The current housing bust is much worse than the Great Depression

"Great chart from the recently released Economic Report of the President. We suspect the Great Depression housing bust didn’t have the government props to soften the blow as we do today, which, therefore, on a relative basis, makes the current bust much worse. The prior conditions to the current bust must have been much worse than those before the Great Depression.
If not for the decisive action of Paulson, Bernanke, Geithner and Co. we all may have become farmers living under the freeway. Can’t prove counterfactuals, but that is what we believe. So give them an A+ for stabilization. Structural adjustment and long-term reform is an entirely different story, however.
We heard Meredith Whitney say this morning that 95 percent of current mortgages are backed, effectively, by the taxpayer,

…95-plus percent of mortgages today are being backed by Fannie and Freddie. Fannie and Freddie are effectively subsidizing unprofitable mortgages that the banks wouldn’t put on their balance sheet. That’s not sustainable and ultimately the taxpayer is paying the bill for it. The banks used to price profitable loans and you know, they’re a myriad of loan products that they’re still not pricing for profits.

Basic microeconomics tells us that government repression of prices creates supply shortages. Think back to the rent control supply and demand graphs in Econ 101, which we have modified in the chart below.
This is one of the reason why we believe housing is so slow to recover. Who in their right mind x/ the Govie would lend long-term money at a rate lower or close to the current inflation rate? Rational lenders also take into account the massive monetization that is currently taking place globally and its impact on future inflation in calculating their expected real returns..."



at http://www.creditwritedowns.com/2012/02/the-current-housing-bust-is-much-worse-than-the-great-depression.html

Iran-Israel Scenario Spiraling Down Rapidly

"One of the things Russ Winter does well as a result of his study of game theory is geopolitical analysis. I don't always agree with him, but he's always thoughtful and provocative. Lately he's been paying a lot of attention to the Iran-Israel situation. Here are his latest thoughts. ~ Lee Adler

Iran-Israel Scenario Spiraling Down Rapidly

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

In my view Israel has all but guaranteed that they will attack Iran's nuclear facility, and that the timing is imminent. Senior Israeli military and intelligence sources said Wednesday, Feb. 22, that Israel's strategic and military position in the Middle East has taken a sharp downturn.

1. UN inspectors were sent packing empty-handed from Tehran after attempting to gain access to nuke facilities. They were also denied an interview with Mohsen Fakrrizadeh, director of the Parchin project and also believed in the West to be the paramount head of Iran's military nuclear program.

2. The transfer of 20 percent uranium enrichment to Fordo is taken by Western and Israel intelligence experts to have accelerated the pace of enriching large quantities of 20 percent enriched uranium to weapons grade and shortened to an estimated six weeks the time needed for arming a nuclear bomb after a decision in Tehran.

3. There was a threat from Iran's Chief of Staff that Iran will not wait for "its enemies" - Israel and/or the US - to strike and will act first.

Iran for its part must be calculating that its facilities are not vulnerable to strikes at this stage. They have also put a wedge between the US and Israel, who seem engaged in back channel and public feuding. The war parties in Israel and Iran are in full ascendancy. This looks like much more than posturing. The oil embargoes are now hitting Europe hard as Brent Sea oil is now $124. For Iran this is a fiat accompli. Even short of conflict, this pressure on the West is costly.

The issue as I see it is that analysts are overly focused on the US-Iran part of the equation, when the reality points to the grossly under-appreciated Israel-Iran aspect. I believe Israel will be forced to act unilaterally, and at that point all the unpredictable elements of conflict and war will manifest themselves. The key variable for the US is: will Iran attempt to close the strait of Hormuz. I believe they will, and at that point the US will respond accordingly. I don't think the US will be party to the Israeli preemptive attack. Judging from the threat seen in #3, Iran will likely hit the US even if the initial response is passive."

at http://www.zerohedge.com/contributed/iran-israel-scenario-spiraling-down-rapidly

Just What Is the REAL Exposure to Greece? Pt 1

"The financial world is awash with theories as to how significant the Second Greek Bailout is. I’m far less concerned with this (the Bailout accomplishes nothing of import and only puts off the coming Greek default by a short period). Instead, I think it much more important to ascertain the true exposure to Greek sovereign debt.



