Trichet Wants 'Quantum Leap' in EU Budget Control

Never waste a good crisis to promote your unpopular agendas.

Jean-Claude "Rahm Emanuel" Trichet wants (barely-)sovereign nations in eurozone to adopt a tighter fiscal union to prevent "bad behavior" like racking up too much debt. The European Commission president José Manuel Barroso, a Portugese, has already proposed a "peer review" process for budget of not just PIIGS but all enrozone members.

Trichet Wants ‘Quantum Leap’ in Euro Budget Control (Richard Weiss and Mark Deen, 5/15/2010 Bloomberg)

"May 15 (Bloomberg) -- European Central Bank President Jean- Claude Trichet called for a “quantum leap” in the way euro- area nations set their budgets and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal.

"“There is a need for a quantum leap in the governance of the euro area,” Trichet said in an interview with Spiegel magazine published on the ECB website. “There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches,” he said.

"Trichet, who said the current crisis may be worse than the Great Depression, is fending off critics who say the ECB caved into political pressure as the sovereign-debt crisis stirred speculation that Europe’s single currency may break up.

"While the 16 members of the euro share a common monetary policy, members are responsible for their own fiscal decisions. That allowed Greece’s budget deficit to reach almost 14 percent of its gross domestic product, exceeding the EU’s 3 percent limit without penalty. Germany’s is 3.2 percent of its GDP.

"Trichet’s move came in tandem with a decision by European Union nations to push through a $1 trillion aid package to support members of the club who face the highest borrowing costs. The ECB’s debt purchases helped push down two-year bond yields over the course of the past week, making it less expensive for indebted nations to finance themselves." [The article continues.]

It is almost absurd to talk about "a common monetary policy" of the eurozone, as there's hardly anything common about the 16 eurozone member countries other than they are located on the European continent.

Euro, a political currency created for wealth transfer from productive nations (think Germany) to not-so-productive nations (think PIIGS) (that's my humble opinion, more in a later post), remains a political tool to force the EU political integration whether the peoples in the member countries like it or not.

The European Commission as executive body, the ECB the central bank, the Council of the European Union and the European Parliament as legislative body, the Court of Justice of the European Communities as judicial body. Sovereignty? What a quaint, 20th century idea!

Never waste a good crisis. Or if there is no crisis, create one.

It should be Germany, not France, who should be threatening to pull out of euro.

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Watch Next Tuesday's Democratic Primaries

in Pennsylvania and Arkansas.

It is good to know that anti-incumbent movement is not confined to the Tea Partyers.

Onetime-Longshots Sestak, Halter May Unseat Incumbent Senate Democrats (5/13/2010 Huffington Post)

"Even a month ago, political insiders scoffed at the idea that progressive challengers could unseat Democratic Sens. Arlen Specter (Penn.) and Blanche Lincoln (Ark.).

"But fundraising and poll numbers have shifted dramatically in both states, and now both incumbents could well lose their party's nominations in primary elections on Tuesday.

"Buffeted by waves of anti-Washington sentiment, both Specter and Lincoln have surrendered their early advantages to Pennsylvania Rep. Joe Sestak and Arkansas Lt. Gov. Bill Halter. A series of polls this week showed Sestak pulling ahead of Specter in Pennsylvania. The latest, from Suffolk University, has Sestak leading 49 percent to 40 percent.

"Lincoln's campaign has acknowledged that she will likely have to face Halter in a runoff -- and Halter could win: New polling from Research 2000/Daily Kos has him trailing Lincoln 46 percent to 37 percent, with 11 percent undecided." [The article continues.]

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Goldman Sachs' Reach in the Current Administration

Firedoglake.com has a list of Goldmanites within the Obama administration, including Elena Kagan.

For the full updated article click here, and here for the original article.

ALTMAN, ROGER.

BERKOWITZ, HOWARD P.

BIDEN, JOE.

BRAINARD, LAEL.

BUFFETT, WARREN.

CLINTON, HILLARY.

CRAIG, GREGORY. (revolving door)

DONILON, THOMAS.

