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There is too much to report on this evening -Germany moved in total panic move to ban short-selling...
This has been my greatest fear: A STUPID DESPERATE move from the idiotic policy makers..... this DOES NOTHING to mitigate downside.... they are removing considerable liquidity from the market, the move will be seen as penalty to holding German assets, German moves early and leaves trail for others to follow - can u say REGULATORY ARBITRAGE?
This is classic panic in crisis - if looked upon in history the politicians and central banks has learned nothing but to repeat the mistake of 1920s.... gr8 work - I was worried before tonigt - now I can hardly sleep.
Below most of the research I got tonight on the issues (thank to Ed, Jesper, Eric, GS, Nomura et al)
====================
Goldman:
Germany imposes temporary ban on shorts
Germany's Bafin has just put out a press release banning short selling of sovereign CDS starting tonight and lasting through March 31, 2011, possibly inspired by the UK and US banning of shorts at the height of the financial crisis (Reuters' English translation of headlines below) In our view, its likely that this drastic move has been triggered by the planned passing by parliament of the German share of the EUR 440bn package on Friday. Dirk Schumacher, who also just landed has heard that there seems to be more resistance to the help package than previously thought. So far, we have not heard of similar moves in other Euro-zone countries, but it seems likely that several of them might follow suit later this week. As I discussed in my note on Sunday, policymakers are determined to protect the Euro-zone, and they have identified the financial markets as the key obstacle for stability, which implies risks of further regulation. Stay tuned as we learn more Dirk & Erik 19:28 18May10 RTRS-GERMANY'S BAFIN ANNOUNCES BANK ON NAKED SHORTSELLING OF CDS ON EUROZONE GOVERNMENT BONDS 19:31 18May10 RTRS-GERMANY'S BAFIN SAYS BAN TAKES EFFECT FROM MAY 19 TO MARCH 31, 2011 AND 'WILL BE CLOSELY MONITORED' 19:32 18May10 RTRS-GERMANY'S BAFIN SAYS BAN ON SHORT-SELLING ALSO APPLIES TO SHARES OF 10 LEADING FINANCIAL INSTITUTIONS 19:33 18May10 RTRS-GERMANY'S BAFIN SAYS STEP 'DUE TO EXTRAORDINARY VOLATILITY WITH GOVERNMENT BONDS IN EURO ZONE' 19:35 18May10 RTRS-GERMANY'S BAFIN SAYS MASSIVE SHORT SELLING COULD HAVE LED TO EXCESSIVE PRICE MOVEMENTS 19:36 18May10 RTRS-GERMANY'S BAFIN SAYS MASSIVE SHORT SELLING COULD HAVE ENDANGERED FINANCIAL SYSTEM STABILITY 19:40 18May10 RTRS-GERMANY'S BAFIN SAYS SHORT SELLING OF SHARES BANNED AT AAREAL BANK AG, ALLIANZ SE, COMMERZBANK AG 19:40 18May10 RTRS-GERMANY'S BAFIN SAYS SHORT SELLING OF SHARES BANNED AT DEUTSCHE BANK AG, DEUTSCHE BOERSE AG, DEUTSCHE POSTBANK AG 19:41 18May10 RTRS-BAFIN SAYS SHORT SELLING OF SHARES ALSO BANNED AT GENERALI DEUTSCHLAND HOLDING AG, HANNOVER RUECKVERSICHERUNG AG 19:42 18May10 RTRS-BAFIN SAYS SHORT SELLING OF SHARES ALSO BANNED AT MLP AG AND MUENCHENER RUECKVERSICHERUNGS-GESELLSCHAFT AG | ||||||||
FT: Spanish debt auction comes close to failure
By David Oakley
Published: May 18 2010 18:09
Spain came close to its first debt auction failure on Tuesday,
highlighting the funding problems for weaker eurozone economies.
The government's difficulties in selling €6.44bn ($7.96bn) in one-year
and 18-month bills sparked worries over its 10-year debt auction on
Thursday.
