Here's my Top 10 links from around the Internet at 6 pm in association with NZ Mint.
I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
Sorry it's so late. But plenty to chew on. This weekend could be epic. I have my bad feeling again about global markets...
1. MF Global's window dressing - Now it's all coming out. The WSJ reports MF Global disguised its debt levels to investors and counterparties by temporarily slashing the amount of debt on its books at the end of each quarter...
These are the types of things that Wall Street investment bankers do, yet the US government still bails them out and gives them government guarantees.
This is what the biggest moral hazard seen in our time does to behaviour.
Bankers, in this case former Goldman Sachser Jon Corzine, believed it was ok to gamble with clients money on European bonds and then cover it up at the end of each quarter.
The aim was to make big profits (and therefore bonuses).
The only reason this one blew up and was allowed to fail was it wasn't Too Big To Fail.
Here's the WSJ with the gory details:
This comes as it emerged that MF Global, which filed for bankruptcy protection amid questions about its bookkeeping and whether it had properly segregated customer funds, lobbied against a Commodity Futures Trading Commission proposal that would have placed tighter restrictions on how futures-trading firms can invest cash sitting in customer trading accounts.
MF Global Chief Executive Jon Corzine in July participated in a conference call with CFTC officials and strongly opposed the restrictions, saying they would hurt business. The CFTC proposal, which hasn't been voted on, is sure to gain greater scrutiny amid charges that MF Global's customer accounts are short by about $633 million.
And here's the WSJ on how the rest of the industry window dresses too. (The chart below courtesty of Zerohedge shows how all primary dealers of bonds do it.)
No wonder young people without jobs want to occupy Wall St. In olden times peoples heads would be on pikes on bridges. Now? They get bonuses and buy even bigger yachts and more politicians.
And where is Barack Obama in all of this? Employing a Citigroup Chief Executive as his Chief of Staff...
Investors and regulators grew concerned about window dressing last year, after a series of articles by The Wall Street Journal found such activity among "primary dealers," major banks and securities firms that trade directly with the Federal Reserve.
The Journal found that in 2009 and 2010, primary dealers as a group reduced a key form of short-term borrowing by an average of 42% at the end of fiscal quarters from the peak level during the same quarter. They then boosted those levels after the next quarter began. The borrowing was done through repurchase agreements, or "repos," which allow a firm to make big trading bets with borrowed money.
The figures for MF Global, not a primary dealer at the time of the previous Journal analysis, show a similar pattern.
2. Mini Lehman - The fallout from the collapse of MF Global is proving to be wild and violent.
I have a bad feeling about the next few weeks. Remember too that the US Congress is supposed to agree on its budget deficit cutting plans within a few weeks or some automatic shutdowns start being triggered.
Here's Reuters with the gory detail on this. Tonight could be an ugly night.
Call it the mother of all margin calls: Up to 50,000 former customers of bankrupt broker MF Global must find some $1 billion in additional collateral almost overnight, or be forced out of their trades.
Come Friday, with the mass transfer of commodity trading accounts from Jon Corzine's fallen firm to six of its erstwhile rivals, margin clerks will be wrapping up a reckoning of how much additional money is needed to cover millions of positions. Clients who can't quickly meet their margin will have to liquidate, making for a tumultuous day's trade.
Stephen Harbeck, president of Securities Investor Protection Corp, a group that recovers assets from failed brokerage firms, told Reuters that they were having trouble finding brokers willing to take on the accounts.
A mass liquidation in the commodity markets wouldn't have the same effect as in equities, when most of the trade would be selling. For every long futures position there's an offsetting short, and therefore just as many customers should be selling long positions as buying back short ones.
But it may make for a wild session.
"Risk managers out there are going to be as cautious as possible. Obviously with no money coming out of MF, positions are going to have to be liquidated just because there will be accounts that are carrying debit balances over," said Rob Kurzatkowski futures analyst with OptionsXpress in Chicago.
3. Geithner and Summers are the villains - Pullitzer Prize winning political affairs author Ron Suskind has written a book about the early years of the Obama Presidency called Confidence Men: Wall Street, Washington and the Education of a President
I've always wondered what went wrong with Obama. He protrayed hope and change and then changed nothing, instead taking the advice of the same people that ran Bush's economic and financial policy.
Obama has failed dismally to take on the banks.
Here's Ezra Klein's review in the New York Review of books.
Suskind’s story goes something like this: in 2008, Obama was presented with an economic crisis of astonishing severity and complexity. In the beginning, he showed himself to be unexpectedly prepared to deal with it, both intellectually and temperamentally. His self-assurance and personal magnetism attracted a variety of impressive and able advisers, including former Federal Reserve Chairman Paul Volcker, billionaire investor Warren Buffett, UBS America chief Robert Wolf, former Labor Secretary Robert Reich, and former SEC Chairman William Donaldson.