And what better place to start than the banking system of the one country that is playing hardball with Greece during this latest round of negotiations: Germany.



First off, the reports concerning German bank exposure to Greek debt are anything but reliable. For instance, according to the Bank of International Settlements German bank exposure to Greece is only $3.9 billion (though they state this is only on an immediate borrower basis).



This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros’ worth of exposure to Greek debt. And they only include 11 German banks in their analysis. However, of those 11 banks, THREE of them have Greek exposure equal to more than 10% of their total outstanding equity.







Source: Guardian datablog



Let’s consider Commerzbank as an example. Let’s say Greece defaults and creditors get 20 cent on the dollar (this is likely wishful thinking). This means Commerzbank now faces 2.3 billion Euros’ worth of write-downs on its Greek holdings… which means it’s wiped out 21% of its entire equity… which pushes its leverage levels through the roof and most likely renders it totally insolvent (there is no way Greece is the only toxic junk this bank owns).



Mind you, I’m just doing back of the envelope analysis here. But this might explain the following story:

Berlin May Have to Nationalize Giant Commerzbank

… If Commerzbank CEO Martin Blessing could make one wish, he would presumably ask for a few billion euros, or that someone would take the bank's ailing subsidiary Eurohypo off his hands, or that the entire sovereign debt crisis would simply disappear..."

at http://www.zerohedge.com/contributed/just-what-real-exposure-greece-pt-1

... And Nothing Else Matters

"While the headline-chasers will allocate cause to effect for every twitch and ditch in asset prices, JPMorgan's Michael Cembalest appears to agree with us that nothing else matters but central bank balance sheet expansion. As we discussed earlier in the week, major central banks have injected nearly $7tn into world markets since 2007 and while the obscene rise in gas prices should somewhat self-limit the print-fest, it appears not before another bubble has burst as central bankers feel safe on this path given their microscopic focus on their own inflation-measures. Whether it be asset-reflation, boosting bank capital, pulling forward consumer demand, or government-reacharound financing, Cembalest sums up: super-easy monetary policy supports markets right now, prompting his question: "Who knew that unlimited money printing would be such a clean and simple solution to the world’s problems? I would love to read a book called “Reliable Central Bank Exit Strategies”, but I don’t think it has been written yet. Enjoy the ride."



at http://www.zerohedge.com/news/and-nothing-else-matters

Iran 'will take pre-emptive action if Tehran feels threatened'

"Our strategy now is that if we feel our enemies want to endanger Iran's national interests, and want to decide to do that, we will act without waiting for their actions," Mohammad Hejazi told Fars news agency.

Iran is facing growing international pressure and isolation over its disputed nuclear activity. Expanded Western sanctions aim to block its economically vital oil exports and Tehran has said it could retaliate by shutting the Strait of Hormuz shipping lane vital to global energy supplies.

Yesterday Tehran launched military exercises aimed at boosting anti-air defences around its nuclear sites as United Nations officials arrived for talks designed to extract more information about the country's atomic weapon ambitions.

The official IRNA news agency said four days of manoeuvres would deploy missiles, anti-aircraft artillery, radars and fighter jets.

"These exercises aim to reinforce the co-ordination between the military and the Revolutionary Guards for a total coverage of the country's sensitive facilities, especially nuclear sites," the agency said..."

at  http://www.telegraph.co.uk/news/worldnews/middleeast/iran/9095265/Iran-will-take-pre-emptive-action-if-Tehran-feels-threatened.html

Greece Needs New Constitutional Provision Imposed by the Troika; Slight Problem, Constitutionally It Can't Do it

"The sad saga of unending, even impossible demands by the Troika on Greece continues. For example, please consider this set of paragraphs listed in a Eurogroup Statement of conditions placed on Greece.

