Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else

In an oddly prescient turn of events, yesterday we penned a post titled "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" in which we explained how it was not only the repo market, but the far broader and massively unregulated shadow banking system in Europe that was becoming thoroughly unhinged, and was manifesting itself in a complete "lock up in interbank liquidity" and which, we speculated, is pressuring the Bundesbank, which is well aware of what is going on behind the scenes, to slowly back away from what will soon be an "apocalyptic" event (not our words... read on). Why was this prescient? Because today, Reuters' Christopher Elias has written the logical follow up analysis to our post, in which he explains in layman's terms not only how but why the lock up has occurred and will get far more acute, but also why the MF Global bankruptcy, much more than merely a one-off instance of "repo-to-maturity" of sovereign bonds gone horribly wrong is a symptom of two things: i) the lax London-based unregulated and unsupervised system which has allowed such unprecedented, leveraged monsters as AIG, Lehman and now as it turns out MF Global, to flourish until they end up imploding and threatening the world's entire financial system, and ii) an implicit construct embedded within the shadow banking model which permitted the heaping of leverage upon leverage upon leverage, probably more so than any structured finance product in the past (up to and including synthetic CDO cubeds), and certainly on par with the AIG cataclysm which saw $2.7 trillion of CDS notional sold with virtually zero margin. Simply said: when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation." In fact, it is a link so sinister it touches every corner of modern finance up to and including such supposedly "stable" institutions as Jefferies, which as it turns out has spent weeks defending itself, however against all the wrong things,  and Canadian banks, which as it also turns out, defended themselves against Zero Hedge allegations they may well be the next shoes to drop, as being strong and vibrant (and in fact just announced soaring profits and bonuses), yet which have all the same if not far greater risk factors as MF Global. Yet nobody has called them out on it. Until now.

 

 

"This Time Will Not Be Different": Interactive Chart Of Market Reactions To All Prior 2011 Eurozone Summits And Meetings

Looking at this Friday's n^th European summit, one could be forgiven to forget that so far in 2011 there have been no less than 10 Eurozone finance minister meetings and summits. TEN. And courtesy of Reuters we have an annotated overlay of the MSCI Eurozone bank index' performance so far in 2011. Unfortunately, one quick glance at the chart leads us to two very sad conclusions: i) the time will not be different, and ii) a "favorable" market response will require an hourly barrage of FT/Guardian/La Stampa/Nikkei rumors just to get the ES green, if only for a few minutes. So without further ado, here is the interactive annotated superimposed analysis showing the Eurozone historical meetings/summits and the reaction in bank stocks, Greek and Italian bonds, and the all important Euro.

 

Guest Post: Black Swans And Complexity

Nassim Taleb is wrong about the financial crisis and black swans. The ongoing financial crisis is not the result of a perplexing phenomenon of complexity. It is the beginning of a train wreck we have seen for decades. We are not wandering into a surprise or horrified by the dark specter of a Black Swan rearing its long tailed head; this macro crisis appeared on the horizon long ago, easily calculated by any actuary armed with the knowledge that governments were not investing tax streams, but stealing them for current consumption. Our monetary policies do not defend inflation; they fund deficit spending and protect banking institutions. That is their empirical purpose, and that is what technocrats are now struggling to accomplish in the EU. Further, the monetary system as constructed is not modeled after complexity; it is an artificial hierarchical oligopoly with all the single process failure points that entails, pasted on top of complex economies and kept alive by increasing leverage and bailed out by equally non-robust, frail self-serving governments without the will or common sense to reform. We are not watching complexity at work; we are watching unsustainable bureaucracies self-destruct while they force complex economies to foot the bill. There is no Superman of bureaucracy. There are no rules or regulations that will prevent failure or negate investment on our road to prosperity that we do not already know. Our institutions have just consistently rejected them. After all, leverage and redistribution is much easier than successful investment. In a complex system, these bureaus would have died and been replaced by their betters long ago.