But as “the severity of the crisis bore down on him,” Obama found himself leaning toward a different sort of adviser—safer, more predictable. He wanted people who knew Washington, and knew how to get things done. The “bold visions of the campaign season had meanwhile resolved into the serious, often risk-averse business of actually governing,” writes Suskind. “In the midst of a battering economic storm, it no longer seemed like the right time to be making waves.”
And no single adviser better encapsulates Suskind’s criticisms, and the contradictions in his argument, than Larry Summers. Even more than Geithner, Summers is the villain of the book. Suskind describes him as “brilliant at cultivating the sense of control, even as events spun far beyond what could be managed with any certainty.” He calls that talent “an illusionist’s trick calling for a certain true genius.”
4. 'All we need is confidence' - Even Australia's Julia Gillard is now telling the Europeans what to do. Here's Bloomberg's latest catalogue of handwringing and desperation at the G20 meeting over the weekend.
Hold on tight people.
Here's Julia.
Such calls -- echoed by the U.S., Britain, China and Russia -- highlight international disappointment that Europe missed the G-20’s deadline of this week to deliver a fix for its fiscal woes. German Chancellor Angela Merkel and French President Nicolas Sarkozy sought to regain the initiative by keeping aid for Greece on ice and demanding Italy accelerate austerity.
“The euro zone must absolutely send a message of credibility to the whole world,” Sarkozy told reporters. “When we take decisions they must be applied, when we set rules they must be respected.”
Yeah right, as the Tui Billboard might say. Do you think there's a Tui billboard in Cannes?
5. 'Where did they get all that money' - Here's an animated watercooler conversation about the European bailout plan.
I'm sure this is much more interesting than the sort of watercooler discussions about Kim Kardashian's divorce. I need to get out more.
"Who will buy the debt? Someone. What about Aliens? Yes, hopefullly Aliens. What if there are no aliens? If there aren't any aliens then we are screwed."
6. Chinese bad loans - Reuters reports from the official China Securities Journal on how bad loans in the key Chinese city of Wenzhou have risen for the first time in 10 years in September.
"Related authorities have ordered (banks) to lift their tolerance level for NPL for small-sized firms, therefore, the NPL ratio will be highly likely to keep rising over next few months," it quoted a source as saying. The source said that the NPL at local financial institutions reached about 1.1 billion yuan ($173 million) in September.
Wenzhou, the capital of coastal Zhejiang province, was recently hit by a debt crisis, in which at least 80 business people were reported to have disappeared, committed suicide or declared bankruptcy.
Authorities estimate the fleeing company bosses owe more than 10 billion yuan in total debt to individual creditors pooled from the informal lending market.
7. G-Pap to go - Reuters reports from sources that George Papandreou has agreed to fall on his Shish Kebab.
Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters.
"He was told that he must leave calmly in order to save his (PASOK) party," one source said on condition of anonymity. "He agreed to step down. It was very civilized, with no acrimony."
8. What Roubini really thinks - BusinessInsider reports Nouriel Roubini told clients at a Manhattan soiree this week to expect the worst in Europe, and eventually on China. Cheery chap.
Finally on China, he predicts it avoids a hard landing this year and next year, but sees trouble in 2013-2014.
Ultimately it will end in pain for three reasons:
- A buildup of non-performing loans at the banks.
- A high level of government debt (when you include municipalities)
- And finally every single case of a country that boomed via a huge fixed-asset stimulus ends up in a hard landing, ultimately.
And here's Kenneth Rogoff at Project Syndicate on the future of the Euro:
Do the gnomes of currency markets seriously believe that the eurozone governments’ latest “comprehensive package” to save the euro will hold up for more than a few months?
The new plan relies on a questionable mix of dubious financial-engineering gimmicks and vague promises of modest Asian funding. Even the best part of the plan, the proposed (but not really agreed) 50% haircut for private-sector holders of Greek sovereign debt, is not sufficient to stabilize that country’s profound debt and growth problems.
So how is it that the euro is trading at a 40% premium to the US dollar, even as investors continue to view southern European government debt with great skepticism? I can think of one very good reason why the euro needs to fall, and six not-so-convincing reasons why it should remain stable or appreciate.
9. Kiwi success story - Willy Moon is a 21 year old from Wellington who taking Britain's pop scene with this cracking song and video. HT Giles via email.
10.Totally Clarke and Dawe on the Global economy - Tai Marcheson pays A$800 million for a cup of tea without milk.
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