Daily Archives: April 8, 2012
Having finished his “damage control” PR campaign (for now) Ben Bernanke decided to discuss… Europe, urging the Big Banks to help prop up the system over there.
Exclusive: Bernanke breaks bread with top bankers
After completing a series of public lectures in Washington, D.C. last week, Federal Reserve Chairman Ben Bernanke quietly slipped into New York City for a private luncheon on Friday with Wall Street executives.
Fortune has learned that attendees included Jamie Dimon (J.P. Morgan), Bob Diamond (Barclays), Brady Dougan (Credit Suisse), Larry Fink (Blackrock), Gerald Hassell (Bank of New York Mellon), Glenn Hutchins (Silver Lake), Colm Kelleher (Morgan Stanley), Brian Moynihan (Bank of America), Steve Schwarzman (Blackstone Group) and David Vinar (Goldman Sachs).
Sources say Bernanke spoke at length about monetary policy, in an apparent effort to persuade attendees that they needed to take a more active role in helping to deal with the European debt crisis. He spent virtually no time discussing regulation, although that mantle got taken up by both Dimon (domestic regulation) and Schwarzman (global regulation).
The lunch was held at the New York Fed, and hosted by NY Fed president William Dudley. Before leaving New York, Bernanke separately addressed NY Fed staffers.
This is an interesting progression from the last time Fed officials went to New York:
Fed met with major financial firms to discuss Volcker Rule impact
Documents released by the Federal Reserve on Monday show that its officials met with some of Wall Street’s major financial firms earlier this month to discuss Volcker Rule implications.
The Fed met with representatives from Goldman Sachs, JPMorgan Chase and Morgan Stanley on Nov. 8, according to Bloomberg.com. Bank lawyers H. Rodgin Cohen and Michael Wiseman from Sullivan & Cromwell were also present during the meeting.
According to the documents, the meeting entailed a discussion on “possible unintended consequences of the rule.”
Notice that during discussions of regulations, it was “Fed officials” who attended these meetings, NOT Bernanke himself (at least he’s not mentioned anywhere). So why is Bernanke, the head of the Fed wanting to meet with bankers to discuss Europe instead of Regulation?
You guessed it: Bernanke realizes Europe is totally and completely bust… and that the coming fall-out will be disastrous for the global banking system.
After all, the ECB spent over $1 trillion trying to prop up the system over there. And already the effects of LTRO 2 (which was worth $712 billion) have been wiped out. If you don’t think this sent a chill up Bernanke’s spine, you’re not thinking clearly.
Consider the following facts which I guarantee you Bernanke is well aware of:
- 1) According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans… the real leverage levels are likely much, much higher.) These are a Lehman Brothers leverage levels.
- 2) The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
- 3) The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
- 4) Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)
So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank (the ECB) that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.
I guarantee you Bernanke knows about all of the above. He also knows the ECB’s used up all of its ammunition fighting the Crisis over there. And lastly, he knows that the Fed cannot move to help Europe without risking his job. After all, even the Dollar swap move the Fed made in November 2011 saw severe public outrage and that didn’t even include actual money printing or more QE!
Moreover, Bernanke knows that the IMF can’t step up to help Europe. The IMF is, after all, a US-backed entity. How many times has it requested more money to help Europe? Maybe a dozen? And the answer from the US has always been the same: “No.”
Finally, the G20 countries have made it clear they don’t want to spend more money on Europe either. They keep dangling a bailout carrot in front of the EU claiming they’ll cough up more dough if the EU can get its monetary house in order… knowing full well that they actually cannot provide more funds (otherwise they’d have already done it).
This leaves the private banks as Bernanke’s last resort for a “backdoor” prop for Europe. If private meeting with the TBTFs that focuses on Europe doesn’t scream of desperation, I don’t know what does.
And do you think the big banks, which have all depleted their capital to make their earnings look better, actually have the money to help Europe? No chance.
Which means that Europe is going to collapse. Literally no one has the firepower or the political support to stop it.
Remember, we’re talking about banking system that’s a $46 trillion sewer of toxic PIIGS debt that is leveraged at more than 26 to 1 (Lehman was leveraged at 30 to 1 when it went under).
Again, NO ONE has the capital to prop the EU up much longer. And the collapse is coming.
If you’re not already taking steps to prepare for the coming collapse, you need to do so now.
- Bernanke Just Admitted the Fed Failed… Not That More QE Is Coming (zerohedge.com)
- Exclusive: Bernanke breaks bread with top bankers (finance.fortune.cnn.com)
- Revisited: Three Data Points That Prove Europe Cannot Be Saved (zerohedge.com)
- We Are Nearing the End Game For Central Bank Intervention (zerohedge.com)
The brand new Amels 55-meter yacht, STEP ONE, had her first day out at sea on Tuesday, April 4th 2012. All tests were completed to the full satisfaction of classification bureau Lloyds Register and the Owner’s Representative, Moran Yachts & Ship.
Amels project manager Roeland Berrevoets commented: “This design has now been tried and tested, which means that there were no surprises. After a very productive day, everybody went home smiling.”