DUDLEY, WILLIAM C.

EFFRON, BLAIR W.

ELMENDORF, DOUGLAS.

EMANUEL, RAHM.

FARRELL, DIANA.

FRIEDMAN, STEPHEN.

FROMAN, Michael.

FUDGE, ANNE.

FURMAN, JASON.

GALLOGLY, MARK.

GEITHNER, TIMOTHY.

GENSLER, GARY.

GEPHARDT, RICHARD (aka "DICK") A.

GREENSTONE, MICHAEL (revolving door to Hamilton Project)

HAMILTON PROJECT, THE

HORMATS, ROBERT.

KAGAN, ELENA.

KASHKARI, NEEL.

KORNBLUH, KAREN.

LEW, JACOB (AKA "JACK") J.

LIDDY, EDWARD MICHAEL.

LIPTON, DAVID A.

MINDICH, ERIC

MURPHY, PHILLIP.

NIEDERAUER, DUNCAN.

OBAMA, BARACK H.

ORSZAG, PETER.

PATTERSON, MARK.

PERRY, RICHARD.

RATTNER, STEVE.

REISCHAUER, ROBERT D.

RIVLIN, ALICE.

RUBIN, JAMES.

RUBIN, ROBERT.

SHAFRAN, STEVEN.

SPERLING, GENE.

STORCH, ADAM.

SUMMERS, LARRY.

THAIN, JOHN.

TYSON, LAURA D’ANDREA.

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Sarkozy Threatened to Pull Out of Euro If Germany Refused to Help Greece - So What?

was my first reaction. Go ahead was my second reaction.

President Nicolas Sarkozy 'threatened to pull France out of euro' (5/14/2010 Reuters Madrid, via Telegraph UK)

"President Nicolas Sarkozy slammed his fist on the table and threatened to pull France out of the euro at a meeting of European leaders deciding Greece's aid package last Friday, according to Spain's El Pais newspaper.

"The newspaper cited comments by Spanish Prime Minister Jose Luis Rodriguez Zapatero to members of his party on Wednesday as relayed by people present at that meeting.

"...Sarkozy demanded a "commitment from everyone to support Greece...or France would reconsider its position in the euro," according to one source cited by El Pais.

"Another source present at the meeting between Zapatero and his party members and cited by the paper said: "Sarkozy ended up banging his fist on the table and threatening to leave the euro...This forced Angela Merkel to give in and reach an agreement."" [The article continues.]

That's not even a remotely credible threat - that France would pull out of euro. For what?

Here's the French share of PIIGS sovereign debt:

Greece: $75 billion (or 32% of Greece's debt)
Italy: $511 billion (or 37% of Italy's debt)
Portugal: $45 billion (or 16% of Portugal's debt)
Spain: $220 billion (or 20% of Spain's debt)
Ireland: $60 billion (or 7% of Ireland's debt)
Total: $911 billion
France's share of PIIGS debt ($3.89 trillion): 23%
France's GDP: $2.86 trillion
Exposure to PIIGS debt as percentage of GDP: 32%

Here's the German share:

Greece: $45 billion (or 19% of Greece's debt)
Italy: $190 billion (or 14% of Italy's debt)
Portugal: $47 billion (or 16% of Portugal's debt)
Spain: $238 billion (or 22% of Spain's debt)
Ireland: $184 billion (or 21% of Ireland's debt)
Total: $704 billion
Germany's share of PIIGS debt ($3.89 trillion): 18%
Germany's GDP: $3.65 trillion (2008)
Exposure to PIIGS debt as percentage of GDP: $19%

(PIIGS debt numbers taken from "Europe's Web of Debt" May 1, 2010 NY Times)

Now who's in worse shape?

Germany's share of the bailout plan is bigger than France's, even though the exposure is smaller than France.

Merkel probably relented because she didn't want to be accused of breaking up the eurozone and endangering the EU collapse. She should know better, as France cannot possibly afford to go it alone. She should have called Sarkozy's bluff.

But acting like a madman seems to work well...