Madrid had planned to issue €8bn, but only just attracted that amount
of bids, with yields at record highs. This prompted debt managers to
reduce the size of the sale by €1.56bn. Normally a government bill
auction would be covered at least 1.5 times.
By David Oakley
Published: May 18 2010 18:09
Spain came close to its first debt auction failure on Tuesday,
highlighting the funding problems for weaker eurozone economies.
The government's difficulties in selling €6.44bn ($7.96bn) in one-year
and 18-month bills sparked worries over its 10-year debt auction on
Thursday.
Madrid had planned to issue €8bn, but only just attracted that amount
of bids, with yields at record highs. This prompted debt managers to
reduce the size of the sale by €1.56bn. Normally a government bill
auction would be covered at least 1.5 times.
=================
Reid Says He Has Votes to Limit Debate on Financial Regulation
2010-05-18 19:32:56.875 GMT
By James Rowley
May 18 (Bloomberg) -- Senate Democratic Leader Harry Reid
said he will have the 60 votes needed to limit debate on
legislation to overhaul financial regulation and move toward
final passage later this week.
"A number of Republican senators have told me they will
vote" to limit debate on the measure, Reid told reporters
today. "It's time for us to vote" after almost a month of
debate on a new regulatory structure designed to prevent risky
investments that helped cause the 2008 financial crisis, he
said.
The Senate has scheduled a vote tomorrow on Reid's push for
limiting the debate. Under Senate rules, it takes 60 votes to
approve such a motion. With a 59-41 majority, Democrats need at
least one Republican for the motion to pass.
If Reid prevails tomorrow, a second procedural vote to
curtail deliberations would be needed before the Senate could
proceed to final passage unless Democrats strike a deal with
Republican leaders that would allow for a certain number of
amendments to be considered.
Maine Republican Susan Collins said she would decide
tomorrow whether to support limiting debate. "We are making
progress in working through the amendments, that's very
encouraging to me," Collins told reporters. "The process thus
far has been open and fair," she said.
2010-05-18 19:32:56.875 GMT
By James Rowley
May 18 (Bloomberg) -- Senate Democratic Leader Harry Reid
said he will have the 60 votes needed to limit debate on
legislation to overhaul financial regulation and move toward
final passage later this week.
"A number of Republican senators have told me they will
vote" to limit debate on the measure, Reid told reporters
today. "It's time for us to vote" after almost a month of
debate on a new regulatory structure designed to prevent risky
investments that helped cause the 2008 financial crisis, he
said.
The Senate has scheduled a vote tomorrow on Reid's push for
limiting the debate. Under Senate rules, it takes 60 votes to
approve such a motion. With a 59-41 majority, Democrats need at
least one Republican for the motion to pass.
If Reid prevails tomorrow, a second procedural vote to
curtail deliberations would be needed before the Senate could
proceed to final passage unless Democrats strike a deal with
Republican leaders that would allow for a certain number of
amendments to be considered.
Maine Republican Susan Collins said she would decide
tomorrow whether to support limiting debate. "We are making
progress in working through the amendments, that's very
encouraging to me," Collins told reporters. "The process thus
far has been open and fair," she said.
==============
Bafin Confirms German Ban on Naked Short-Selling at Midnight
2010-05-18 18:24:04.236 GMT
By Alan Crawford
May 18 (Bloomberg) -- Germany's BaFin financial-services
regulator said that it will introduce a temporary ban on naked
short-selling and naked credit-default swaps of euro-area
government bonds starting at midnight.
The ban will also apply to naked short-selling in shares of
10 banks and insurers including Allianz SE and Deutsche Bank AG,
BaFin said today in an e-mailed statement.
2010-05-18 18:24:04.236 GMT
By Alan Crawford
May 18 (Bloomberg) -- Germany's BaFin financial-services
regulator said that it will introduce a temporary ban on naked
short-selling and naked credit-default swaps of euro-area
government bonds starting at midnight.
