European banking and market risks are now fully absorbed into the United States banking system through derivative agreements backstopping the Continent. These guarantees dwarf the financial capabilities of the largest U.S. banks that are on the hook for them and so it is that the Fed has effectively come to underwrite Europe. The dollar swap line announcement Wednesday was yet again, a thinly disguised bailout of European banks (at least one of which was about to fail) as capital flight in the European banking system had reached a critical juncture. The European and U.S. banking systems are systemically now one-in-the-same. The banks will continue to be propped up with rolling liquidity injections although it resolves nothing. Solvency issues cannot be cured with liquidity and once the fix wears off central banks will be back with more of the same, continuing to throw gasoline on a fire they cannot allow to burn out. Quantitative Easing will rule the world.
There is also the back-story. The role of the ISDA in the Greek 'non-default default was discussed here in the 10/29 post. Take note that the maneuvering continues in order to prevent a cascade of Greek credit default swaps from blowing up. This initial desperate short term gimmick to avoid an avalanche of default triggers on Greek swap contracts had immediate consequence. In the aftermath of the ISDA's refusal to permit default insurance on Greek debt to perform as required, yield spreads on all European debt promptly soared: NYTimes: Scare Tactics in Greece .
"Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), has a lot of explaining to do...if they do nothing else CFTC regulators have to make sure that nobody is digging into the customer cookie jar...In previous beltway shifts [Messrs. Corzine and Gensler] had helped to write the 2002 Sarbanes-Oxley law that was also supposed to help protect investors....Mr. Gensler for his part, has a response to the cronyism charge. Since the firm went bankrupt he has announced that he will recuse himself from issues affecting MF Global., Now?"
"In the Savings and Loans crisis, which was 1/70th the size of this crisis, our agency made over 10,000 criminal referrals and that resulted in the conviction on felony grounds of over 1,000 elites in what were designated as major cases...In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals."
If you buy a Lyxor product, you’re an unsecured creditor of SocGen,” Fink, who heads the world’s largest asset manager, said at a conference held in New York by Bank of America Corp.’s Merrill Lynch unit. Providers of synthetic ETFs should “tell the investor what they actually are. You’re getting a swap. You’re counterparty to the issuer.”Physical ETFs “expose their holders to undisclosed levels of counterparty risk to typically undisclosed counterparties,” Nizam Hamid, deputy head of Lyxor ETFs, said in an e-mailed response to Fink’s comments. “The unregulated use of securities lending has resulted in meaningful losses in the past.”
"But a big surprise was the strong showing of ultraconservative Islamists, called Salafis, many of whom see most popular entertainment as sinful and reject women’s participation in voting or public life."
Gold and silver...