Readable - 07/11/11

Finance/Economics:


"Unless the European Central Bank steps in very soon and on a massive scale to shore up Italy, the game is up. We will have a spectacular smash-up. If handled badly, the disorderly insolvency of the world’s third largest debtor with €1.9 trillion in public debt and nearer €3.5 trillion in total debt would be a much greater event than the fall of Credit Anstalt in 1931. (Let me add that Italy is not fundamentally insolvent. It is only in these straits because it does not have a lender of last resort, a sovereign central bank, or a sovereign currency. The euro structure itself has turned a solvent state into an insolvent state. It is reverse alchemy.) The Anstalt debacle triggered the European banking collapse, set off tremors in London and New York, and turned recession into depression. Within four months the global financial order had essentially disintegrated." - Ambrose Evans-Pritchard


"Italy is borrowing at 6.4% to lend to Greece at 3.5%. This will end well." - Unknown


"Absent a clear path to a much tighter fiscal and political union, which can lead only through constitutional change, the current halfway house of the euro system appears increasingly untenable. It seems clear that the European Central Bank will be forced to buy far greater quantities of eurozone sovereign (junk) bonds. That may work in the short term, but if sovereign default risks materialize – as my research with Carmen Reinhart suggests is likely – the ECB will in turn have to be recapitalized. And, if the stronger northern eurozone countries are unwilling to digest this transfer – and political resistance runs high – the ECB may be forced to recapitalize itself through money creation. Either way, the threat of a profound financial crisis is high. - Kenneth Rogoff


"BERLUSCONI SAYS ITALIAN DEBT HELD MOSTLY HELD BY ITALIANS - like Mario Draghi" - Zero Hedge


"Europe has enough resources to solve it's problem. It is a money distribution problem within. In terms of fiscal deficits, by Asian standard, the cuttings required are relatively small. What Asian economies did after the Asia Financial Crisis were several times as big. It just doesn't make sense for others to help Europeans when they could help themselves." - Andy Xie


"Former Bundesbank President Axel Weber said the plan to leverage the European Financial Stability Facility increases the likelihood that tax payers have to step in, Sueddeutsche Zeitung reported. Germany’s public debt would rise to 135 percent of gross domestic product if Italy and Spain were to tap the EFSF financial backstop, the newspaper cited Weber as saying in a speech in Frankfurt. As the sole guarantor to the EFSF, Germany could end up with a debt of 314 percent of GDP in an extreme case, Weber said." - Bloomberg


"I always thought that a AAA rated government guaranteed vehicle was supposed to benefit from volatile market conditions as there was a natural flight to quality….the frightening thing is that the EFSF might just have become a credit….and that’s not good….put another way, the vehicle that is supposed to borrow on behalf of countries that can’t borrow…cannot borrow…." - Gary Jenkins


"Berlusconi's latest assurance over his majority may be bad news for Italian bonds, which sold off again on Friday to push their yield to a record euro-era high above 6.4 percent. The spread over German bunds, reflecting the higher risk premium investors place on Italy, also hit a record above 4.6 percentage points.
Bond prices would recover and the yield spread would fall by a full percentage point if the government should fall, according to a Reuters survey of 10 fund managers, market analysts and strategists last week." - Reuters


"China should be thanking Greece everyday, for keeping the world's financial gaze away from East Asia." - Jim Chanos



The denials that trapped Greece - New York Times

Subprime moment looms for 'risk-free' sovereign debt - Gillian Tett/Financial Times

World pressures Germany on ECB - Reuters

60 Billion Euros the Greeks believe the Germans owe them - David Thomas/Daily Mail

Selling more CDS on Europe debt raises risk for U.S. banks - Bloomberg

Credibility is not everything - Paolo Manasse/Vox EU

Italy's future - The Street Light

Euro banksters' threat largely empty? - Naked Capitalism

Fast cars and loose morals - Ian Cowie/The Telegraph

Corzine forgot lessons of Long Term Capital - Roger Lowenstein/Bloomberg

6 things no one will tell you about MF Global - Brett Arends/Marketwatch

China credit squeeze spurs suicides, violence - Bloomberg

H.K. home prices may fall 45% - Bloomberg

The market is not rigged, your brain is - Interloper

The big list of behavioral biases - The Psy-fi Blog

India's folly: Borrowing abroad to create a sovereign wealth fund - Firstpost


Political/Social:

The ally from hell - The Atlantic

Is self-knowledge overrated? - The New Yorker

Manmohan Singh shows his true colours - Firstpost

Seven reasons why Rahul Gandhi is not fit to lead - Firstpost