The Eurogroup also welcomes Greece's intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece's debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter's debt service directly to a segregated account of Greece's paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible. ....

We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.

Lovely, isn't it? The Troika now wants Greece to pass constitutional amendments to meet its demands to bail out Greece French and German bondholders, the IMF, and the ECB.

How likely is that? The answer is "not very" given it cannot be done constitutionally until 2013 at the earliest according to Keep Talking Greece..."

at http://globaleconomicanalysis.blogspot.com/2012/02/greece-needs-new-constitutional.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Eurozone PMI "Worse Than Expected" and Back in Contraction; Expect German-Periphery Divergence to Resolve to the Downside for Germany

"Bloomberg reports Stocks Decline in Europe After Worse-Than-Expected PMI Data

Purchasing Managers Index

European (SXXP) services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate released by e-mail today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.

A separate report showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories in Europe’s largest economy..."

at  http://globaleconomicanalysis.blogspot.com/2012/02/eurozone-pmi-worse-than-expercted-and.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Liquidity Floodgate Set to Backfire; Transmission Broken; Shutting Down the Liquidity Spigot

"The ECB's LTRO was a stunning success. Or was it? Certainly rates dropped in Italy and Spain. However, all that really happened is the ECB became the buyer of first resort in which banks front-ran the trade, buying sovereign bonds for sure profit, plowing back into the same problem that created the European mess.

The ECB's balance sheet skyrocketed in the process, and banks that plowed into those 3-Year LTROs (long term refinance operations) at cheap rates will face a huge rollover problem when the program ends, if not substantially before then.

Should something go wrong (and it will), then the ECB (or rather EMU member countries, especially Germany) will be on the hook for losses.

Consider the enormous mess over the past few weeks caused by a measly 40 billion euro holding of Greek debt by the ECB. Now take a look at the ECB's Balance Sheet expansion recently.

ECB Balance Sheet



Since July 8 2011, the ECB's balance sheet has expanded from 1.92 trillion Euros to 2.66 trillion Euros, a rise of 740 billion euros. €489 billion of that that was taken by 523 banks in the ECB's long-term-refinance-operation LTRO..."

at http://globaleconomicanalysis.blogspot.com/2012/02/liquidity-floodgate-set-to-backfire.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Guest Post: When Risk Is Disconnected From Consequence, The System Itself Is At Risk

"If we understand risk cannot be eliminated, it can only be transferred, then we will understand why the current financial trickery in Europe and elsewhere is doomed to fail.

The entire global economy's fundamental financial instability can be traced back to one simple rule of Nature: risk cannot be eliminated, it can only be transferred to others or masked. And when it is transferred to others or masked, then the causal feedback between risk and consequence is severed.

Once risk has been disconnected from consequence, then it is impossible to discover the price of capital and risk. Once capital and risk have been mispriced, then the inevitable result is misallocation of capital and a positive feedback loop of self-referential, self-reinforcing risk.

Once the causal negative feedback of the real world--consequence--is no longer available to those taking on risk, then only positive feedback remains. Positive feedback inevitably leads to runaway reactions that self-destruct.

This can be illustrated by imagining yourself in a casino where a consortium will guarantee your losses up to $1 million. We call the disconnect of risk from the resulting gain/loss "moral hazard," and to understand the ramifications of moral hazard, we need only compare the actions of two gamblers in the casino: one is using his own money, the other has none of his own capital at risk, and his losses will be covered up to $1 million.

How much risk will you take on in gaming if you can lose $1 million without any loss to yourself? Obviously, we will accept enormous risks because if we win the high-risk bet, the gain will be ours to keep. Low-risk bets yield low returns but high-risk bets yield high returns.

If our losses will be transferred to others, then why waste time betting on low-risk, low-return "red" at the roulette wheel? Let's bet on single numbers because the payoff will be astronomical.