The ban will also apply to naked short-selling in shares of
10 banks and insurers including Allianz SE and Deutsche Bank AG,
BaFin said today in an e-mailed statement.
=====================
Nomura comment:
Couple thoughts coming out of cont'd discussion on the announcements which i think make sense are that these new bans are largely political. In advance of the 21 May vote on Germany's loan guarantees, it would be understandable that they could try to get ahead of a US-like political and legal scuffle down the road about banks making money by being short the market and through CDS while Germany was bailing out Greece...
.. and if Germany is doing this, then the others could easily be close on their heels.
While the market impact (given that since the package was announced CDS longs and cash bond shorts should have already gotten out) should be localized or is at least questionable, we are worried by the fact that policymakers feel the need to do this and continue staying involved and vocal.. (rather than allowing mkts to stabilize after the aid was offered)
Policymakers' reaction function is becoming more and more erratic... biggest pain trade would be risk off and EUR higher --- i'm not quite there yet though.
.. and if Germany is doing this, then the others could easily be close on their heels.
While the market impact (given that since the package was announced CDS longs and cash bond shorts should have already gotten out) should be localized or is at least questionable, we are worried by the fact that policymakers feel the need to do this and continue staying involved and vocal.. (rather than allowing mkts to stabilize after the aid was offered)
Policymakers' reaction function is becoming more and more erratic... biggest pain trade would be risk off and EUR higher --- i'm not quite there yet though.
=========================
Congress blocks indiscriminate IMF aid for Europe
By Ambrose Evans-Pritchard Economics
Last updated: May 18th, 2010
Europe may have to clean up its own mess after all. The US Senate has
voted 94:0 to block use of taxpayers' money for IMF rescues that make
no economic sense or bail-outs for countries like Greece that far are
beyond the point of no return.
"This amendment will help prevent American taxpayer dollars from
underwriting dysfunctional governments abroad," said Texas Senator
John Cornyn, the chief sponsor. "American taxpayers have seen more
bailouts than they can stomach, and the last thing they should have to
worry about are their hard-earned tax dollars being used to rescue a
foreign government. Greece is not by any stretch of the imagination
too big to fail."
Co-sponsor David Vitter from Louisiana said America had run out of
money. "Our country already owes trillions of dollars in debt. We
simply can't afford to take on other countries' debt in addition to
our own."
It is unclear where this leaves the EU's $1 trillion "shock and uh"
package. Urlich Leuchtmann from Commerzbank said the IMF share of
$320bn was the only genuine money on the table, the rest being largely
euro smoke and mirrors, or plain bluff.
The measure is an amendment to the US financial overhaul law. Backed
by both parties, it can hardly be ignored by the Obama administration
whatever Tim Geithner may or may not want to do. The bill has to go to
Conference for reconciliation with the House, but the point is made.
It instructs the US representative at the IMF to determine whether a
country with a public debt above 100 per cent of GDP can be expected
to repay IMF loans. If this cannot be certified, the US must oppose
the rescue package.
This is obviously aimed at Greece, which will have a debt of 130 per
cent by the end of this year. The debt will rise to 150 per cent by
the end of its the rescue/death package, leaving Greece in a worse
position than before.
The IMF share of the Greek bail-out is 30 times quota, more than
double any other rescue in the history of the Fund. There is a very
strong suspicion in Washington that the IMF is being misused by French
chief Dominique Strauss-Kahn – French presidential candidate in
waiting – to support ideological purposes regardless of economic logic
or sanity. This can (and in my view most likely will) destroy the
credibility of the Fund itself unless the US and Asians can wrench the
institution back from the Europeans.
The US is the IMF's biggest shareholder and can veto aid packages,
though it has never done so because the Fund has never been so stupid
as to defy the world's dominant financial and strategic power.
