Category: Europe

Eu Passes Restrictions on Hedge Funds

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EU finance ministers have decided to require greater transparency and regulations of hedge funds, despite (also here):

EU finance ministers have agreed a common position on draft EU legislation on managers of hedge funds and other alternative investment firms, opening the door for negotiations with the European Parliament, the co-legislator.

The agreement on Tuesday (18 May) comes despite UK concerns that the Europe-wide law could negatively impact the British economy, with 80 percent of hedge funds currently located in London.

I would note that one of the myths here is that hedge funds and other highly speculative activities benefit the economy as a whole.

They don’t. They suck productive intellect and capital into purely speculative activities, and this makes everyone but the hedgies and bankers poorer.

The US has been fighting this tooth and nail, and claiming that this is protectionism in violation of WTO rules, but I agree with Yves at naked capitalism on what this is really about: “

Yves again. Did you catch that? Look at what the Europeans want: to regulate hedge and PE funds, as in prevent them from engaging in behavior proven to be dangerous (abuse leverage) and give investors more disclosure, and restrict firms that refuse to agree to play by those rules. That is hardly a radical agenda, yet Treasury Department is working in lockstep with the industry to defend its ability to operate with minimal constraints. And note that no one is mounting an argument that these businesses are socially productive and hurting them will hurt the economy because no such argument can be made credibly. Instead, an effort to impose “prudent regulation” is begin branded as “discrimination.” The problem is no one outside the industry will buy the argument. And Team Obama’s zealous defense of these firms again reveals how, despite its efforts to present a populist, pro-reform image, that it will never cross its best friends, the big financiers, in a serious way.

With members of Congress realizing that the political backlash from being easy on the banks completely overwhelming any amount of campaign donations that the finance industry can generate, which is why the Senate finance reform bill is getting better, it’s time for Barack and His Evil Minions™ to realize that their political future is connected to taking down the banks.

Hating on Sports Analogies

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Particularly when the person using them does not understand the underlying sport.

Case in point, Greg Sandoval, who in writing about a German court order banning an ISP from providing bandwidth, titles the article, ” Studios score another TKO against Pirate Bay,” in discussing the short-lived offline period.

Less than 12 hours later Pirate Bay was back on line.

I’m not sure if Mr. Sandoval wrote the headline, or if someone else did, but whoever it was, they have no f%$#ing clue as to the sport of boxing, nor what a TKO is.

TKO stands for “Technical Knock Out,” and when it occurs, it’s game over, and someone has lost:

A knockout (also referred to as a K.O.) is a winning criterion in several full-contact combat sports, such as boxing, kickboxing, Muay Thai, mixed martial arts, Karate and others sports involving striking. A knockout is usually awarded when one participant is unable to rise from the canvas within a specified period of time, typically because of fatigue, injury (serious or temporarily incapacitating, e.g. a bleeding cut above the eye can blind a fighter), loss of balance, or unconsciousness; that is, the person may literally be knocked out. A technical knockout (also referred to as a T.K.O.) is often declared when the referee or other judges (such as official ring physician, the fighter, or the fighter’s cornermen) decide that a fighter cannot continue the match, even though he did not fail the count, or, in many regions, a fighter has been knocked down three times in one round.[1] British records refer to TKOs as either “retired”, if the fighter refuses to continue, or “R.S.F.”, for Referee Stopped Fight. In amateur boxing, a knockout is scored as “RSC,” for Referee Stopped Contest. A technical knockout (“Outclassed”) can also be declared if a fighter is ahead by 15 points in a bout.

If you want to use a sports analogy, this is something like a yellow card. It’s inconvenient, and a warning, but the game is still on.

Better yet, Don’t Use a Sports Analogy!!!!

Germany Temporarily Bans the Naked CDS

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Notwithstanding Timothy “Eddie Haskell” Geithner’s whoring for the big banks support of so-called naked Credit Default Swaps, Germany’s Federal Financial Supervisory Authority has banned the sale of these insurance like instruments to people who do not have an interest in the continued existence of the insured property, as well as banning naked short sales of stocks, where you sell stocks that you have not borrowed:

The Federal Financial Supervisory Authority has on Tuesday temporarily banned naked short sales of debt securities issued by eurozone countries for trading on domestic stock exchanges in the regulated market. It has also temporarily banned so-called credit default swaps (CDS) where the reference bond and liability are from a eurozone country, and which does not serve to hedge against default risk (naked CDS).

In addition, BaFin has banned naked short sales in the following financial sector companies:

AAREAL BANK AG
ALLIANZ SE
COMMERZBANK AG
DEUTSCHE BANK AG
DEUTSCHE BÖRSE AG
DEUTSCHE POSTBANK AG
GENERALI Deutschland HOLDING AG
HANNOVER RÜCKVERSICHERUNG AG
MLP AG
MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AG
These bans apply from 19 May 2010, 00:00, until 31 March 2011, 24:00, and will be reviewed.