If we actually score a few high-risk "wins," this success feeds our risk appetite. This is a positive feedback loop: our wins reinforce our risk appetite, while negative feedback (the losses from losing bets) no longer register--they have been eliminated from our calculations of risk and gain.

This positive feedback eventually leads us to make stupendously large bets. Eventually, we bet $1 million on a high-risk play and lose. We are wiped out, but oh well, it was fun while it lasted. If we were especially disciplined and clever, we squirreled away some of our winnings in our own account: we kept the gain and the consortium took all the losses.

The risk didn't vanish, it was simply transferred to others who now bear the cost of the unfettered risk being played with abandon. The consortium who financed the no-risk gambling spree now has to absorb the $1 million in loss. If the consortium masked its own risk by presenting a phantom financial security to the casino, then the casino will have to absorb the loss.

In effect, the risk was transferred to the entire system..."

at  http://www.zerohedge.com/news/guest-post-when-risk-disconnected-consequence-system-itself-risk

In Eerie Replay Of 2011, Gold Spikes Abruptly To Over $1770, Silver Follows

"Day after day, the long overdue correction of gold to fair value which as we have discussed previously, is now at about $2000 based on the recent multi-trillion Central Bank balance sheet expansion, keeps getting delayed, providing cheap entry points to all real money adherents. And then we get moments like the past 10 minutes, when gold goes on the same kinds of buying sprees that we remember best from the summer of 2011. With no news at all, in a span of minutes, both gold and silver have soared, with gold touching on $1772, and now about $150 away from its all time highs. The return of gold now is 13% YTD, compared to the far lower 8.4% return for the general market. Why the move? A big buyer obviously. But besides that, why the hell not - when one considers that the last time gold was over $1900, total central bank assets were $2 trillion less, it is a miracle gold is not far, far higher. The catalyst this time according to some is the "sudden realization" that in one week the ECB's balance sheet is about to increase by at least 20% courtesy of the latest and greatest LTRO. According to others, it is "more buyers than sellers." Both are right. As a reminder: we have warned repeatedly that the massive balance sheet expansion is spilling over out from equities and into everything else, including gas and now, gold. We pointed out that the biggest trade off of a soaring market could well be the one thing that derails Obama's presidential campaign. Now the only other thing that could stop central bankers from their CTRL+P frenzy - the surge in real money - is starting, and unlike 2011, it is starting quite early this time around. As we said over the weekend: inflation is a-coming back."



at http://www.zerohedge.com/news/eerie-replay-2011-gold-spike-abruptly-over-1770-silver-follows?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default

"The following are 8 reasons why the Greek debt deal may not stop a chaotic Greek debt default....

#1 Greece Is Being Set Up To Fail

The terms of this new debt deal impose some incredibly harsh austerity measures on Greece and from now on the Greek government will be subject to "permanent monitoring" by EU officials.

In other words, they will be under a microscope.

Any violation of the terms of the debt deal could be used as a pretext to bring down the hammer and cut off bailout funds. Potentially, this could even happen just a few weeks from now.

It has become obvious that there are many politicians in Europe that would very much like to kick Greece out of the euro. In a recent column, the International Business Editor of The Telegraph summed up the situation this way....

It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found..."

at  http://theeconomiccollapseblog.com/archives/8-reasons-why-the-greek-debt-deal-may-not-stop-a-chaotic-greek-debt-default

Germany drawing up plans for Greece to leave the euro

"The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.

Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order.

