Mish's Global Economic Trend Analysis

Slovak Prime Minister Threatened to Resign if EFSF Failed to Pass; It Failed to Pass, What's Next?
Greece may Run Out of Gas in 3 Days in Refinery Strikes; Garbage Piles Up in Street of Athens
FDIC Backs Volcker Rule on Proprietary Trading; Bill Addresses Symptom of Problem, Not the Real Problem
No Bounce in China

Slovak Prime Minister Threatened to Resign if EFSF Failed to Pass; It Failed to Pass, What's Next?

Posted: 11 Oct 2011 08:44 PM PDT

Iveta Radicova, prime minister of Slovak said she was prepared to step down if her coalition failed to approve the EFSF. The vote failed. OK prime minister, how about that resignation?

The Financial Times reports Slovak PM in quit threat over eurozone vote.

Slovakia's prime minister on Monday threatened to resign in a last-ditch attempt to persuade a junior coalition partner to back additional powers for the eurozone's €440bn bailout fund.

Iveta Radicova said she was willing to tie approval of enhancements to the European financial stability facility to a confidence motion ahead of a crucial vote in the Slovak parliament on Tuesday. Officials told the Slovak news agency that she was also prepared to step down if her coalition failed to approve the EFSF.

Talks aimed at breaking the political deadlock in Bratislava over the bailout fund broke down on Monday evening. Parliamentary approval is being blocked by the libertarian Freedom and Solidarity party. Its leader led by Richard Sulik, who has made clear his distaste for a bailout he feels will be costly to Slovakia, the second-poorest member of the eurozone, and end up helping wealthier Greece, a country he says is simply bankrupt and unable to repay any aid.

Speaking before Monday's meeting of the four-party coalition, Mr Sulik said that his party had not shifted its long-standing opposition to the EFSF, and that he would not feel responsible if the government fell over the issue. Without his 21 MPs, the coalition does not have enough votes in the 150-seat parliament to vote through the EFSF extension.

"A responsible decision is now needed on how to proceed next," Ms Radicova, leader of the centre-right coalition, told reporters. If Ms Radicova fails to secure Mr Sulik's support, the government could turn for help to Robert Fico, the leader of the left-wing opposition SMER party, who has said he would support EFSF, but at the price of the government dissolving itself.

Slovakia Votes Down EFSF Expansion Plans

The BBC reports Slovakia votes down eurozone bailout expansion plans

Slovakia's parliament has voted against measures to bolster the powers of the eurozone bailout fund, seen as vital in combating the bloc's debt crisis.

The governing coalition had linked the vote to a confidence motion and as a result has effectively been toppled.

The measure failed to pass by 21 votes, but that result had been anticipated after a junior party in the centre-right coalition said it would abstain.

The Freedom and Solidarity (SaS) party said it was opposed to Slovakia's taxpayers being asked to cover the debts of richer countries.

Many Slovaks feel their country - the second poorest in the eurozone - should not have to bail out countries like Greece.

Government officials said they would try to pass the EFSF expansion package in a second vote with support from the opposition, but no date has been fixed for that vote.

The socialist opposition Smer party - which also abstained - is expected to support the move but may make stringent demands including fresh elections.

Following the vote, Smer said it was up to the four parties in the toppled coalition to approach it with offers.

"We're saying 'no' to a rightist government, but we're saying 'yes' to the rescue fund," Smer leader Robert Fico said during the debate.

Rob Cameron at BBC news offers this opinion:

As one by one the rest of the eurozone ratified the proposals and the debt crisis deepened, most of the coalition came around. Except Richard Sulik, leader of the neo-liberal Freedom and Solidarity party, and his 21 MPs.

Some placed their hopes in Robert Fico, former prime minister and leader of the leftist opposition. But Mr Fico sensed an opportunity to wound and perhaps bring down the government, hastening early elections he is likely to win.

What will happen next? A second vote will probably be held within days. With Mr Ficos's support that vote is likely to succeed.

Finland caved in on collateral demands. Slovak will likely cave in as well. It would be fitting if Slovak stands in the way, but I doubt it does. However, I suspect this is the end of the line for Eurozone bailout increases, at least bailouts that require a vote. There is simply too much opposition everywhere to do any more.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greece may Run Out of Gas in 3 Days in Refinery Strikes; Garbage Piles Up in Street of Athens

Posted: 11 Oct 2011 10:37 AM PDT

Refinery strikes in Greece ahead of a general strike on October 19, have caused supplies of fuel to drop to a mere 3 days. Everyone is up in arms over still more austerity measures. Also ahead of the "general strike", trash collection services are on strike and garbage mounts in the streets of Athens.

Cars Queue Up For Dwindling Gasoline Supplies

Ekathimerini reports Cars queue up as refineries leave strike open

Greece's oil refineries will continue their strike for "as long as necessary," the president of the union representing refinery workers said late on Monday, as cars began lining up to fill their tanks at gas stations across the country from the early hours of Tuesday.

Speaking on Skai Television's "New Files" program, Nikos Orfanos said that a government draft bill to reduce spending in the sector represents a threat to workers' terms of employment, adding that the new measures are aimed at transforming Greece into a "colony" under the control of foreigners.

Meanwhile, speaking on the same program, gas station owner Giorgos Asmatoglou said that while his sector has not expressed any intention to join the strike that began at midnight on Monday, gas stations will be able to continue serving customers only for another three or four days before they begin running dry.

Garbage Piles Up in Street of Athens

AFP reports Greece hit by new strikes against austerity

New strikes hit Greece on Tuesday as the government finalised talks with its EU-IMF creditors on additional spending cuts to secure payment of a bankruptcy-saving loan.