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NPR: Gulf Oil Spill May Be 70,000 Barells Per Day

Could be as high as 84,000 bpd, or an Exxon Valdez every few days.

The official, government estimate? 5,000 bpd.

Gulf Spill May Far Exceed Official Estimates (5/14/2010 NPR)

"The amount of oil spilling into the Gulf of Mexico may be at least 10 times the size of official estimates, according to an exclusive analysis conducted for NPR.

"At NPR's request, experts examined video that BP released Wednesday. Their findings suggest the BP spill is already far larger than the 1989 Exxon Valdez accident in Alaska, which spilled at least 250,000 barrels of oil.

"BP has said repeatedly that there is no reliable way to measure the oil spill in the Gulf of Mexico by looking at the oil gushing out of the pipe. But scientists say there are actually many proven techniques for doing just that.

"Steven Wereley, an associate professor of mechanical engineering at Purdue University, analyzed videotape of the seafloor gusher using a technique called particle image velocimetry.

"A computer program simply tracks particles and calculates how fast they are moving. Wereley put the BP video of the gusher into his computer. He made a few simple calculations and came up with an astonishing value for the rate of the oil spill: 70,000 barrels a day — much higher than the official estimate of 5,000 barrels a day.

"The method is accurate to a degree of plus or minus 20 percent.

"Given that uncertainty, the amount of material spewing from the pipe could range from 56,000 barrels to 84,000 barrels a day. It is important to note that it's not all oil. The short video BP released starts out with a shot of methane, but at the end it seems to be mostly oil.

"There's potentially some fluctuation back and forth between methane and oil," Wereley said.

But assuming that the lion's share of the material coming out of the pipe is oil, Wereley's calculations show that the official estimates are too low.

"We're talking more than a factor-of-10 difference between what I calculate and the number that's being thrown around," he said." [Emphasis is mine. The article continues.]

Two other scientists also have come up the similar number, according to NPR. BP vigorously dispute the number. (What else could they do?)

BP's share price, which has been taking the beating, gapped down today from the tenuous support it had for the past 2 weeks.

The NPR page linked above has the video of oil gushing from a broken pipe, as well as the audio file of the NPR program.

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OT: Spain's Prime Minister Is Mr. Bean Lookalike!

UK's Telegraph has an article by Ambrose Evans-Pritchard published yesterday about Spain's "austerity" program. But my eyes were glued to the photograph of Spain's Prime Minister Jose Luis Rodriguez Zapatero. Mr. Bean!


The article is no laughing matter, though. Evans-Pritchard sees the austerity plan as a sovereignty issue:

"...Mariano Rajoy, the conservative opposition leader, said years of ostrich-like denial by the Zapatero team had reduced the country to an EU "protectorate".

"[The European] Commission president Jose Barroso unveiled plans for EU control over national budgets, including an incendiary demand that Brussels should vet budgets before their first reading in Westminster, the Bundestag, and other parliaments. Current account deficits and credit growth will be monitored. Brussels can imposing sanctions on states that let booms run out of control. "We must get to the root of the problems," he said.

"Such a plan would greatly improve the working of the EMU system, but it would also entail a drastic erosion of sovereignty. The intrusive surveillance is a wake-up call for states that have tended to view the euro as a free lunch." [Emphasis is mine.]

Click here for the entire article "EU imposes wage cuts on Spanish 'Protectorate', calls for budget primacy over sovereign parliaments".

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Is Euro Trashing Since Monday What They Wanted All Along?

Now, what if this trashing of Euro since the introduction of the supposed rescue plan has been THE PLAN all along?

(Tinfoil hat please!)

Cheaper euro would help the area's exporters (mainly Germany I suppose), stronger US dollar would help Geithner's Treasury to attract foreign buyers for the auctions, which would keep the rates low. (How about the US exporters? Oh we thought all the meaningful jobs have been shipped outside the US anyway..)

Win-win.

And as Bank of England's Mervyn King says, the EU now has to have a tighter fiscal union (meaning saying goodbye to the last shred of "sovereignty") in order to save the monetary union.

