necessity, desirability, or propriety of overthrowing or destroying any government in the United States by force or violence, or attempts to do so; or

Whoever organizes or helps or attempts to organize any society, group, or assembly of persons who teach, advocate, or encourage the overthrow or destruction of any such government by force or violence; or becomes or is a member of, or affiliates with, any such society, group, or assembly of persons, knowing the purposes thereof—

Shall be fined under this title or imprisoned not more than twenty years, or both, and shall be ineligible for employment by the United States or any department or agency thereof, for the five years next following his conviction.

As such anyone advocating this course of action must be held to account under the existing laws of The United States which make the advocacy of such acts punishable by 20 years in the hoosegow.

(Never mind that it won't work!)

Oh, The Off-Balance Sheet Lies Are International?

nospam@example.com (Karl Denninger) — Sun, 07 Mar 2010 16:26:00 -0500

Naw, they'd NEVER do that, would they?

International finance-industry estimates have Dubai's sovereign debt load, thanks to the off-balance-sheet debt, exploding to nearly four times its originally reported $80 billion, as other government-backed projects have gone bad after Dubai World's default in late November.

....

This is how the Greek debt has grown 12 times over the initial numbers it had on the books with the European Union. Iceland and Dubai are the test studies for how the Europeans may deal with the idea of socializing private debt through public funding.

....

"I am seeing many sovereign defaults for the PIIGS as well as in Eastern Europe and the former Soviet satellite countries running into 2011," Chapman added.

Isn't it great to do things off-balance sheet? Why you can lie, cheat, and steal from investors, who believe you are far more credit-worthy than you really are.

Who else has done this?

There aren't any big American banks with a trillion or so (each) off balance sheet in SPVs, are there? Oh wait - there are!

America doesn't have somewhere around $80 trillion off balance sheet in Social Security and Medicare "promises", does it - nearly six times GDP? Oh wait - it does!

Why is this sort of thing a problem again?

Iceland: Now Finish The Job

nospam@example.com (Karl Denninger) — Sun, 07 Mar 2010 14:37:00 -0500

Iceland's voters took the first step toward the right thing:

Ninety-three percent voted against the so-called Icesave bill, according to preliminary results on national broadcaster RUV. Final results will be published today.

The next step would be to quash any talk of a "new accord."

There is exactly one accord to take: Tell the Netherlands and British to stick it.

They decided to step in on their own without the consent of the Iceland population when Iceland's version of the FDIC ran out of money. It was their decision, not the Icelandic people's to do so.

Voters rejected the bill because “ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview on March 5.

That's correct.

The people didn't cause the bankers to do the irresponsible things that led to this, just as the people in the US didn't cause our bankers to do so.

The bankers, with superior knowledge and all their grand mathematical models, took a bet.

The bet was that they could intentionally make bad loans and intentionally fail to disclose risks, and if the bet turned out poorly the people, who did not consent to be stooges, would bail them out.

Iceland's people have said no.

That should be the end of the discussion. The Netherlands and British should bear the costs - all of them - of their own decision to bail out their citizens. That decision was uniquely theirs and did not come with the consent of the Icelandic population - a consent that was belatedly sought and now has been overwhelmingly rejected.

That is the beginning and end of the discussion.

If that decision is not respected, and Iceland's parliament continues to try to subjugate the people to pay for an act they were not responsible for, then the people must rise and put a stop to it, in its entirety.

By whatever means are necessary.

To the people of Iceland:

You have my full and unwavering support. Do not knuckle under. These banksters - these criminals - attempted to steal your economic futures, dreams and hopes.

They intentionally and with malice aforethought put together financial programs they knew could not succeed in the long term, believing they could saddle you with the costs while keeping the benefits to themselves.

You have repudiated that belief.

You are a beacon of light in a world of darkness.

Now finish the job and send these jackals - these robber barons, brigands and thieves - packing. Eject them, and the ruin they bring, from your nation now and evermore, replacing them with sound, local, and accountable financial institutions that are not run for the sake of bubbles and cute mathematical models but rather on sound principles such as ONE DOLLAR OF CAPITAL.