STEP ONE’s exterior is designed by the renowned British designer Tim Heywood and her full custom interior by Laura Sessa. She is the first in line of the 55 meters series and measures 660 Gross Tons. STEP ONE is part of the very successful Amels Limited Editions range, which bridges the gap between semi-custom and full custom yachts. There is a possibility that STEP ONE will be on display at the upcoming Monaco Yacht Show in September.
Amels is busier than ever with 12 new construction projects and two major refits underway. The current Limited Editions range offers four models which range from 180 feet to 242 feet (55 to 74 metres), or in gross tonnage terms, from 650 to 1720 Gross Tons. All exterior designs are by Tim Heywood, whilst a number of owners opt for a fully customised interior design.
Amels has been part of the Dutch family-owned Damen Shipyards Group since 1991. The Damen Shipyards Group specialises in technically sophisticated vessels. With approximately 6,000 employees and 38 shipyards worldwide, around 150 vessels are delivered each year. The turnover in 2011 was 1.3 billion Euro with an annual growth of around 10%.
- Ecuadorian Shipyard to Build Damen Fast Crew Supplier for Oilfield Executives (gcaptain.com)
- Billion Dollar Themed Mega-yachts (mb50.wordpress.com)
- Looking To Buy A Yacht? Make Sure You Follow These 10 Simple Steps (businessinsider.com)
- Paracas Yachts design largest sailing Catamaran of the future (bornrich.com)
On Monday, Mexican president Felipe Calderon continued Mexico‘s tradition of blaming America for its self-induced problems, and continued his personal habit of blaming America’s gun laws for the fact that his policies have failed to dismantle Mexico’s drug cartels and, regrettably, that his failure has contributed to a severe increase in murders in Mexico.
At a White House news conference held in conjunction with his meeting with President Barack Obama and Prime Minister Stephen Harper of Canada, Calderon essentially repeated the claim he made during a speech to Congress in 2010, that Mexico’s murder rate increased when the U.S. “assault weapon” ban expired.
Through a translator, Calderon said that “The expiring of the assault weapons ban in the year 2004 coincided almost exactly with the beginning of the harshest — the harshest — period of violence we’ve ever seen.”
“Almost exactly?” As the ban’s leading supporter, then-president Bill Clinton, might have said, “it depends on how you define ‘almost.’”
The ban, which prohibited putting attachments such as adjustable-length stocks and flash suppressors on various semi-automatic firearms, expired in September 2004. Mexico’s sharp increase in murders began after Calderon launched his war against the drug cartels, within days of taking office in December 2006.
Reliable Mexican crime statistics are hard to come by, but cartel-related killings appear to account for the majority of murders in Mexico, and since Calderon put on Mexico’s presidential sash, cartel-related killings have sharply increased. A chart prepared by the Center of Research for Development (CIDAC) think tank shows that Mexico’s murder rate was gradually decreasing before Calderon took office, then began to rise after his war on the cartels began. Cartel-related killings rose from 2,800 in 2007, to 6,800 in 2008, 9,600 in 2009, and 15,000 in 2010.
This is not to blame Calderon for trying to destroy the cartels. We wish him well in that epic struggle. But if Calderon overestimated his ability to triumph over the corruption that has been entrenched in Mexico for more than a century, he will find no solution in decrying the expiration of the 1994-2004 ban. Nor will Miami Herald columnist Andres Oppenheimer be able to justify his opinion that NRA is a “cartel” that bears a “huge tacit responsibility in the bloodshed that is taking place in Mexico” because we oppose the ban’s reinstatement. Since the ban expired, the U.S. murder rate has dropped to about an all-time low, while Mexico’s rate has risen to about an all-time high. Numbers like those tell the story in any language, clearly enough for any politician or two-cent opinion vendor to understand.
Now at first blush, this statement might sound highly critical and moralistic, like saying that Bernanke is feeding the worst habits of the economy, when in reality the economy needs to be cut off from cheap leverage and go cold turkey.
And since elsewhere in his interview, McCulley slammed moralistic interpretations of macro-economics, this seems odd.
But here’s the full line from McCulley: “Suddenly the Federal Reserve is the bartender at an AA Meeting: You Keep cutting the price, but nobody’s drinking!”
So he actually wasn’t making a judgment, but rather just describing the reality of an economy that’s in deleveraging (or as put it, in a liquidity trap). When people want to have less debt, no amount of rate cutting will want them to take on more. When people are quitting alcohol, lowering the price doesn’t matter (or at least, it’s not the price that will make them change their mind.).
Unlike in past recessions, where households were sensitive to changes in the price of credit, in this economy they’re not, and Bernanke’s actions do very little.
So according to McCulley (who sounds very Richard Koo-like, when talking about all this) the answer is: Fiscal, fiscal, and more fiscal stimulus. Let the government lever up, so that the private sector can finishing levering down without an economic collapse.
- Two Investing Geniuses Share Their Take On The Economy, Markets, And What Government Needs To Do Now (businessinsider.com)
- Guest Post: There Will Never Be A Failed US Treasury Auction… Until There Is (zerohedge.com)
- McCulley: We Are In a ‘Liquidity Trap!’ (ritholtz.com)
- Paul McCulley on Fed policy and “liquidity trap” (investmentpostcards.com)
- This Is Paul McCulley’s #1 Fear For The US Economy (businessinsider.com)