Never mind as to why the EU has to save the monetary union.

Mark my words. The monetary union was (and still is) for the rest of the EU to step on Germany and keep stepping on. As Jim Rogers said, euro is (and always has been, IMHO) a political currency.

PIIGS governments are hurrying to offer one austerity measure after another. Portugal will introduce "crisis tax" on businesses and individuals. No joke. Taxing more on a contracting economy is a sure winner.

US, UK, and the rest of EU had better remember what happened the last time they all ganged up on top of Germany.

(OK, tinfoil hat off.)

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Market's Verdict on Euro Rescue Plan

The market clearly doesn't think much of it. They continue to sell euro ever since the brief Monday pop on the news.

Technicians would say it's a falling wedge, a bullish sign that the reversal may be imminent.

As if that still matters in a world of algo bots. Maybe it still matters in a sense that the bots may be working the chart pattern...

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Large Explosion Outside Athen's Prison

From Reuters.

Explosion outside Athens' main prison: police (5/13/2010 Reuters via Yahoo News)

"ATHENS (Reuters) – There was a large explosion outside the main prison in Athens on Thursday, Greek police said, but there were no immediate reports of injuries or damage.

""It was a really strong explosion that was heard kilometers away," said a police official, who requested anonymity.

"The top security Athens prison is in the Korydallos suburb, west of Athens."

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Jim Rogers on Euro: Europe Has Given Up on Euro

That's what I thought when I saw that $1 trillion "nuclear" plan to "rescue" euro, which is already back to the level seen last Friday, before the plan was agreed.

(I got the link to this article at Lewrockwell.com.)

Europe has given up on the Euro, says Jim Rogers
(5/12/2010 Business Intelligence Middle East)

"Speaking in a Bloomberg interview in Singapore on Tuesday, Rogers said “I was stunned,” adding “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.”

"The 16-nation currency weakened for a second day against the dollar after rallying as much as 2.7% on Monday, when the governments of the 16 euro nations agreed to make loans of as much as €750 billion (U$962 billion) available to countries under attack from speculators and the European Central Bank pledged to intervene in government securities markets.

"...“It’s a political currency and nobody is minding the economics behind the necessities to have a strong currency,” Rogers said. “I’m afraid it’s going to dissolve. They’re throwing more money at the problem and it’s going to make things worse down the road.”

"...Speaking to Bloomberg on March 8, Rogers had suggested that bankruptcy for Greece would benefit the euro. "The Euro will shoot through the roof," he said adding that letting Greece fail" will show that EU are serious about fiscal responsibility."" [Emphasis is mine. Full article by following the link.]

Well, it didn't happen. The only European leader who insisted on fiscal responsibility, Germany's Angela Merkel, was persuaded by none other than Barack Obama and joined him and a host of other leaders in selling her people down the river of debt.

I also have a feeling that the European leaders and technocrats who came up with the common currency didn't really care about sound currency to begin with. As I said before, I have a feeling that almost the only purpose of the currency Euro was to tie down Germany, and use the currency scheme to transfer wealth and capital from German people to the rest of the EU, particularly the members in the south.

It was a political currency, as Jim Rogers say, and I agree. I suspect it has been just that, all along. Dissolution of that currency, therefore, may mean dissolution of the EU.

I still have old Deutsche Mark somewhere. It may come in handy soon...

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Chutzpah of Obama

U.S. posts 19th straight monthly budget deficit (5/12/2010 Reuters)

"(Reuters) - The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department said on Wednesday.

"It was more than twice the $40-billion deficit that Wall Street economists surveyed by Reuters had forecast and was striking since April marks the filing deadline for individual income taxes that are the main source of government revenue.

"Department officials said that in prior years, there was a surplus during April in 43 out of the past 56 years." [Emphasis is mine. The article continues.]

And yet...

Who's running Europe? Now Obama pressures Spain over cuts after whispers he advised Merkel on saving the euro (5/12/2010 Mail Online)

"Barack Obama is pressuring Spain to make austerity cuts as the European debt crisis rumbles on, it has emerged." [Emphasis is mine. The article continues.]