May this vote be the start of an international citizen revolt - peaceful revolt - against the brigand-style fraud rained down upon the word by the pinstripe-wearing scam-meisters known as "banksters."

Greece Gets Told To Bite It

nospam@example.com (Karl Denninger) — Thu, 04 Mar 2010 08:12:00 -0500

Greece is now whining that their "austerity" should bring gifts - from Germany:

“We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers, according to an e-mailed transcript. “It is a historic moment for the European Union.”

No it's not.

Honest accounting is its own reward. So is fiscal prudence.

You're owed nothing Greece.

More importantly, there's no money. Not just there - here too. Witness the layoff/hirebacks in California and New Jersey's new governor - the latter who told the truth for the first time by a state politician in 30 years.

You wouldn't know it from the pumper brigade on Tout TV, of course. They claim it's all getting better.

Really?

Borrowing and spending 9% of GDP by the government to falsely inflate final demand is "getting better"?

No, it's hiding the truth, and while it can continue for a while, just as you can do the same thing if you lose your job, continuing to run up your plastic until your credit card company figures out that you lose your job and will never pay them back, so can governments.

Unfortunately instead of solving the problems in our economy and financial system - which would have resulted in the bankruptcy of some very powerful people and firms - we decided to lie.

Just like Greece, just like Italy, just like the rest of the world.

Politicians are very good liars. Indeed, it's pretty much all they do.

But irrespective of how much you want to lie, or how much you do lie, at the end of the day when there is no money left what your "balance sheet" says you have is immaterial.

Only cash pays the light bill my friends, and the cash is insufficient to cover the demands of those who want to suck on that government tit.

This is math - not politics.

Spain: Calling The Whaaaaambulance!

nospam@example.com (Karl Denninger) — Wed, 03 Mar 2010 15:12:00 -0500

This is rich....

BRUSSELS, March 3 (Reuters) - Spain wants the European Union to use a planned public prosecutor's office for the region to protect the euro currency against speculators, Spanish attorney general Candido Conde-Pumpido said on Wednesday.

Do the prosecutors have a mandate to go after all the nations - perhaps including Spain - that cooked their books?

Why do I already know the answer to that question....

"Doubtless if there were a public prosecutor and there was a combined attack against the single currency, the prosecutor could coordinate the legal response vis-a-vis that attack."

Doubtless: Up yours. Stop lying and the problem won't present itself.

Oh wait - that would mean you'd have to close a bunch of your big banks, right? Care to return the AIG pass-through payments?

That's crickets I hear, crickets....

Balance Sheet Fraud Is Not Just For Enron (Or Banks)

nospam@example.com (Karl Denninger) — Mon, 01 Mar 2010 08:11:00 -0500

Oh, look at what the Zerohedge cat dragged in this time!

Yet a 2001 report prepared by Gustavo Piga, in collaboration with the Council on Foreign Relations and the International Securities Market Association, not only fits that particular smoking gun description, but the report itself was damning enough of another country, a country which used precisely the same off-market swap arrangement to end up with an interest expense of LIBOR minus 16.77% (in essence the counteparty was paying Italy 16.77% of notional each year as a function of the swap mechanics), in that long ago year of 1995. The country - Italy (for confidentiality reasons referred to in the report as Country M), was at the time panned as the Enron of the European Union due to precisely this kind of off-balance sheet arrangement by the Counsel of Foreign Relations. The counterparty bank: unknown (at least in theory, since the swap was highly confidential, and was referred to as Counterpart N), but considering the critical similarities in the structuring of the swap contract to that used by Greece in 2001, and that ISMA cancelled Piga's press conference discussing his findings out of fear for the academic's life, we can easily venture some guesses as to which banks value their recurring counterparty arrangements more than human life.

Uh, Libor minus 16.77%?

A hedge huh?

This was identical to you walking into your bank and taking a cash advance on your VISA card - at a rather high interest rate - and concealing it for the explicit purpose of being able to show a wad of cash at the end of the year on your books.