BaFin justifies these steps given extraordinary volatility in debt securities issued by eurozone countries. Furthermore, credit default swaps on the credit default risk of several countries in the eurozone has increased significantly. Against this background, massive short sales of the affected debt securities and the conclusion of naked credit default risk on eurozone countries had led to excessive price shifts, which could have led to significant disadvantages for financial markets and have threatened the stability of the entire financial system.

Faced with these circumstances, BaFin has also banned naked short sales within the selected financial institutions.

It’s a start, and I think that both the naked short and the naked CDS may very well be illegal throughout Europe in the next 6-12 months as a result.

Link in the original German.

(on edit)
My bad it appears that this ban is temporary lasting until March 31, 2011:

Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.

Makes it less likely that this is part of a trend.

Building an Infrastructure for Tyranny in the UK

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One of the peculiarities of Great Britain is that they have no constitution, so they can change what should be inalienable rights with a law.

A few years back, for example, they removed the right to remain silent in a criminal investigation, and so juries can now explicitly use non-testimony against the defendant.

Well, as part of the coalition deal the Tories and the Lib-Dems, they intend to
set a fixed 5 year term for the parliament.

The current state of parliamentary terms is a maximum of 5 years, but new elections can be called before then, and have to be called before then if there is a failure of a confidence vote.

Well, Conservative David Cameron, Liberal-Democrat Nick Clegg have decided to go with a fixed term of 5 years, requiring at least a 55% vote of Parliament to dissolve the institution.

It appears that this was done because Clegg is concerned about getting cut loose as soon as it is convenient for Cameron.

While this is understandable it is a major change in the way British governance works.

In the US, with the exception of the (thankfully rare) impeachment, terms are fixed, and state actors are controlled by checks and balances from competing branches of government.

This is not the case in a parliamentary system. The Prime minister has much greater powers, particularly in the UK, where there is no formal constitution.

What prevents excesses in government by the ruling party is the threat of government turnover at any time: the no-confidence vote can put the shoe on the other foot in very short order.

If you remove that, you remove many of the constraints on the behavior of the executive.

Clegg is being penny wise, and pound foolish.

Morons

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After all that has gone on with the Euro over the past year, and the fact that the Baltic Republic is suffering through a brutal recession, which its government has made worse by implementing an austerity program, Estonia has announced that it will adopt the Euro next year.

While I understand the issue here, national pride basically, anyone who joins the Euro now, when the state of the currency, and its central bank are currently in flux, is dangerously reckless.

Gordo Out

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Gordon Brown has announced that he is stepping down as head of the Labour Party, which should improve Labour’s chances of forming a coalition with the Lib-Dems and the small fry parties:

Gordon Brown has announced he will step down as Labour leader by September – as his party opens formal talks with the Lib Dems about forming a government.

The PM’s continued presence in Downing Street was seen as harming Labour’s chances of reaching a deal.

Labour and the Tories are both trying to woo the Lib Dems with promises on electoral reform as the battle to run the country reaches its critical phase.

Still, we are in for a time of minority government, with either Labour or the Tories in the lead, and no small amount of instability.

EU Finally Moves on Structural Problems

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The EU has set up a rescue fund to avoid situations like Greece in the future, to the tune of nearly a trillion dollars, and the ECB has agreed to purchase sovereign debt, basically printing money, in order to provide stability in the markets.

I’m beginning to think that everyone in the EU is beginning to realize that the way to do things is to hear what the Germans want, and then do something else.

Looks to be a Hung Parliament in UK

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Unsure of the numbers, but it appears that the Conservatives will have the most seats, but will fall short of the 326 necessary to have a majority government, and that Labour and the Lib-Dems together don’t make 326, so it comes down to either a minority government, or one in which the small fry parties make up the majority.

In any case, Labor got pummeled, and the Lib-Dems appear to have gained votes but lost seats, but the numbers are still not complete.

Economics Update

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It’s jobless Thursday, and initial unemployment claims fell slightly, 7K to 444K, with a 4 week moving average dropping 4,750 to 458,500, and continuing claims fell 59,000 to 4.594 million, though filings for extended claims rose.

Still, we are not seeing numbers that show a recovery in the job market, and the fact that April retail sales disappointed won’t help.

In Yuro land, the European Central Bank held its benchmark steady at 1%, whihc had the effect of pushing the dollar up, which in turn drove oil down.

Basically, Greece trumps the oil disaster.

Greece Bailout Finalized

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The bottom line is €120 billion in loans and guarantees, along with some fairly brutal austerity measures.

