The Bernank Getting Cold Feet On European Bank Bail Out?

Two weeks after Bernanke agreed to invest unlimited taxpayer funds in the form of global FX swap lines to prevent a worldwide dollar funding squeeze arising from the Europen financial collapse, the Chairman appears to be getting cold feet. BusinessWeek reports: "The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter. Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said." In other words, not only after Bernanke's pledge to fund as much money as is needed to prevent bank defaults around the world, is he actually going to have enough information to determine if there is any danger of this money not getting repaid. Well, better late than never. But at least we can permanently set aside any latent questions over whether European banks have liquidity problems. When even the Fed no longer believes you, you have far bigger problems than just liquidity (except for Dexia: liquidity there may well be the largest problem, but at least it won't be for long).





Asian Stocks May Slump Up to 40% if Greece Exits Euro: UBS

After already falling 20 percent in the third quarter, Asian stocks outside Japan may slump a further 40 percent should Greece exit the euro zone, predicts the bank, in what the bank describes as the “worst case scenario”.

Dexia Nationalization Imminent?

Back on Friday, when we closed out the Dexia long sub CDS trade, we said "We expect a partial or complete nationalization to be announced imminently, which in addition to all other side effects, would lead in a Bear Stearnsing of all accrued profit." Sure enough, here is the Sunday Times on the very topic... And while a nationalization of Dexia, which now appears a matter of hours if not days, will be bad for anyone still long the bank's CDS (it should trade down to pari with Belgium tomorrow, just as Bear CDS trades in line with JPM), it is pretty horrifying for SovX and Eurocore CDS in general, now that a bank which holds assets amounting to 180% of Belgium's GDP, is about to be nationalized by the very same country. Anyone who is still not long Belgium CDS, this is probably your last chance to get on that particular train. Of course, if one is waiting patiently in line at a Dexia ATM machine, one is forgiven.







UK Treasury Fears Effects of a Euro Break Up

Concern is growing in the Treasury over the “very, very great” risks to Britain if the euro breaks apart, reports the FT.

From A Lexington, KY Gas Station Bathroom

Presented without comment.








World is heading for 'Great Stagnation', says Goldman




“It’s Going to Get a Lot Worse”: ECRI’s Achuthan Says New Recession Unavoidable. 



Protectionism beckons as leaders push world into Depression 



As Prisoner Exchange Begins, Los Angeles County Officials Predict Doom 

Everything You Wanted To Know About EFSF (But Should Be Afraid To Ask)

With the weekend full of on-again-off-again comments from various European, Asian, and US politicians and central bankers with regard the chances of various incarnations of the EFSF solving all of our ills (or not), Nomura's Fixed Income Research team has what we feel is one of the most definitive analyses of the various options. We have discussed the self-exciting strange attractor nature of the endgame that will be a leveraged EFSF many times recently. The Nomura team, however, does a great job of breaking down various scenarios, such as Structural Weaknesses of EFSF 2.0, Proposals for an EFSF 3.0 (and their variants), Leverage-based options, and EFSF 2.0 as TARP and how these will result in one of three final outcomes: fiscal union, monetization, or major restructurings risking the end of the euro, as everyone searches for a steady state solution to the 'problem' of the eurozone.

While the most elegant solutions have no official sanction, we think the necessary political resolve is yet to be forthcoming, and the technical issues are challenging if not insurmountable for many of the legal workarounds, resulting in the need for yet another round of parliamentary approvals. Consequently, we see a significant risk that the market, looking for large headlines and enhanced flexibility, will be disappointed at least in the short run.

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