TIMING IS EVERYTHING

...and mine stinks.  With what is shaping up to be a monumental week, we are off today on a 12 day holiday/grandchild sitting duties journey back east.  Just to show you what I mean, take a look at was as occured over the weekend.

MF Global went toes up.  Now for certain Jon Corzine is having such a bad run that I wouldn't stand within ten feet of the guy for fear that I catch what he has, but I find it interesting why the public thinks the firm failed.  It appears back at the start of the year, ol' Jon, in an attempt to make a sleepy littly clearer look more like Goldie (who fired him, remember?) loaded up on Euro fixed income securities from the PIGS.  Well, we all know what has transpired in Euroland and suddenly everybody got the idea all at the same time that fixed income wasn't the place to be and...well, you see the result.  BUT, the funny thing is it wasn't a bad trade.  MF bought the stuff at a deep discount and there it sits, a couple of points below where it was purchased to be sure but earning a nice tidy yield which was the point of the exercise.  So why this reaction?  You might remember what Charlie has told you:  banks get sick on the asset side by die on the liability side.  Confidence was lost in MF, funding disappeared overnight and bankruptcy was the result.  It is always as such.  Now it appears that there my be a question of misplacement (to be kind) of client funds but this was unknown and played no part in the collapse.  What I would like to know is why the NY Fed pulled their Primary Dealership last week?  Maybe someone will tell me.

Just to enforce the fact that it aint over til it's over in Europe, the Greek Prime Minister announced last night that he was putting the austerity plan which of course is the basis of the bail out package from the Euros to a referendum.  Given that the polls show a 60%+ dissatisfaction with his governance, who knows what the result of this will be.  Just goes to show that survival is the first instinct of any politician.

The G-20 is this week and the agenda used to be how much was Japan and China going to kick into the bail-out.  Now it may well be is there going to be a Euroland because if the referendum goes the way I expect it to go that will become the question of the day.  Of course The Leader will be present and perhaps he can give some advice on how you win a tough  a tough vote in a place like Chicago--like adding Ghadafi and Bin Laden to the voter roles perhaps?  To make matters worse, somebody came up with the bright idea today to overrule the Basel II rules on soverign debt in regard to capital requirements related to the percentage of asset represented by a single exposure to a sovereign which will certainly impact French banks in re Italy, leaving aside for a moment the Italians who are already hurting.  Soc Gen crashed 15%  as I started to write and was headed south.  Italian fixed rate futures got murdered and like the great football coach everyone is screaming, "What the hell is going on out there?"

Anyway, that's what we are facing.  I'm going to break a life-long rule and continue to comment through this period, perhaps not every day, but as much as I can.  This is really too goodto let pass.  I would hate myself if I did...then again, Trouble and Strife is going to hate me when I do.

Happy Landings

JE T'AIME BEAUCOUP

The French, I mean.  I always thought "chutzpah" was a Yiddish word but here I am, wrong again.  It's French.  Now there's no secret that among the Euro banks the French contingent, if not the shakiest, then certainly right up there with the worst of them.  So just a two weeks ago we found ourselves listening to Mme. Lagrande, now of the IMF but late of the Tresor call for the urgent need to recapitalize the Euro banking system.  One might ask where she suddenly found this new religion it having been her job in her former life to oversee the health of the French banking system but that would be boorish.  And so, we remained silent for the most part and nodded assent to this astute revelation on her part and waited for the plan.  We got it today from Mme. Lagrande successor.

Now whilst there is a central bank for Europe it has always been understood that the member states took care of their own when it came to the banks.  Not any more.  In a burst of pan-Euro stateism the new head of the French Treasury announced today that it was his view that a recapitalization of the French banking system was surely needed but it should be undertaken by ALL of Europe working in consort rather than by France alone and that would apply to all the other banks, blah, blah blah.  There seems to be no limit as to the resources of Germany or the German taxpayer in the view of France.  Now, if you still believe in the eventual fiscal and political union of Euroland just watch what happens to this modest proposal in the coming days.  There might be a brief mention of Alsace/ Lorraine prior to a firm "Nein" but that will be about it.  These guys just can't get rid of this "Eurobond" idea even though half the world has told them it's a non-starter.  Then again I though chutzpah was Yiddish; I'll probably be wrong again but I doubt it.