Austerity cuts pushed by Obama. Ahahaha that's rich.

Before Spain, he was harassing the German Chancellor into committing her country to saving Greece and other Club Med countries for the sake of European unity.

I'm curious to know what Prez Obama really said to the Spanish and German counterparts. "Don't worry, Ben is printing all the money you will need. After all, we're in this together..." ?

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CNBC Is Assuring Us Everything Is Back to Normal

It is hilarious, really, to check the headlines of the mainstream financial news media like CNBC. Right now, these headlines inhabit the front page (of no specific order):

Cramer: 5 Stocks Powering This Market Higher

Mr. Cramer was reportedly saying just last Friday after the "flash crash" that he would put his money in CD... He has proved himself to be a total contrarian indicator, yet again. So what is he peddling now? Apple, Deckers Outdoor, Salesforce.com, Intuitive Surgical, Chipotle. As if nothing happened. Move along, nothing to see here.

Fast Money: Gold Making Double Tops?

According to Fast Money, technical analysts are huffing and puffing about "double top" in gold chart which is bearish. Uh huh.

Technical analysis? We now know what happens when algo bots disappear. Good luck with TA.

Gold Price May Still Have a Way to Go: Analysts

So, which is it? The article is rather devoid of solid analysis. What's more interesting is this Zero Hedge's article that Europe is running out of gold and silver due to exploding demand from the concerned citizens over there.

Dont Fight the Fed - Power of Central Bank Preserved

The Senate voted to keep the Fed in charge of smaller banks. Combine that with the very narrow audit, and you should join CNBC in congratulating the Fed for the successful lobbying - the Fed got all it wanted. So much for "reform".

My moment of insight about the US market a while back - that it will just keep going up because all these large companies listed on the stock exchanges are safe, backstopped by the taxpayers - can now extend to the global markets. The entire world is on hook to save the EU governments and large multinational bankers who lend them money.

After last Thursday's mistake of revealing what's underneath the veneer floor that we stand on - it was like staring into a dark, bottomless elevator shaft - algo bots have been scolded by the financial authority (the Fed comes to mind) never to do that again. Bad bots, you're bad bots!

With the likes of Cramer, they are inviting you, retail investors, to put your money in the stock market. Trust us, your money is in good hands.

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Hedge Fund Advised by Nassim Taleb May Have Triggered a "Black Swan" Moment

with its $7 million bet using S&P500 June put options

Now that's ironic, if it is true. Or was it an experiment?

Did a Big Bet Help Trigger 'Black Swan' Stock Swoon?
(SCOTT PATTERSON And TOM LAURICELLA, 5/10/2010 Wall Street Journal)

"Shortly after 2:15 p.m. Eastern time on Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.

"On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.

"The trade by Universa, a hedge fund advised by Nassim Taleb, author of "Black Swan: The Impact of the Highly Improbable," led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.

"Then, as the market fell, those declines are likely to have forced even more "hedging" sales, creating a tsunami of pressure that spread to nearly all parts of the market.

"The tidal wave of selling fed into a market already on edge about the economy in Europe. As the selling spread, a blast of orders appears to have jarred the flow of data going into brokerage firms, such as Barclays Capital, according to people familiar with the matter.

"Exchanges, in turn, were clogged by huge volumes of offers to buy and sell stocks, say traders and exchange executives. Even before some individual stocks collapsed to just a penny a share, data from the NYSE Euronext's electronic Arca exchange started to appear questionable, say traders.

"In the disarray, some huge superfast-trading hedge funds that now provide much of the liquidity for the stock market pulled to the sidelines. The working theory among traders and others involved in the exchange meltdown is that the "Black Swan"-linked fund may have contributed to a "Black Swan" moment, a rare, unforeseen event that can have devastating consequences." [The article continues.]

Algo bots all ran to the same side. How did the market recover so quickly? A different set of algo bots that were hunting the bargains ran to the other side:

"Around 3 p.m., the selling pressure abated. Just as swiftly as the market fell, it recovered ground. One factor behind the swift recovery, traders say, were funds that use computers and formulas to sniff out bargains in the market. These funds swooped in on hundreds of cheap stocks, helping push the market higher."