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a eurozone official..."

at  http://www.telegraph.co.uk/finance/financialcrisis/9091021/Germany-drawing-up-plans-for-Greece-to-leave-the-euro.html

One Ugly Picture, a Few Sad Words

"The long-term unemployment problem, courtesy of Business Insider:
In pictures..."


at http://www.financialarmageddon.com/2012/02/one-ugly-picture-a-few-sad-words.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+financialarmageddon+%28Financial+Armageddon%29

Michael Olenick: Shocking Economic Insight – Mass Foreclosures Will Drive Down Home Prices

"Every doctor knows the fastest way to stabilize a patient is to kill them, because there is nothing more stable than death. While that solution may be fast and inexpensive it’s also sub-optimal. Yet pundits repeatedly posit the fastest way to end the housing crisis is through mass foreclosures. In a strict sense they’re right, that will achieve stability, though so will other policies calibrated to cause less micro and macroeconomic damage .. and a lot less human suffering.
Honest economists explain their reasoning, which is that there is a need to find a market bottom. They argue that in a healthy market sellers should not compete with REO properties and buyers need not worry an oncoming glut of foreclosures will drive down the value of their house. These economists, who remain in the minority, usually preface this is a lousy solution albeit the only one they can think of.
More common are bankers and economists who paint a rosy picture at the notion of throwing millions of families to the street, and millions of homes to the market.
“Once distressed inventory comes down and all of a sudden there’s not enough homes, you’re going to have a real bounce,” said JP Morgan Chase CEO Jamie Dimon in a recent interview.
Dimon surely knows the 2010 Census reports 131.8 million residential housing units for 312.9 million people, including about 17 million empties, so I’m not sure where his housing shortage comes from.
Dimon’s bank is sitting on a powder-keg of $87.6 billion of mostly worthless second mortgages at the end of Q3, 2011, according to the FDIC, so I can see why he’s playing cheerleader for a housing renaissance. But treating people like chumps, by encouraging them to buy in this broken market, crosses the line from puerile to patronizing.
If Dimon’s bank is genuinely bullish on housing then let them show it by dramatically ratcheting up their non-GSE lending. It will be interesting to see how JPM investors react to what I’m sure will be Dimon’s forthcoming announcement that JP Morgan Chase plans to lower credit-standards, increase private mortgage lending, and retain the loans on their own balance sheet.
Every argument housing cheerleaders advance is easily debunked..."

at http://www.nakedcapitalism.com/2012/02/michael-olenick-shocking-economic-insight-%e2%80%93%c2%a0mass-foreclosures-will-drive-down-home-prices.html

Beyond Greece: The Three Scenarios

"As forecasts for peripheral macro data continue to deteriorate and core to strengthen modestly, there is little real comfort available from the European situation aside from the 800lb gorilla that all headlines are focused on today. Credit Suisse describes it as "a case of the outlook being less bad than expected, rather that it being better" and notes that post the Greek situation, despite the ongoing rally in the ever-thinning sovereign bond market, that risk premia (that were dangerously forgotten for the first decade of the Euro) will remain at elevated levels. CS sees three scenarios beyond Greece with even the best-case leaving questions of sustainability, trust, and continued negotiations yet the market's willingness to follow along the path of inevitably ruinous policies seems writ large with today's credit, equity, and FX strength.



Economic growth forecasts revision - core up and periphery down

Looking beyond Greece we think the key factor driving spreads and yields will be the growth prospects of European countries. In the pre-crisis days low growth implied low yields. This may continue to be the case for core markets, but for non-core markets a lack of growth means that the debt burden, and hence the risk premium, will remain high. In pre euro days we see a positive correlation between yield levels and growth. This is less evident post euro and the most recent development is that yields have been rising as the growth outlook has been declining.

We think this marks a significant change in market perception of sovereign risk. For the first ten years of the euro the market has effectively priced out the risk premium for European sovereigns. On the basis that Greece is resolved in a relatively orderly fashion, we think markets will continue to price in this risk premium, and although peripheral spreads may experience some tightening versus core, we think the risk premium remains at elevated levels.