On this news as occured yesterday, the stock markets moved smartly upward confirming belief that these markets have forgotten fundamentals and now trade on emotion alone.  Now I have said that the Banks are a priority for the Euros but they understand that unless they are convinced that whatever happens in the Greek restructure doesn't spill over to Italy of Spain nothing is really acomplished.  Massimo has convinced me that the Italians are going to take care of business (I'm always a bit nervous when I hear that from Massimo) but I believe him.  Ditto for Spain,  but when emotion rules the markets and the volatility is so high it's always a dodgy bet.  Despite what the bloggers say, there is nothing firm out of Europe at this stage which is why I still believe that the Greeks are going to get another advance in order to buy some time.  Try as I might I can't find anther path that can be taken just now.  The result is a forgone conclusion but perhaps they can muddle on for another month or two.  By then it will be near Christmas and nobody will approval anything meaningful then so maybe another month or two...then again, there's tomorrow and who knows what that will bring.  Stay tuned.

L'ETAT C'EST MOI

No, this isn't about Looie 14.  I am referring to what the head of French banking might say if one could be found.  For years there has been very little to choose between the banking sector in France and the government of France.  All of the leaders come from the same class; all of the leaders went to the same school; all of the leaders come from the same party more or less.  The French banking system was...and is, tho to a lesser extent...an arm of the state and does the state's bidding.  Want some proof?  Well, Mme. Lagrande, former head of the Tresor and therefore head of the banking system, became head of the IMF and before one could say "Zut Allores," called for a vast increase in tier one capital on the part of all Euro Banks which is not a bad thing for the head of the IMF to propose.  Of course it would have been better said when she was running things but that's another story.  She was immediately told to shut up and did.  That is why Jim Kramer is an idiot when it comes to all things international for proclaiming how wonderful was Mme. Lagrande.  He was advised to shut up and he did.  Anyway, we now find ourselves in the interesting position of a swirling controversy regarding the funding capabilities of the French banking system which, by definition, brings the credit standing of France into play as well.  

Greece is supposedly the problem and the French news guys immediately debunked the story claiming that the exposure to Greece on the part of French banks was less than 50 billion Euros.  So what's the problem?  Well, as the guy on the pre-game says, "Not so fast my friend."  That is the cross-border exposure.  The Frence banks are the largest contingent of foreign banks inside Greece.  What do those banks/subsidiaries have on their books?  I haven't a clue.  So is there a problem?  Yep.  Could it be a REAL problem?  Yep.  Will it be a REAL problem?  I don't think so or at least I hope not because the French state will pull out all stops to cover it's banking system.  As to it's funding?  Well, in regard to dollars, that's what swap lines between central banks are for boys and girls. As long as their liquidity in Euros is maintained, it will be a rough ride but probably turn out ok.  Remember, banks die on the liability side of their balance sheets; the viability of Greece's credit can be delt with over time.  At the end of the day it might be necessary for a bank to disappear ala Credit Lyonnais (or Debit Lyonnais as it was known in the trade) in 2008.  C'est dommage, but these things happen.  Let's see if I'm right.

Yesterday, Little Paulie Krugman was at it again in the Times, in a stupid and ad homonim attack on the ECB and Jean Claude Trichet.  Now JCT needs no help from me to defend himself against attacks from Little Paulie but a few words must be written in any case.

Little Paulie didn't like JCT responding to a question with the thought that the ECB had behaved "impeccably" as a guardian of price stability claiming that the ECB's action was the reason that the Euro was in danger of collapse.  You see, Little Paulie thinks that the ECB should be buying up the debt of all of Euroland because in his mind there is a "run" on the nations themselves for some reason that he just doesn't understand. Let's see if we can put Little paulie straight.

To begin, unlike the Federal Reserve, the ECB has a single mandate: price stability.  They are not in the business of fixing economies...that is the business of the politicians or as the late Freddie Prinze used to say, "Is not my Yob."  But of course, Little Paulie, like his "progressive" friends could care less for the niceties of laws or regulations.  Being the brightest among us they have carte blanch to interfere where ever needed.  Further it is never, NEVER the fault of the debtor; personal responsibility is never a consideration be it individual or statist in nature.  This is only for moralizers.  The fact that Greece had lied through its teeth as to the state of its finances is of no concern.  Spain?  Spain was doing just fine...forget about the fact that their savings banking system is bust because of speculative real estate lending.  Buy Spanish debt with German money!  And while you're at it buy Italy too!

And so Little Paulie must distort and reshape both the facts of today and the facts of the past.  The reason why he must do this is that, dear Lord, he was wrong.  He is smart enough to recognize that what he is looking at both here and in Euroland is the end of the welfare state that he so dearly loves, the end of the soft socialism that lesser mortals had told him would end when it could not be supported by other people's money.  He was wrong and do you know what life is like for Little Paulie when he has to admit to himself that he was wrong?  Unbearable.  And for we lesser mortals?  Sheer, unbridled joy!