Forget the quaint idea that the stock market is a price finding mechanism. It's been rendered just a playground for bots.

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Treasury Issuing Increasing Amount of Bills

Remember Timmy Geithner's announcement a few days ago that his government doesn't need as much money as he thought it would, and so he is reducing the amount to borrow?

Well, sort of. He did decrease the amount for Treasury 3-year note that was auctioned today, from $40 billion to $38 billion. 10-year note that will be auctioned tomorrow will be $24 billion, instead of the normal $25 billion for the original issue.

This week's short-term Treasuries were issued in greater amount to make up for any long-term saving. Timmy's Treasury seems to be borrowing shorter and shorter, not longer.

- 13-week bill: $26 billion, up 2 billion from last week
- 26-week bill: $26 billion, up 1 billion from last week
- 4-week bill: $31 billion, up $8 billion from last week

There's a saying for this in Japanese: 自転車操業. Literally it means pedalling the bicycle. If you stop pedalling, you and your bike will fall down. What Geithner seems to be doing, despite what he says, is to pedal faster and faster as the bicycle gets wobblier. I hope he knows where he's going.

You can track Treasury auctions at my other blog. Tomorrow, the Treasury will auction $25 billion for the Federal Reserve to use, and $24 billion 10-year note. Thursday will be $16 billion 30-year note.

The US Treasury Department auctions slightly over $200 billion in notes and bonds every single month. Greece would be jealous.

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Watered-Down Version of "Audit the Fed" Bill Passes Senate

Better than nothing, I suppose.

With the Vitter amendment which called for wider, continuous audit defeated earlier, the Senate unanimously voted for the Sanders amendment which had been watered down to only a one-time audit of the Fed's emergency lending programs between December 2007 and the date of the bill's enactment. Senator Sanders apparently buckled under pressure.

The audit wouldn't be for anything else, and one time only. And this is exactly what Ben Bernanke, the Fed chairman, has said he would support. I guess the ex-Enron lobbyist that the Fed hired has been successful.

Senate Votes to Audit Fed Emergency Steps, Rejects Wider Probe
(5/11/2010 Bloomberg)

"May 11 (Bloomberg) -- The Senate approved an amendment to the regulatory-overhaul bill authorizing a one-time audit of the Federal Reserve’s emergency-lending programs, and defeated a second proposal that would have allowed continuous inquiries.

"Lawmakers voted 96-0 today for Senator Bernard Sanders’s proposal to let a congressional watchdog conduct an audit of every Fed emergency action since December 2007. The Senate rejected a measure from Louisiana Republican David Vitter that would have permitted unlimited reviews.

"The Sanders amendment is closer to what Federal Reserve Chairman Ben S. Bernanke told legislators he would support. The Fed chief, during a February hearing, invited an audit of emergency loan programs, while raising concerns that broader audit authority could result in reviews of monetary policy.

"“The Sanders amendment gives perfect political cover to senators who are eager to punish the Fed for its secrecy and forays into fiscal policy, but are not eager to take any blame for intervening in the Fed’s setting of interest rates,” said Sarah Binder, a senior fellow at the Brookings Institution.

"Sanders last week narrowed his amendment in response to concerns raised by Bernanke, the Treasury Department and senators that his call for broader audit could threaten the central bank’s independence. The change drew support from Senate Banking Committee Chairman Christopher Dodd, the Connecticut Democrat who wrote the main financial-regulation bill.

"‘Lobbying Power’

"“There was a tremendous amount of lobbying power placed on senators” to avoid audits of monetary policy, said Mark Calabria, director of financial regulation studies at the Cato Institute and a former Senate Banking Committee staff member. “Dodd wasn’t in favor of it, the White House wasn’t in favor of it, and Treasury was absolutely opposed to it.”" [Emphasis is mine. The article continues.]

