Monday, November 23, 2015


It appears that Mauricio Macri has beaten Daniel Scioli for the Presidency of Argentina thereby ending too many years of Kirchner rule culminating with Cristina, know as the Queen of Botox in various circles which is rather sexist but completely accurate and quite funny (I think).  She is of course a terrible person and a worse leader of a nation and whilst Scioli was not joined with her at the hip, the Peronista influence in Argentine politics may be reduced for a while which would not be a bad thing.  Further, Macri has promised to re-engage with the international financial community which would be a very good thing as at the rate Argentina is running through their reserves external help may well be needed as early as next year.  But this war between the families is hardly over; it is just beginning and may wind up making Chicago in the Thirties look like a kid's game.

Power and money are at stake and for Macri to have any chance of being successful he will have to do a deal with the vulture funds (as they are known in B.A.) in order to get the country back in the good graces of the international community.  This will be fought tooth and nail by Kirchner and her under bosses.  There is no assurance that Macri will be successful and if he is not, the country could well be in crisis by this time next year.  In the minds of Argentine Politicians the state of the nation is never important unless the Party benefits from it.  This is going to get nasty and the Vultures might be well-advised to temper their position a bit in order to give Macri a fighting chance...and for a better chance for a smaller yet monumental payday.

Meanwhile, back in D.C. Big Danny Tarullo, self-appointed under boss for bank supervision in the Yellen Family, was talking tough again.  Subject:  Stress Tests.  Message: they are going to be tougher than ever and will undoubtedly create the need for even more capital on the part of the largest eight banks in the system.  This comes on top of the story of last week regarding new capital requirements which took on a different twist today as some of the finer details regarding the nature of the capital came to light.

Big Danny, who had always talked a good game about international cooperation seems to have decided that in regard to the banks from whom he collects the vig, they are going to play by his rules and bugger the international guys in a number of important aspects, to wit the the capital eligible bonds the banks will be forced to issue must be issued in the U.S. which means that if you have any of those financed outside of the U.S. and subject to non-U.S. law, they will probably have to be refinanced.  Major pain in the bum.   Seems Big Danny doesn't trust the Draghi Family Over There.   "Our Thing" in the world of Central Bankers ain't Danny's thing.

What also got dropped on the magical eight today was that the only thing that is eligible must have a maturity of more than two years.   Now that gets interesting because it means any repayment due on a bond of any maturity is no longer eligible within two years on that repayment date.  The effect of this piece of genius is to force financing into longer maturities, which in general will have higher costs, which eat into ROA, which affects stock prices, which affects asset mix, which creates more capital needs and in the end which means absolutely nothing in an attempt to avoid a repeat of 2008 which we have previously discussed.  Of course what it also does is to increase control over the allocation of assets in the economy through the back door which is exactly in what Big Danny is interested.  Danny likes to pick winners and losers.  Remember back a year or so ago when he ordered the hit on Citigroup in the stress test process?  Oh yeah, that was him.  No one to this day can figure out what going on with him and the Mike and Mike show and why he's so in love with Wells Fargo unless he likes Savings and Loans because they are so nice and safe (yeah, sure), but the funny thing about his new rules is that they hit Wells the hardest.  Estimates are that Wells will need about $40 billion in new capital and--amazingly--Citi will need but $10 billion.  Why?  I can't figure it out but in order to do so you need a complete breakdown of the assets of both institutions and their capital structure which I don't have..

To be safe in the neighborhood with a guy like this running around loose, what you have to do is what he and the family want you to questions asked.  Fund the bonds.  That keeps Janet's boss, the Capo di Tutti Capi in least for a while.  But Big Danny had best keep in mind that the Capo's under boss may not make it to the top when he goes and if this happens, there are going to be contracts put out all over the place.  One of them is going to have Big Danny's name on it.   I hope he likes fish.

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