Of course, the problem is not that the Greek government is profligate, it has amongst the most meager safety net in the EU, but rather that the populace aggressively evades taxes, and the tax collection authority is inefficient and corrupt.

Estimates have the Greek government, “losing as much as $30 billion a year to tax evasion.”

The solution here is very simple. While the German people may object to lending money to the Greeks, which is one of the reasons that Angela Merkel dithered, I don’t think that the German people would object to lending a few hundred to a few thousand of their nastiest most aggressive tax collectors to Greece.

As it stands not, Greek austerity is being carried on the back of the lower and middle classes, while the wealthy will continue to avoid paying their share. Only a few thousand of the 11 million Greeks claim an income above €100,000.00, and this is clearly not true.

Economics Update

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Well, the Federal Reserves Open Market Committee (FOMC) has spoken, and it has kept its benchmark rate at effectively 0, and repeated its statement that the rates will remain low for an extended period.

Not an unexpected development. After all, the economy still sucks.

In real estate, mortgage applications fell overall, but home purchase applications rose. This is probably the interplay of rising rates versus the expiration of the home purchase tax credit.

In the real world, the American Trucking Aassociation’s Trucking Tonnage Index rose in March, indicating that there is something positive going on.

In the world of sovereign debt, the US Treasury 5-year bonds’ yeild rose to 2.54%, though compared to the yield on 2-year Greek bonds, which are now over 20% (!), it’s pretty cheap money.

Also note that in the continuing euro zone meltdown, Spain’s debt rating was cut S&P.

In energy and currency, oil rose on the news that the FOMC’s posture is unchanged, and the dollar rose on continued Euro zone problems.

You Idiot, You Were the One Slowing It Down!

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So now Angela Merkel is complaining that the rescue package for Greece is moving too slowly:

German Chancellor Angela Merkel said on Wednesday Greece’s international bailout must be accelerated for the sake of the entire euro zone, as the far bigger Spanish economy suffered a credit rating downgrade.

Yo! You Moron!!!!! The person who has being doing all that She can to slow walk this rescue is one, “German Chancellor Angela Merkel.”

I understand that the German public does not like the idea of bailing out Greece, but you pandered to, and encouraged, that sentiment relentlessly, unlike some of the members of your cabinet with whom you clashed, who have accepted the truth.

I hate this, “Why are you slowing down because I’m laying across the tracks,” act.

OK, This IS a Sign of the Apocalypse

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The yield on 2 year Greek government bonds jumped 300 basis points (3%) to 13.522% over the past day.

To place this in perspective:

Greece’s two-year borrowing costs are now higher than those of Argentina, at 8.8 per cent, and Venezuela, at 11 per cent, two countries that have been shunned by many international investors because of the mismanagement of their economies.

This is not a collapse of Europe. What this appears to be is a classic bank run.

This doesn’t make it a potentially life threatening disaster for the George Bailey’s of this world.*

*I’m using It’s a Wonderful Life for illustrative purposes only. I never liked the film, and pretty much no one until it fell out of copyright, and TV stations around the US started using it as cheap filler.

Your JSF Update

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Carrier Drop test h/t Graham Warwick

First and Foremost, I think that we need to start with the cost escalation of the F-35, with the unit cost estimates having escalated from $113.6 million to 136.2 million over just the past few weeks, which has triggered an official notification of a Nunn-McCurdy breach to Congress, which means that the price has escalated by more than 50%.

In the interest of fairness, Lockheed-Martin is rejecting the Pentagon numbers, and claiming that they will hit, or at least come closer to the original numbers, based on ……… I’m not entirely sure what, possibly reading chicken entrails.

Meanwhile, on the other side of the pond, both Italy and the Netherlands are making noises about scaling back their purchases/commitment to the program, (paid subscription required)with the Italians demanding a larger workshare, and the Dutch wondering if the entire thing is simply too dam expensive.

Note that the Dutch are supposed to participate in the Initial Operational Test & Evaluation (IOT&E), purchasing 2 aircraft, but they have only contracted for one, and they can sell the aircraft instead of participating in IOT&E.

It all hinges on the upcoming elections.

On the brighter side for the program the first F-35 with a full sensor suite has flown, sort of:

The mission system installed for the initial flight includes the APG-81 active electronically scanned array radar, EW system, integrated CNI, integrated core processor and the pilot’s helmet-mounted display. The electro-optical targeting sensor and 360-deg EO distributed aperture system will be added later.

(emphasis mine)

So the most low observable sensor, and the sensor that is supposed to allow the aircraft to compete against more maneuverable aircraft by giving the pilot a 360° field of view around his aircraft are not yet flying.