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SEC, Stock Exchanges Agree on Circuit Breaker Even Though They Don't Know What Caused the Plunge

Is the SEC clueless or pretending to be clueless so that it doesn't see the big elephant in the room (High Frequency Trading)?

Does that make sense to you? They don't know (or say they don't know) what caused it and probably won't know for weeks, but let's fiddle with the market circuit breaker right now and see what that will do in the next big freefall..??

SEC: Exchanges agree in principle to new rules (5/10/2010 AP via Yahoo Finance)

"NEW YORK (AP) -- The major securities exchanges put aside some of their differences Monday and agreed to coordinate trading rules to prevent stock plunges like last week's historic dive.

"The Securities and Exchange Commission said the six exchanges agreed in principle during a meeting with regulators to a uniform system of "circuit breakers." Those are restrictions that would curb trading when a stock index or individual stock or other security rises or falls to a specified level in the course of a trading day.

"Four days after the plunge that sent the Dow Jones industrials down to a loss of nearly 1,000 points in less than 30 minutes, regulators were still saying publicly that they did not know the exact reason for the drop. But there is a growing belief that the varying trading rules on different exchanges contributed to the intensity of the selling and the size of the market's slide.

"People familiar with the situation said regulators believe the disruption was caused by the way different exchanges manage their trades and rapid price swings. A definitive answer could take weeks because regulators are going through information from across the market by hand, said the people, who spoke on condition of anonymity because they were not authorized to discuss the investigation." [The article continues.]

The AP article tries to tell us that if only all exchanges have the same circuit breaker the freefall wouldn't have happened.

Well, we wouldn't know that, would we, until "next time"?

Besides, it seems it was the NYSE's circuit breaker mechanism that made the plunge much worse, by sweeping the sell orders into the other electronic exchanges.

In the meantime, the article does mention High Frequency Trading toward the end, in a totally neutral light, nowhere near even hinting it might have been the cause.

So, to recap, they don't know what happened, but let's put more regulations in to "protect investors". From what?

It's likely from being able to sell and get out of position when a disaster hits. Under the new regulations, all exchanges would slow down or shut down in the time of a crisis, preventing the investors from fleeing from the market. What a way to further fleece the investors in order to "protect" them.

Slowing down or shutting down "at the same time" may be problematic, too. With High Frequency Trading, we are talking milliseconds here.

HFT firms will simply write new and improved algorithms to take advantage of the slowdown mechanism. Without addressing predatory HFT and flash trading, putting in the uniform circuit breaker will probably do next to nothing in preventing a freefall we've experienced.

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$1 Trillion "Nuclear Bazooka" Euro Rescue Plan Buoyed Euro

for about 12 hours. Or even less.

Now Euro is back to where it ended last Friday.

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Goldman Sachs Made Money Trading, Every Single Day

How do you like this statistical impossibility?

Goldman Sachs Has First Quarter With No Trading Loss
(5/10/2010 Bloomberg)

"May 10 (Bloomberg) -- Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before.

"Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time." [The article continues.]

I am sure GS and the fellow Wall Street banks and their hedge fund friends have been playing it perfectly since last Thursday, raking in collective tens of billions.

Now that the EU has offered up to $1 trillion for them to take, they are all set, aren't they? Helicopter Ben will make sure of it by unlimited currency swaps. Oh happy days are back again.

(NOT)

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"Mandatory Volunteering" in San Jose School District

Huh?

"District may require parents to volunteer" is the title of the article today (paper version) by Sharon Noguchi at San Jose Mercury News.

The online version of the article has a different headline, which is even more hilarious: "School district may make volunteering mandatory"

Maybe I'm missing some intricacy of the English language, but isn't volunteering supposed to be, uh, how to say it, voluntary?

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Stock Market Futures Jump on Euro Rescue

I don't think I have ever seen the stock index futures this high. According to Bloomberg as of 3:47 AM EST:

Dow +346.00
S&P 500 +45.80
Nasdaq 100 +75.00

The stock markets around the world are going to celebrate the massive rescue plan of euro, the plan that will backstop, to the tune of nearly $1 trillion, the public and private bad debt in the EU, particularly eurozone. The ECB is going to print money and buying up those bad debts, just like the US Fed has done. European taxpayers are on the hook, so are American and Asian and just about anyone in the world (through IMF), to keep EU governments from defaulting and keep the bankers paid.