(Trying to) look beyond Greece

As we monitor developments, and look to evaluate the outlook for the European government debt markets post the 20 March, we therefore see broadly three general scenarios:

1. Debt restructuring completed in (relatively) orderly manner and vast maturity of Greek debt has been restructured, second bailout in place.
2. Partial restructuring with ongoing debate – continuation of current situation.
3. Failure-to-pay or debt moratorium on 20 March bond..."

at http://www.zerohedge.com/news/beyond-greece-three-scenarios

Why Greece Must Exit the Eurozone, How it Will Happen (and Why Portugal and Spain Will Follow); Does the Euro Act Like a Gold Standard?

"Several people have asked me about statements I have made that "Greece is in a hopeless situation until it exits the Eurozone."

Actually Greece is in a horrific condition whether or not it exits the Eurozone as the Troika literally destroyed Greece (perhaps purposely to protect French and German banks), by dragging this mess out the way they have.

A Primer on the Euro Break-Up

To understand why Greece (then Spain and Portugal and perhaps even Italy) must exit the Eurozone, one must first understand the flaws of the European Monetary Union.

In general terms, the question at hand is "what makes good and bad currency unions?" The best answer I have seen written anywhere is also in the same article that explains in depth how sovereign defaults and currency devaluations happen..."

at http://globaleconomicanalysis.blogspot.com/2012/02/why-greece-must-exit-eurozone-how-it.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Gold Daily and Silver Weekly Charts - Palpable Fear of a Rise In Gold

“That paper money has some advantages is admitted. But that its abuses also are inevitable and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied.”

Thomas Jefferson, Letter to Josephus B. Stuart, 1817

The fear in the money masters is palpable. Silence, darkness, and the fog of confusion are their most reliable allies.

The schemes of the monied interests depend on the mispricing of risk, and the public remaining asleep while their wealth is quietly transferred, until one day they wake up and find that their accounts have been looted.

And surprise, the money has simply vaporized.

Fill out these claims and stand over there. We'll give you something, whatever scraps are left over after the oligarchs, bankers, and their politicians have taken their fill.

I saw it happen in Russia, as their empire crumbled. And I am seeing it happening now..."

 

at http://jessescrossroadscafe.blogspot.com/2012/02/that-paper-money-has-some-advantages-is.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Outstanding Contraction!: Commercial Paper Outstanding January 2012

"The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they had not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and for January commercial paper generally wen flat while still contracting at a rate of 4.12% on a year-over-year basis to $972.90 billion, a level that is still substantially lower than even the worst periods of the last two recessions."



at http://paper-money.blogspot.com/2012/02/outstanding-contraction-commercial.html

Iran Stops Oil Sales To British, French Companies

"The geopolitical game theory escalates once again, as Iran, which four days ago halted exports to peripheral European countries took it up a notch, and has as of this morning halted sales to British and French companies. Reuters reports: "Iran has stopped selling crude to British and French companies, the oil ministry said on Sunday, in a retaliatory measure against fresh EU sanctions on the Islamic state's lifeblood, oil. "Exporting crude to British and French companies has been stopped ... we will sell our oil to new customers," spokesman Alireza Nikzad was quoted as saying by the ministry of petroleum website." Here is the actual statement from MOP.ir. As a reminder, on January 27 we said how Iran was about to "Turn Embargo Tables: To Pass Law Halting All Crude Exports To Europe." And so it has - now, the relentless media campaign about China isolating Iran in response to American demands has to be respun: recall that in early February Reuters told us that "China will halve its crude oil imports from Iran in March compared to average monthly purchases a year ago, as a dispute over payments and prices stretches into a third month, oil industry sources involved in the deals said on Monday." Apparently that may not have been the case, as there is no way Iran would have escalated as far as it has unless it had replacement buyers of one third of its crude. Incidentally, this is just as we predicted in "A Very Different Take On The "Iran Barters Gold For Food" Story." The end result of this senseless gambit by the west: Europe has less oil, the Saudi fable that it has endless excess suplies is about the be seriously tested, China has just expanded a key crude supply route, and Russia is grinning through it all as Brent prices are about to spike. Iran didn't invent chess for nothing..."