That is no hedge, it is a loan. It was done to cook the book and, in my opinion, falsely present the "health" of the nation - in this case Italy - involved. It was done over the counter with no paper trail or exchange trading for the explicit purpose of secrecy, so that nobody would discern that the government in question had borrowed the money.

The problem should be obvious here. If I cannot trust the balance sheet of a sovereign government because I have discovered one "tricky deal" such as this, I have no means to know how many more "tricky deals" there are, what the liabilities might be, what the credit exposure is, and whether I will ever get paid back if I loan that government money.

The allegation is made that Goldman was on the other side of this deal. That, if true, raises a further question: how many more of these hinky lending deals is Goldman involved in? (Note that FT seems to think it was JP Morgan. Not that the identity matters, by the way - the point is that the institution involved knowingly made a loan in a form that was intentionally designed to mislead those not involved in the transaction.)

The entire report by Zerohedge is well worth reading, although it's fairly thick. The essence of it, however, is that these deals were loans and were written "off balance sheet" using hinky derivative transactions for the explicit purpose of misleading investors about the strength of the nation involved - and that, unfortunately, directly implicates the Euro as a currency.

Buckle up folks.

How To Win Friends And Influence People (NOT!)

nospam@example.com (Karl Denninger) — Wed, 24 Feb 2010 21:15:00 -0500

Gee Greece.....

Theodoros Pangalos, deputy prime minister, said Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation, which left 300,000 dead. "They took away the gold that was in the Bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings," he told the BBC.

Twisting the knife further, he said the current crop of EU leaders were of "very poor quality" and had botched this month's crisis summit in Brussels. "The people who are managing the fortunes of Europe were not up to the task," he said.

Nothing like calling the Germans a bunch of Nazis to make 'em decide to give you some money, eh?

I wonder if 1/3rd of the population going out on strike had anything to do with it?

Or perhaps it was the warning that Greece, now having a debt rating of BBB+, might get two more notches in the next couple of weeks.

For the uninitiated that's "BBB-" - any further downgrade makes the debt non-investment grade, and if that was to happen you can pretty much forget about rescues and such.

The EU has backed itself into an untenable corner. If Greece truly cheated on getting into the union - that is, there was no conspiracy, there was no knowledge in Brussels what was going on, they truly pulled the wool over everyone's eyes and lied their way in, then the proper action is for the EU to expel them and ban every bank involved (including Goldman) from ever doing business with the EU again.

But if the EU knew about it and played "bubblenomics" then they have a bigger problem because there's Spain, and Portugal, and perhaps Italy involved in this mess too.

There's roughly EUR $3 trillion in PIIGS debt involved here all-in, and I don't think the ECB or the EU is up to trying to stomach that, never mind that the Eastern European states aren't exactly stable from a fiscal perspective either.

I don't see how they get out of this, to be honest, but we should pay close attention to the reaction of those who are being told that the government tit is drying up - because that day is coming to America, and when it does, the reaction here is likely to be rather interesting as well.

China Wasn't The Source Of The Hacks, eh?

nospam@example.com (Karl Denninger) — Fri, 19 Feb 2010 08:55:00 -0500

If you remember China's government claimed that the hack attacks on Google and elsewhere didn't originate in China and angrily lashed out at Google (and others) for suggesting that they were involved.

Well?

SAN FRANCISCO — A series of online attacks on Google and dozens of other American corporations have been traced to computers at two educational institutions in China, including one with close ties to the Chinese military, say people involved in the investigation.

And if you remember, China's military recently thought they'd threaten the US over our sales of defensive arms to Taiwan.

I repeat: It is time for President Obama to do more than meet with dignitaries that China doesn't like.

It is time for him to sign an executive order rendering China's Treasury holdings worthless.

These people are not our friends and linking the Chinese Military to these hack attacks, when the Chinese Military has been implicated repeatedly in stealing military secrets, including nuclear warhead and targeting technology from The United States, makes their intent clear.

We either make clear that this sort of action has immediate and severe economic consequences or they will continue to become more and more bold until military conflict becomes attractive to one side or the other - at which point we will face a disaster.