In this global celebration, Dow's 1000-point free fall last Thursday will be soon a distant memory. Move along, there's nothing to see here. Just join the crowd and start buying. Anything. High-Frequency Trading bots will make sure you will be given the best price.

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US Fed Re-Opens Currency Swap Lines for Euro Rescue

See, I told you so.

Here's the press release from the Federal Reserve, as of 9:15PM EST, May 9, 2010:

"In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

"Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

"These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly."

$30 billion to the Bank of Canada, unlimited amount to the Bank of England, the ECB, and the Swiss National Bank?

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Nearly Two-Thirds of Germans Want Deutsche Mark Back

In an AFP article discussing the possibility of euro parity with US dollar,

"The majority (52 percent) of Germans fear that inflation could result from the Greek crisis, according to an Emnid poll published Sunday, compared to 45 percent that saw no such danger.

"Moreover, nearly two thirds (59 percent) of Germans think Berlin should consider a return to its pre-euro currency, the deutschmark, with one in three believing the euro will no longer exist in 10 years."

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EU's Defense Plan for Euro

According to AP, EU ministers have agreed on the Euro "defense package", and it is bigger than rumored.

Here's the details:

- 60 billion euro (US$76 billion) from the European Commission
- 440 billion euro (US$560 billion) bilateral backing from eurozone countries
- 220 billion euro (US$280 billion) from IMF
- Grand total: 720 billion euro (US$917 billion)

The entire EU countries, even those not using euro as their currency, will have to contribute (the EC part). The IMF members are on the hook for the IMF portion.

The Asian markets are responding favorably so far, even though they will be on the hook to rescue euro. If the IMF quota is used to determine the contribution, Japan will be asked to pay over 13 billion euro (US$17 billion), and China 8 billion euro (US$10 billion).

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Euro Crisis: US Federal Reserve to the Rescue?

I have no basis for this, to make it clear up front. Just my hunch.

As EU ministers (particularly of those 16 countries that uses Euro as their currency) try to come up with a grand plan (nuclear, bazooka, whatever) to "stabilize" the Euro before the Asian markets open for trading, people are speculating what kind of plan it will be, given the lack of details.

One speculation (or rumor) says this "stabilization" plan may include more than 600 billion Euro bonds issued by the European Commission to fund basically a bailout fund for European banks who holds underwater sovereign bonds. (See this Reuter's article that says "Euro zone sources said late on Friday that the mechanism could be funded by bonds issued by the European Commission with guarantees from euro zone states.")

My question is: Where will the money come from to buy the EC bonds? Who is going to buy them?

My hunch is the US Federal Reserve. There's a chatter about the Federal Reserve re-opening the liquidity swap lines with the ECB. At the height of the credit crisis in 2008/2009, the Fed's liquidity swap lines with foreign central banks swelled to over $600 billion.

The Fed could either extend the swap lines so that the ECB, Bank of England, and other central banks in Europe could buy these bonds, or so that they could funnel the money from the Fed to their financial institutions who would then buy the bonds with that money. I wouldn't be surprised if the Fed directly buys such bonds.

Otherwise, the money to buy these bonds would have to come from the EU member countries' savings. Talk about misallocation of capital. Instead of these capitals deployed for productive means and investments, they would have to fund the "stabilization" mechanism, a sink hole, to prop up the financial institutions.

Just so that you know, the US Treasury has raised $200 billion for the Federal Reserve since late February under the Supplementary Financing Program (SFP), which allows the Fed to use the money raised any way it sees fit to help stabilize the financial markets.

Do you see a depression coming?

If the funding of the mechanism comes from the savings of the member countries, they will (and the world will, probably) get a deflationary depression. If it comes from the Fed's printing press (or the ECB's), it will be an inflationary depression.

Take your pick. We will know soon enough. Maybe as soon as a few hours from now.

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