at http://www.zerohedge.com/news/iran-stops-oil-sales-british-french-companies

The ECB Has Opened Pandora’s Box

"The ECB, on its own and without judicial or parliamentary review, has swapped their Greek debt for new Greek debt that is not subject to any “collective action clause.” They did this unilaterally and without the consent of any other sovereign debt bond owners of Greek debt. They did this without objection of any nation in Europe. They have retroactively changed the indenture, the contract made by Greece with all of the buyers of their bonds, when the debt was issued. There is no speculation involved in these statements, there is no longer any guesswork on what might be; the ECB swapped their bonds for new Greek bonds with the assent of the Greek government and it is now a done deal.

Having then done this; the implications must now be considered utilizing the clear light of unadulterated reason. The issue now is no longer a one-off Greek issue but a full on ECB issue. We know now that the ECB can retroactively change the rules, change an indenture, so that if the ECB can do this with Greece then it can certainly do it with any sovereign debt in Europe. If they can exempt themselves from a “collective action clause” then they can exempt themselves from any clause, in any sovereign indenture, for any European country. The fact that they are now clearly senior to any other bond holder, or more aptly put, that any private bond owner is now subordinated to the ECB is one consideration but hardly the most important one. The incredibly grim reality now is that any European and all European sovereign debt can have their indentures changed by the ECB when it is to their advantage. It is the “collective action clause” today but tomorrow it could be the maturity or the coupon or any other terms and conditions in an indenture. It is Greece today but tomorrow it could be France or Portugal or Italy. The “Rule of Law” has been abrogated and tossed aside in the name of political contrivance.

“Necessity; the tyrant’s plea.”
-John Milton

Since the ECB can now retroactively change any bond contract to whatever it likes and with any nation in its dominion then the valuation of European sovereign debt must be re-examined for what it really is which is no longer what anyone previously thought. Starkly put; the bonds issued by the sovereign nations in Europe are no longer pari passu, on equal footing, with the bonds issued in the United States. We have just passed a clearly defined “break point” where the legal rules were changed to the great disadvantage of all the private debt holders. The risk of ownership of European sovereign debt is now infinitely more dangerous in my estimation than it was last week. We still do not know if the IMF will demand and receive the same special treatment but I assert that it no longer matters. The actions of the European Central Bank are all that was necessary to radically alter the value of European sovereign debt and it is just not me but any number of large financial institutions that are in shock given what has happened with one of the largest and most respected bond investors in the world telling me that “financial repression is the softer word for it.”

Leaving anger and hostility aside; European sovereign debt must now be examined with a new set of metrics. How much yield would investors demand if an IBM indenture, as an example, had language that stated “This indenture is subject, at any time during the life of the bond, to any changes mandated by the Federal Reserve Bank.” Stated another way, what yields would be acceptable to bond investors if there was a Federal statute that said “All indentures in the United States may be changed at will by the Federal Reserve Bank upon their sole discretion.” No “Rule of Law,” no judicial appeal and a fait accompli whenever desired. This is, in terrifying fact, exactly what the European Central Bank has done and if we no longer know what we are buying and if the terms and conditions of an investment can be altered retroactively at will without the consent of bond holders and to the advantage of the ECB then either we should not buy these credits, as in Atlas shrugged, or yields should be in the mid-range of junk bonds because European sovereign bond indentures now are worth no more than the paper on which they are printed.

The European Central Bank, in a very misguided attempt to protect itself, has now opened Pandora’s Box. I doubt if they even realize what they have done; but they will, most assuredly they will. The consequences of their horrendous mistake will soon be upon them as institutions not coerced or forced into buying European sovereign debt will be leaving the playing field en masse as the realization dawns upon investors of just what has taken place. You cannot fool all of the people all of the time and the people that manage money for a living are not a forgiving group when governments try to supersede their lawful rights..."

at   http://www.zerohedge.com/news/ecb-has-opened-pandora%E2%80%99s-box