While we're at it, how about a tariff that reflects the wage differential between America and China? That ought to level the playing field a bit.....

Hisssssssssss!!!!!!! (GreeceFire)

nospam@example.com (Karl Denninger) — Thu, 18 Feb 2010 11:35:00 -0500

Yes, that's the pressure vessel reaching critical you hear....

ATHENS, Feb 18 (Reuters) - Greek opposition lawmakers said on Thursday that Germans should pay reparations for their World War Two occupation of Greece before criticising the country over its yawning fiscal deficits.

What does this have to do with what appear are alleged to be intentional cooking of the books to get into the EU in the first place.

You know, what we civilized folks would call "fraud"?

"How does Germany have the cheek to denounce us over our finances when it has still not paid compensation for Greece's war victims?" Margaritis Tzimas, of the main opposition New Democracy party, told parliament.

"You shot my brother sixty years ago and so damnit, I'm going to commit fraud with impunity because you never paid me for my brother's death!"

Uh huh.

Didn't we try something like this before? I seem to remember a couple of instances over in Europe that had a rather significant part of their root in economic mismanagement and outright scams by sovereigns, no? Weimar-Cough-Weimar-Cough for one, but not the only one. If you think the only reason we had WWI was the assassination of Archuduke Ferdinand you were "educated" in a government school.

Never mind The Hatfields and McCoys of US fame, where people shot at each other long after nobody could remember who killed who first and why (it was allegedly over ownership of a pig) or the United States own "Civil War" - slavery was in fact a secondary, not primary, cause of that conflict (the primary cause was - big surprise - economic looting by Northern States.... gee, where have we seen that recently on WALL STREET?)

Look folks, if you think a nice war would solve our little economic mess, you just might get one if this crap keeps up.

I prefer not, thank you very little, given the fact that too many people have things that make very large "bangs", and when faced with defeat - whoever winds up in that position - the temptation to use them will become irresistible.

The proper response of the EU is to expel Greece and to permanently bar any and all banking interests that had any hand in the deception foisted off on the EU Statistics office. Further, it must be made clear that such games will not be tolerated and that if there are any other states that wish to confess, now's the time - but they must name all banking interests involved who also will be permanently barred from business in the EU. We should do the same here in the United States when it comes to state finances.

This is both an opportunity and a time of great peril. Should we as an international community not force those who committed fraud to cease, desist and confess we will solve nothing, and the sort of demand that was put forward in this story will continue to escalate until someone breaks out a rifle - at which point the opportunity to obtain a reasonable outcome from this crisis will disappear.

PS: In the latter case - war - you can bet the bankers will be happy to loan everyone involved the money necessary to buy the weapons to fight with. After all, they've done it in every major conflict over time - why change now?

Hi, I Lie About Bubbles! (Canada)

nospam@example.com (Karl Denninger) — Tue, 16 Feb 2010 09:24:00 -0500

Amusing...

"We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said.

Really?

Second, the proposed rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

So the ATM is still there (since you're not willing to ban that sort of abuse) but I can only get some of the money, not all of it?

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

But not for primary residences, right?

So if I'm willing to move, I can still get CMHC insurance with radically-dangerous and levered real estate loans, right?

BTW, for those who are in the peanut gallery, 20% down payments (in cash, seasoned) means your leverage is limited to 5:1.

At 10% it's 10:1, which is more than I get in an /ES (S&P 500) futures contract - and that futures contract is literally liquid 23.5 hours a day, five days a week.

How liquid is your house?

What a load of crap. Guess what Flaherty - the same rules apply in Canada as do anywhere else. They are:

20% cash down payment, thus restricting leverage to 5:1. At no time may a loan be approved that results in less than 20% equity. This is the only way to prevent speculative leverage games in the housing market.
"Back end" debt service ratios must be limited to 36% on pretax income, and this assumes a total tax system load similar to the United States. Total tax loads in Canada are somewhat higher, so a few points lower is likely required (e.g. 30-33% is probably about right.)
Predictability of debt service cost. Oops. There is no such thing as a 30 year fixed loan in Canada. Hmmmm... that's a problem.
Average house PRICES should be no higher than 3x average incomes in a given area. Good luck - Vancouver anyone? Toronto? That's not a bubble, it's a ticking nuclear bomb and the timer window has tape over the numbers.