Finally, we have an analysis showing that the F-16 in 1998 out-ranges the F-35. Basically a 1998 PowerPoint slide for the F-16 gives a 630 NM radius with conformal fuel tanks on a strike mission on a hi-lo-lo-hi profile with the final 50 NM in and out on the deck, as versus a 728 NM radius for the F-35, which only pops below 5000 feet once.

Additionally, the F-16 carries 2 GBU-10 2000 lb bombs + 2 Sidewanders + 2 AMRAAM, while the F-35 carries 2 AMRAAM + 2 GBU-12 500 lb bombs.

If the F-16 is just carrying 2 AMRAAM + 2 GBU-12, and conducts its operations above at 5000 feet or above, it out-ranges the F-35, and that’s without considering that the F-16 numbers include the drag of an external jamming pod, and modern F-16s have internal jammers.

Finally, for your viewing pleasure, some the Jim Lerher’s News Hour has a segment on the F-35 that appears to cover all the bases.

Greece Grabs IMF/EU Lifeline

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Not surprising considering that the yields on their latest 2-year bond spiked to 11.61%, so they have asked for the activation of the financial rescue package:

Describing his country’s economy as “a sinking ship,” the Greek prime minister formally requested on Friday an international bailout, testing the solidarity of the European Union as never before.

“We drew up a plan, we took difficult and painful measures,” Prime Minister George A. Papandreou said in a nationally televised address. “But the markets did not respond.”

Concerns about the Greek budget deficit — an estimated 13.6 percent of gross domestic product last year — have pushed interest rates on Greek bonds above those of emerging countries like India and the Philippines, leading to talk of a potential default and years of stagnant growth.

(emphasis mine)

Note that as screwed up as Greece is, and it is arguably the closest to 3rd world nation status among the Euro zone members, it ain’t the Philippines.

Part of the reason for the spike is clearly heard panic mentality, but my guess is also that some of the wonderful new instruments that have come into existence over the past 20 years, credit default swaps (CDS) and the like, which make it profitable to bet on a neighbor’s house burning down, and then torching it.

These instruments magnify both risk and volatility, and this is why they need to be severely restricted or banned.

Damn, When Goldman Gets an Update Post……

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Click for full size

True Dat!

You know that the Vampire Squid* is “living in interesting times.”

It now appears that governments in both the UK and Germany are calling for investigations of the firm’s dealings.

Additionally, in a splendid piece of electioneering, the Tory opposition is calling for a ban on government contracts for the firm until the investigations are concluded.

Finally, in what might be the ultimate indignity, AIG is looking at suing Goldman Sachs on the insurance policies that it provided, on the theory that they were under no obligation to pay the arsonist who burnt down his own house.

It will be interesting to see where things goes from here.

Even with all the the opprobrium directed at the firm (see the Taibbi quote below), the consensus was that they would skate, because they were “too powerful” for any meaningful action to be taken against them.

If this case cracks that shell, I think that we will see many more rocks overturned to see what lurks beneath.

My guess is that this will all end with a token fine and no admission of wrong-doing, but I would be happy to be wrong.

*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Whiskey Tango Foxtrot?!?!?!? The Lib-Dems?

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So, following the first televised debate between candidates for Prime Minister in UK history, a confrontation where Liberal-Democrat candidate is generally conceded to have come off best, the party is leading in a number of polls.

Part of the allure of the Lib-Dems is that their policies are objectively, and quite justifiably, punitive towards the banks that created this mess, and they are explicit about the need to downsize the banking sector.

I don’t think that the Lib-Dems will win, there is 100 years of their predecessor of losing elections, and I think that the nature of the constituencies, which are elected in “first past the post” as in the US, make their capturing even 2nd place in the number of seats unlikely.

Still, with 3 weeks to go before the election, it is a surprising development.

A British Patriot

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J.K. Rowling, author of the Harry Potter series:

No, I’m afraid not. The 2010 election campaign, more than any other, has underscored the continuing gulf between Tory values and my own. It is not only that the renewed marginalisation of the single, the divorced and the widowed brings back very bad memories. There has also been the revelation, after ten years of prevarication on the subject, that Lord Ashcroft, deputy chairman of the Conservatives, is non-domiciled for tax purposes.

Now, I never, ever, expected to find myself in a position where I could understand, from personal experience, the choices and temptations open to a man as rich as Lord Ashcroft. The fact remains that the first time I ever met my recently retired accountant, he put it to me point-blank: would I organise my money around my life, or my life around my money? If the latter, it was time to relocate to Ireland, Monaco, or possibly Belize.

I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles.

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft’s idea of being a mug.

You will inevitably find people, both in the UK and the US who will make noise about moving their primary residence, or their company’s “headquarters” to some other country because of taxes or regulations that they do not like.

These people are Quislings, and they should be viewed as the lowest of the low, and their opinions should be of no concern of any person who cares about this country.