Civil servants blocked the entrance to several ministries, teachers and municipal staff walked out on their jobs and a key refinery began a protest shutdown ahead of a general strike on October 19.

Hospital workers and prison guards will go on strike later this week while Greece's tax collectors and bank workers plan stoppages next week with lawyers also threatening to join the fray.

Public sector workers are up in arms over pay cuts and government plans to put at least 30,000 on temporary leave this year, on top of cuts imposed last year to rein in a budget deficit five times over the European Union ceiling.

Lawyers, pharmacists, taxi owners and other self-employed professionals are protesting against a parallel deregulation drive to improve the competitiveness of the gridlocked Greek economy, which is in a deep recession.

Another strike by garbage collectors that began last week has left the capital Athens strewn with trash heaps.

These reports show Greece is no longer functional. Should gasoline run out, the entire country may as well shut down.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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FDIC Backs Volcker Rule on Proprietary Trading; Bill Addresses Symptom of Problem, Not the Real Problem

Posted: 11 Oct 2011 09:34 AM PDT

As part of the Dodd-Frank financial reform, banks will be barred from trading for their own profit instead of their clients under a rule being proposed by federal regulators.

Yahoo!Finance reports FDIC backs ban on banks trading for own profit

The Federal Deposit Insurance Corp. backed the draft rule on a 3-0 vote Tuesday. The ban on proprietary trading was required under last year's financial overhaul law.

For years, banks had bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers could be forced to bail them out. That's what happened during the 2008 financial crisis.

The Federal Reserve has also approved the draft of the so-called Volcker Rule, which was named after former Fed Chairman Paul Volcker.

The Securities and Exchange Commission and Treasury Department must still vote on it, and then the public has until January 13 to comment. The rule is expected to take effect next year after a final vote by all four regulators.

Wall Street banks have complained that the ban on proprietary trading could prevent them from buying and selling investments that their customers might want. It would also put U.S. financial firms at a competitive disadvantage to those in other countries.

At the same time, several big U.S. banks have already shut down their proprietary trading operations in response to enactment of the financial overhaul.

The rule also would limit banks' investments in hedge funds and private equity funds, which are lightly regulated investment pools. Banks wouldn't be allowed to own more than 3 percent of such a fund. In addition, a bank's investments in such a fund couldn't exceed 3 percent of its capital.

Before Congress passed the financial regulatory overhaul, banks had no limit on how much of those funds they could own. Still, typically on Wall Street, such investments already fall below the 3 percent threshold.

Banks could still put their clients' money into those funds. They will still be able to manage such funds, and collect fees and a percentage of trading profits.

Public Comment Until January 13, 2012

The document is 298 pages, and although I am not going to read it here is a link to the Volcker Rule Proposal courtesy of the Wall Street Journal.

The Journal discusses the legislation in Regulators Unveil 'Volcker Rule,' Seek Comment

U.S. bank regulators on Tuesday unveiled for public comment proposed regulations that outline how banks should restructure their operations to comply with a new ban on risky speculative bets.

Under the so-called Volcker rule, banks would have to stop any proprietary trades by July 21, 2012, and would be barred from using foreign affiliates to conduct trades. They would have a two-year transition period to unwind their holdings of investment firms that conduct prohibited proprietary trades. Under the proposal, proprietary trades are defined as those lasting 60 days or less. For most shorter-term trades, banks would have the burden of justifying to regulators that such a trade is permitted.

In the complex, 298-page proposal, regulators posed 383 questions to industry groups and other members of the public for comment.

The proposal is designed to prohibit trades designed to make a quick profit, but critics say the exemption for hedging could allow banks to make the type of bets the rule aimed to prevent. That is because a bank might define the risk to its portfolio broadly, such as the risk of a recession. Regulators say a thorough compliance program will make sure that banks don't make proprietary trades under the guise of hedging.

Proprietary-trading desks at banks have functioned like hedge funds, making bets on stocks, commodities and other assets, often using borrowed money to do so. A report by the Government Accountability Office in July said stand-alone proprietary trading accounted for $15.6 billion in revenue at the six largest bank holding companies for the 13 quarters from June 2006 to December 2010. However, proprietary trading accounted for $15.8 billion in losses, during the financial crisis wiping out the gains of the previous 4 1/2 years.

Fractional Reserve Lending and Fed Policies at Root of Crisis

Were it not for fractional reserve banking, sweeps, use of 20-1 leverage or greater, and the Fed keeping interest rates too low, too long, reckless behavior might not have happened.

Were it not for too-big-to fail policies of the Fed and Congress, banks may also not have engaged in reckless behavior.

To the extent banks do take poor risks on proprietary trading, on real estate loans, on credit cards, or anything else, they should be allowed to fail, not propped up at taxpayer expense.

Whatever this regulation achieves in its final form (good, bad, or nothing at all), it is 100% guaranteed to not address the root cause of the great financial crisis.

I would rather see bills to end the Fed and fractional reserve lending right along with it. Instead we have a 298 page proposal that addresses a symptom of the problem instead of the problem.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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No Bounce in China

Posted: 10 Oct 2011 11:54 PM PDT

The anemic performance in Chinese equities continues this evening even as equities have rallied as much as 10% in the last week in many countries.

click on any chart for sharper image

Asia-Pacific Equities

Australia is up .62%, India 3.14%, Japan 1.8%, South Korea 1.57%, and Taiwan 2.59%.

$SSEC Shanghai Index

$SPX S&P 500 Index

$DAX Germany Equities Index

$AORD Australia Equities Index

There has been some semblance of a bounce in most places one looks except for China. This is not bullish for commodities in my opinion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Tuesday, October 11, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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