Bearish Euro Options Get Accumulated

Fun times for Europe

Who shall fund it..? The clam ? China ? Russia ? How about the Libyan rebels and all that cash they have…

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You’ve been notified that notices are being sent….

Really 

A sour investment for venture capital may hurt the balance sheet more going forward since there are too many dollars chasing to little companies.

Perhaps overseas will save the day. Think off shore.

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READ AT CNBC 

STORY HERE

STORY HERE

DALLAS (Reuters) – There is little the Federal Reserve can do at this point to help a U.S. economic recovery battered by problems at home and abroad, a top Fed official said on Monday, adding that he believes it is it incumbent on politicians to attack fiscal problems.

Richard Fisher, president of the Dallas Federal Reserve Bank, did not outright reject further monetary easing, but he emphasized he remains skeptical that such action would be fruitful.

His comments echoed his own dissent to the U.S. central bank’s decision last month to commit to ultra-low interest rates until at least 2013, a stance driven not by fears of reigniting inflation, but because he did not believe the move would do any good.

“If I believe further accommodation or some jujitsu with the yield curve will do the trick and ignite sustainable aggregate demand, I will support it,” Fisher told the National Association of Business Economics on Monday. “But the bar for such action remains very high for me until the fiscal authorities do their job, just as we have done ours. And if they do, further monetary accommodation may not even be necessary.”

He said uncertainties over the domestic fiscal and regulatory outlook and a reignited European debt crisis have knocked the wind from the U.S. economic recovery.

Fisher, who remains a voting member of the Fed’s policy-setting panel through the end of the year, noted that monetary policy is super-loose already, but businesses are not hiring because the regulatory and tax outlook is too uncertain.

He expressed encouragement, however, that Congress and President Barack Obama are “going at it hammer and tongs” to find a balance between short-term stimulus and long-term fiscal restraint.

Although recent economic data, such as the government report showing the U.S. economy added no jobs August, has been “discouraging,” he said, it is misguided to look to the U.S. central bank for a “fix,” when most of the problems stem from issues beyond its control.

The Fed has kept interest rates near zero since December 2008 and has bought $2.3 trillion in long-term securities to give the economy an added boost.

Inflation should gravitate toward 2 percent in coming months, Fisher said.

Worries over the European debt crisis are also hurting the U.S. and global economy, but resolving those problems are beyond the Fed’s writ, he said.

Those woes have spurred purchases of Treasuries, seen as relatively safer assets, pushing down long-term borrowing costs and “doing some of the work for us,” Fisher said.

“We don’t want to be helped at the expense of our largest trading partner,” he said, referring to Europe.

The Fed’s policy-setting panel meets next week to discuss possible actions to further boost the economy. One widely discussed option is to replace some of the Fed’s short-term securities with longer-maturity assets to push down borrowing costs.

Could this be a inflection point ?

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CMI is also holding up the DOW a bit this morning…

Germany may be getting ready to give up on Greece.

After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.

“It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”

Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets and investors raising bets on a default.

Ring-fencing their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth. Underscoring the tone of weekend talks of Group of Seven finance chiefs, U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television that European authorities must “demonstrate they have enough political will” to end the crisis.
Credit Risks

European bank credit risk surged last week to an all-time high and the euro fell by the most against the dollar in a year. Investors have doubts whether Greece, whose two-year notes now yield 57 percent, will implement austerity moves fast enough to get a sixth payment from last year’s 110 billion-euro ($151 billion) bailout.

The Greek government’s top priority is “to save the country from bankruptcy,” Prime Minister George Papandreou said in a Sept. 10 speech in the northern Greek city of Thessaloniki. “We will remain in the euro” and this “means difficult decisions,” he said.

More evidence of rifts at the heart of policy making was exposed with the unexpected Sept. 9 announcement that Juergen Stark, a German, will quit the European Central Bank’s executive board over his opposition to the ECB’s purchases of bonds from debt-laden countries.

“Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” said Julian Callow, chief European economist at Barclays Capital in London. “This could complicate Germany’s involvement in additional bailout programs.”
Marseille Gathering

At the G-7 gathering in the French port of Marseille, ECB President Jean-Claude Trichet and European Union Economic and Monetary Affairs Commissioner Olli Rehn said they knew nothing about the talk in Germany of the so-called Plan B to protect banks. French officials said they weren’t working on a parallel proposal and Bank of France Governor Christian Noyer said his country’s banks have the capital to withstand a Greek default.

BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said on Sept. 10.

Moody’s said in June that the three banks were placed on review to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring,” and the companies’ current rating levels.

Much more on this story at Bloomberg

WASHINGTON (AP) — The largest U.S. banks will be required to show regulators how they would break up and sell off their assets if they are in danger of failing.

The Federal Deposit Insurance Corp. voted 3-0 Tuesday to approve the rules, which were mandated under the financial overhaul passed by Congress last year. They are designed to reduce the chances of another government bailout of Wall Street banks in the event of another financial crisis.

The rules require banks with $50 billion or more in assets to submit so-called living wills to the FDIC, the Federal Reserve and the Financial Stability Oversight Council and send revised plans annually.

Among the banks affected are Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co.

The biggest banks of the group would have to start filing their plans next July. The others wouldn’t be due until 2013.

The FDIC says that 124 financial firms plus 37 federally insured banks and thrifts will be subject to the requirements. Twenty-six of the institutions are U.S. banks or financial firms. The rest are U.S. subsidiaries of banks based in foreign countries.

Liquidity is scarce and solvency is questionable…LIBOR continues to move higher.

Full article/analysis of Europes debt woes 

Also dollar reserves are up across Europe

Russia is now purported to be a white knight for Italy’s debt woes…

Full rumor mill report

Jim Jubak at MSN has out an assessment of the EU crisis and banking issues, in his regular, esteemed form. You really must read the thing in its entirety.

Financial markets are behaving as if they expect a European banking crisis that would require the bailout or nationalization of some European banks. That would feel like a replay of the financial crisis that followed the bankruptcy of Lehman Brothers in the fall of 2008. Only this time, the epicenter would be Europe instead of the United States, and the ripples would expand from the eurozone outward into global financial markets.

How realistic is that fear? Very, I’m afraid. European banks are facing a very real liquidity and capital crisis that could lead to the need for a government rescue of some globally significant banks.

But the crisis isn’t an exact replay of the 2008 crisis. The effects of the crisis would not be limited to Europe, but the likelihood that a European crisis would take down a major U.S. bank — in a mirror image of the 2008 crisis where problems originating in the United States did lead to the bailouts of banks in the United Kingdom, Germany and Belgium — is relatively small. On the other hand, the crisis is potentially worse this time around because the European Central Bank is much less able to intervene as a lender of last resort than the U.S. Federal Reserve was in 2008.

Understanding this crisis
The current European banking crisis is rooted in the Greek, Italian, Spanish, Portuguese and Irish debt crises. But the repeated collapse-bailout-collapse-again pattern of the prices of bonds of those countries wouldn’t have produced the current mess without a series of missteps by banks, bank regulators and central banks.

European banks hold a huge amount of government debt from the countries involved in the crisis. German banks, for example, held $22 billion in Greek government debt at the end of 2010, according to the Bank for International Settlements. If you add holdings of Greek government debt to holdings of private-sector Greek debt, the exposure gets much higher. For example, in May, Fitch Ratings said that French bank Credit Agricole (CRARY +3.59%, news) had $35 billion in exposure to Greek government and private debt. BNP Paribas (BNPQY -0.82%, news) and Société Générale (SCGLY +6.83%, news) had exposure of about $11 billion each.

The exposure of European banks to Greece, however, is small souvlaki compared with exposure to the much larger Italian economy. BNP Paribas, for example, has an estimated $31 billion in exposure to Italian government and private-sector debt. Even where the total for Italy is not as high as for Greece, the additional exposure is big enough to add to worries. Credit Agricole has an estimated $17 billion in Italian exposure.

But the current banking crisis owes as much to the reaction of banks and bank regulators to the problem as to the size of this exposure. Nobody now expects that Greece will be able to avoid a default in the end. Even Sunday’s announcement of new measures to close a $3 billion budget gap just served to convince financial markets that the more Greece cuts, the more the economy will slow, and the fewer taxes the government will collect. Like last year’s rescue package, this year’s deal, if ultimately approved, only buys time.

A bump of 1.25% GDP in 2012; if it passed. Preliminary judgement says it will not pass.

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Number 4 is most interesting and may take some by surprise down the road….

U.S. markets took the ease of turmoil and positive markets in Europe into a chance to climb higher. The S&P is up 0.69%  and the NASDAQ is up 0.9%

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