When it looks like a bubble, smells like a bubble and has finance ministers trying to pump markets and keep people from figuring out the SCAM they are complicit in pumping and trying to maintain, it is a bubble.

We'll see how long it takes before I get to fax you a copy of this with "See, I told you so - JACKASS!" scrawled across the front in black sharpie marker!

Angela Merkel Clanks When She Walks

nospam@example.com (Karl Denninger) — Thu, 11 Feb 2010 21:45:00 -0500

"Gee, it's all going to be ok and Germany is going to come to everyone's rescue!"

Nope.

Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro.

Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.

"See, I told you so. Twice."

Someone forgot to tell the market pumpers (along with those who started buying Euros and Pounds against the dollar) that Greece is a bit player in this mess.

What 'ya gonna do about Ireland - a nation that has enough out there in bank debt to make Iceland look like a Girl Scout picnic? Or Spain? Portugal, which has had an actual failed bond auction already?

and

One would hope that Merkel and friends in Germany aren't really stupid enough to implement such a transfer of a peripheral nation's problem to the EU's core, but then again we have seen time and time again that "can-kicking" is the mantra of the world since this crisis began. Rather than deal with the underlying problems - excessive leverage, naked swaps that the seller can't possibly pay, various forms of fraud and gamesmanship in securities issue and similar - governments have instead decided to lift up the corner of the carpet and sweep, time and time again.

Should the EU implement this with Greece they may indeed set a precedent that could easily destroy the European Union over the next couple of years. Faced with Spain, Portugal, Italy and Ireland, all of which are huge problems compared to Greece both in terms of the debt outstanding and the size of their economies Germany will find itself unable to backstop all four nations - yet it will have to, once the die is cast with Greece.

It appears that unlike Barack Obama and Ben-d-you-over-the-table Bernanke, who doesn't much care about the formalities of what's supposed to be on The Federal Reserve's balance sheet, Angela Merkel has both a brain and she clanks when she walks!

I like it, although I'm not so sure that Ms. Merkel would be so steadfast had she not the benefit of watching other fools, specifically Henry Paulson, from afar, and thus got to see that the market always calls bluffs. She witnessed Fannie and Freddie's "Bazooka" and the non-bailout that was a bailout and then more bailout via TARP, AIG and others, and thus knows damn well that if she comes to the aid of Greece (assuming the German court system will let her) the PIIS (heh, that's a good acronym, no?), sans-Greece, will be there with hands outstretched instantly - and not by choice either.

Rather, the market will simply shift it's attention to Spain, Portugal, Ireland or all three, and place them under speculative attack until the story is repeated time and time again.

Germany simply lacks the ability to bail everyone out.

Our "officials" lacked the brainpower to recognize this even after having reality smash into their face at 450 mph in the form of a clue-by-four when Hank Paulson was so puerile as to threaten the market with his mighty "Bazooka".

He proceeded to blow off his own balls with that very bazooka just days later.

The market is bigger than any one man or any one nation and it does not suffer arrogance lightly. Virtually everyone who has tried to tangle with it has wound up with their head between their legs after not only their head was chopped off but both arms as well.

If Ms. Merkel has learned this lesson adequately from the last three years then progress has indeed been made. Perhaps she can put in a visit to Mr. Obama and whack him upside the head a few times, knocking some sense into that arrogant ass before he blows our nation to Hell with his belief that $1.6 trillion deficits are a "small mismatch" between spending and income - a mismatch that he largely created himself.

I wish Ms. Merkel luck dealing with her banks. Don't think for a minute that they're not neck-deep in the sludge themselves - they are - or that somehow they're so much wiser than us in the land of beer and schnitzel - they're not.

But when it comes to the consequences of "bailout world", it appears that Angela Merkel has learned from the experience of others, and as such, she deserves - at least for today - a gold star.

We'll see if I have to revoke it tomorrow.