 

Guest Post: Start Thinking in Terms of Gold Price

Obviously, measuring portfolios in dollars exaggerates performance in real terms. This isn't to say that one shouldn't invest in stocks. It means that one must: a) be cognizant of how results compare to gold or other real assets that one might buy with whatever currency one is dealing with; b) adjust brokerage statements to allow for currency dilution; and c) not rely on stocks in general to outpace inflation. In fact, it isn't just investments that are eroding. Our entire world is being devalued, even as one reads this article – from groceries and gas to cars and college. Someday we'll want to spend the gains we're making; how will we avoid the long-term erosion of the currencies we invest in?

 

Gold and Silver rise/waiting for resolution from Europe on Dec 9/ Tomorrow testimony from MFGlobal's Jon Corzine

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 2 hours ago

Good evening Ladies and Gentlemen: Gold and silver had a good day today waiting patiently for news from Europe on how they can going to tackle their huge sovereign debts.  Thus we are just marking time waiting for news to emanate from the EU leaders. Gold finished the comex session at $1740.90 up 13 dollars on the day.  Silver on the other hand was held back finishing the day down 11 cents to

In The News Today

December 7, 2011, at 11:14 pm
by Jim Sinclair 

Jim Sinclair’s Commentary

Everyone trading securities or commodity futures, holding paper gold/silver or any OTC metals derivatives and ETFs in gold and/or silver is using a clearinghouse facility.

MF Global and the great Wall St re-hypothecation scandal By Christopher Elias (UK)
(Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global’s bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.
More…




Jim Sinclair’s Commentary

What is done is done and cannot be undone. What will occur cannot be stopped.

The can of liquidity worms will be kicked down the road as a political expedient. The only tool to kick the can down the road as a political expedient is QE.

QE will move towards infinity in the entire Western World of finance. End of story!

 

Does the Indefinite Detention Bill Foretell Future?

December 7, 2011, at 1:51 pm
by Greg Hunter 

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The recent passage of the National Defense Authorization Act (Senate Bill 1867), otherwise known as the “Indefinite Detention Bill,” should scare the heck out of anyone who loves the U.S. Constitution and the Bill of Rights.  This bill effectively hands over control to the military to arrest, torture and even kill terrorists on American soil.  It also allows the military to hold suspected terrorists indefinitely without a trial or due process.  This applies to both non-citizens and citizens of the United States!  With this bill, you are not innocent until proven guilty.  You are guilty until proven innocent, and you may never get a trial to defend yourself.  There is surprisingly little written in the mainstream media about this Senate bill that passed 93 to 7 at the end of November.
Last week, Wired.com posted a compelling article on the “Indefinite Detention” debacle.  It said in part, “So despite the Sixth Amendment’s guarantee of a right to trial, the Senate bill would let the government lock up any citizen it swears is a terrorist, without the burden of proving its case to an independent judge, and for the lifespan of an amorphous war that conceivably will never end. And because the Senate is using the bill that authorizes funding for the military as its vehicle for this dramatic constitutional claim, it’s pretty likely to pass.
It would be one thing if the military was clamoring for the authority to become the nation’s jailer. But to the contrary: Defense Secretary Leon Panetta opposes the maneuver. So does CIA Director David Petraeus, who usually commands deference from senators in both parties. Pretty much every security official has lined up against the Senate detention provisions, from Director of National Intelligence James Clapper to FBI Director Robert Mueller, who worry that they’ll get in the way of FBI investigations of domestic terrorists. President Obama has promised to veto the bill.”  (The links in the preceding two paragraphs are impressive and need to be read.)  (Click here to read the complete Wired.com post.)
My question is who decides who is a terrorist, and who checks to make sure the charges are valid?  If this bill gets through the House of Representatives, and is signed by the President, the military will answer to no one.  The only hope of short circuiting this bill is for the House to put a stop to it.  I think arch conservatives and arch liberals should unite and radically change this legislation to follow the Constitution instead of gutting it.  You think that can’t happen?  Senators Rand Paul and Al Franken are on the same page on this issue, and that represents both extremes of the political spectrum.  Every American, no matter the party, should be terrified by this legislation whether you are Democrat, Republican or Independent.
More…

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Tens of Millions of American Families are Living on the Edge of Desperation--And the Economy is About to Get a Whole Lot Worse



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John Williams Hyperinflation Warning, Preserve Wealth Value With Gold



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