WOFF,WOFF. WHAT'S FOR BREAKFAST?

What came out of Brussels last night was worst than a dog's breakfast but probably the best that could be expected under the circumstances.  Remarkably, and to highlight a world-wind problem, the only thing the talking heads had to say this morning was that Greece had been moved from page one to page two so let's go but stocks which is whay everybody did (mind you, the short covering I suspect was massive)  which is why the Dow closed up 339 points.

What was the deal?  Well, it appears that the banks agreed to lose 50% of their exposure to Greece.  This, according to the sharp-pencil(head) boys will bring down Greece's debt to GDP ratio to 120% by 2020. Great joy abounds.  Of course, the former number is a given whilst the latter...well, just let's say that it depends somewhat on the estimation of economic growth (like 100%) and those kinds of estimates have tended to be a bit dodgy in the past.  Nevertheless, we hope for the best.

Of course I'm not really sure how much of Greece's former bank debt is still held by banks and I'm not sure the Greeks know themselves.  If it turns out that certain banks have been selling this stuff at a discount to Vulture Funds for example, closing this deal may not be the slam dunk people are expecting.
Private investors tend to be a different breed of cat as opposed to government regulated entities some of whom will no doubt require governmental assistance in the future to insure their survival.

And speaking of insurance, one has to wonder what this does to the very active CDS market of very unhappy memory--AIG--as this supposed deal with the banks is being catogorized as a "non-credit event," it being "voluntary" in nature, and not a default which would trigger payment under the CDSs.  I suppose if a gun is held to your head and you give all your money to the guy with the gun that could be considered a "voluntary" act:  I kinda look at it as theft but that's just me.  I wonder whether we will here more of this.

Sticking with the banks, they will also have to recapitalize themselves to the tune of 103 billion Euros which is suppose to cover not only their Greek "voluntary" losses but act as a buffer against any future hick-ups in the credit markets.  The Tier 1 capital level is to be set at 9% and is to be raised from the private market but there is some verbage about governmental help if needed.  It will be.

Now speaking of this, those who have been paying attention might remember the stress test of 6 months ago.  At that point it was determined that the banks needed to raise 200 Billion Euros of new capital; two months ago that number was reduced to 120 Billion no doubt as a result of greatly improving economic and credit conditions.  Of course at the time this was done, it was also announced that Dexia was on the list of the ten best capitalized banks in Europe...just before it was intervened, broken up and shut down.  If anyone believes this 103 Billion Euro crap they aught to have their head examined, but there was language that the liquidity of the system would be protected in some undisclosed manner (read, ECB prints as much money as needed) so that isn't a bad thing.  Mind you, there isn't a lot out there, IMHO, to be raised for any Euro bank so all of this may be moot.  Look for partial nationalizations, mergers and issuance of funny money from the governments if they are to fulfill this nonsensical requirement.

So that takes care of the banks and Greece boys and girls and now the only thing we have to worry about is Italy, Spain and Portugal and of course the FESF or the bail-out fund as I choose to call it.  To be honest I do not have all I need to speak on this yet but  the information is arriving as we speak.  I'm going to defer until tomorrow but keep in mind that as I write, missonaries have already been sent into BRIC lands to convert the natives and convince them to support The One True Church of Euroland.  Anyone know how one says, "Waddayou nuts?" in Portugese?

See you early tomorrow.

THE FIRST TO FALL

Dexia, a Belgian bank with French interests was intervened today by the French and Belgian authorities with a pledge of support from Luxembourg.  No pussy-footing, no messing about.  Finis.  Good bank, bad bank solution for the institution which has been under pressure for some time as a result, among other things, of it's exposure to Greece.

Now if you asked 100 people on Wall Street,"What is Dexia" you would get about 95 blank looks but it's a pretty big institution and by some measures the largest in Belgium.  The interesting thing is that in 2008 Dexia was in  deep do-do partly because of its ownership of FSA and mostly because their portfolio was rubbish.  In fact, at one point they were into the Fed for, if memory serves, around $60 billion which aint chump change.  Well, here they are again and that is the story rather than their failure.

Dexia is symptomatic of what ails Euro banking: after the crash they never got their act together and were not pressed to do so by the banking regulators in each country.  Dexia is just the first of what I believe is going to be a severe restructuring of European banking but the good news in this case is that the French and the Belgians moved with great dispatch to put a lid on the situation.  Whether that lid stays on over the coming weeks is anybody's guess but it was welcome to see such a quick reaction.  Our guys put out a notice today that they are prepared to assist the Euros in any way possible (read, dollar funding) but I suspect that at this stage little will be needed.  I have no way of knowing but I suspect that the Euros are running as fast as possible to a Euro book which if things get nasty will put a huge strain on the ECB and it's anti-inflation obsession as they will be putting out Euros to the system as fast as they can be printed.Nobody said it would be easy.

Meanwhile, on this side of the pond, Sen. Richard Durbin of Illinois made one of the stupidist speeches on the floor of the Senate yesterday in a career filled with stupid speeches.  You might remember as we noted last week, the "Durbin Admendment" to the Dodd/ Frank monstrosity was the proximate cause of the banks raising fees on dubit cards quite dramatically.  Stung by the fact that half the world was blaming him for the banks' actions, he decided that he needed to stike back.  Never one to miss an opportunity to kick an man when he is down, Sen. Durbin decided to pick on everybody's favorite target, Bank of America, by forcefully suggesting that everybody doing business with Bank of America just walk right in and withdraw all their deposits.

Now Durbin has never been accused of being the brigest bulb in the room but one would hope that as a member of the Senate Finance Committee he was aware of the James Rule that banks get sick on the asset side but die on the liability side.  No such luck.  The one great thing about the B of A is that they have the most stable deposit base of probably any bank in the world but up pops this idiot and to deflect attention from his own stupidity he tries to change all that.  Anything, ANYTHING that might cause any adverse affect on the liquidity of the system in times like these is pure madness.  But with men like this in the highest seats of power is it any wonder that we are in a spot of trouble financially? These jerks are simply not to be believed.  As I have said, it's for times like this that the Good Lord made wiskey.  Guess where I'm headed.