In this case it fair to assume that China shares many of the Senate's
concerns. The latest US Treasury Tics data shows that China is
rotating is vast reserves back into dollars, and presumably away from
euro bonds. If we treat this as Chimerica – the US/Chinese single
currency or condominium – we have a force in the world that cannot be
pushed around.
Personally, I have changed my mind on Greece. My initial reaction
earlier this year was that it had to be saved to avoid a sovereign
Lehman. Many posters on this blog cried "shame", saying it was just
another moral hazard rescue for bankers. They were right. I flagellate
myself and wear a dunce's hat.
The correct policy would have been – and still is – to help Greece out
of its debt-deflation death spiral through an orderly "pre-emptive
debt restructuring" along the lines of the IMF package for Uruguay. In
Greece's case it would require a haircut of 50 per cent or so for
foolhardy creditors, ie your bank and mine, your pension fund and
mine. This would not do much good unless Greece also devalued by 30
per cent to 40 per cent to retrieve competitiveness and put the whole
fixed-exchange nightmare behind it.
This would be the normal IMF policy in these circumstances as
countless ex-IMF officials have stated. I suspect that many in the
Bundesbank and the Bundestag finance committee would have liked this
policy too – making an example of a country that was so far gone, and
had so flagrantly broken the rules.
The IMF-EU should instead have drawn up its defences in Iberia, along
the Lines of Torres Vedras – to borrow from Wellington. Portugal and
Spain are at least defensible – arguably – and more deserving.
The solution is being blocked because Brussels views any step back in
the EMU Project as intolerable. So the IMF is squandering its scarce
resources on an unworkable plan in Greece.
As we can now see, by misusing the IMF so cavalierly the euro-elites
have provoked a reaction from Washington that will vastly complicate
any future rescue for any eurozone state.
In fact, we are already living in a post-IMF world. There is no
bailer-of-last-resort. Sobering, isn't it?
By Ambrose Evans-Pritchard Economics
Last updated: May 18th, 2010
Europe may have to clean up its own mess after all. The US Senate has
voted 94:0 to block use of taxpayers' money for IMF rescues that make
no economic sense or bail-outs for countries like Greece that far are
beyond the point of no return.
"This amendment will help prevent American taxpayer dollars from
underwriting dysfunctional governments abroad," said Texas Senator
John Cornyn, the chief sponsor. "American taxpayers have seen more
bailouts than they can stomach, and the last thing they should have to
worry about are their hard-earned tax dollars being used to rescue a
foreign government. Greece is not by any stretch of the imagination
too big to fail."
Co-sponsor David Vitter from Louisiana said America had run out of
money. "Our country already owes trillions of dollars in debt. We
simply can't afford to take on other countries' debt in addition to
our own."
It is unclear where this leaves the EU's $1 trillion "shock and uh"
package. Urlich Leuchtmann from Commerzbank said the IMF share of
$320bn was the only genuine money on the table, the rest being largely
euro smoke and mirrors, or plain bluff.
The measure is an amendment to the US financial overhaul law. Backed
by both parties, it can hardly be ignored by the Obama administration
whatever Tim Geithner may or may not want to do. The bill has to go to
Conference for reconciliation with the House, but the point is made.
It instructs the US representative at the IMF to determine whether a
country with a public debt above 100 per cent of GDP can be expected
to repay IMF loans. If this cannot be certified, the US must oppose
the rescue package.
This is obviously aimed at Greece, which will have a debt of 130 per
cent by the end of this year. The debt will rise to 150 per cent by
the end of its the rescue/death package, leaving Greece in a worse
position than before.
The IMF share of the Greek bail-out is 30 times quota, more than
double any other rescue in the history of the Fund. There is a very
strong suspicion in Washington that the IMF is being misused by French
chief Dominique Strauss-Kahn – French presidential candidate in
waiting – to support ideological purposes regardless of economic logic
or sanity. This can (and in my view most likely will) destroy the
credibility of the Fund itself unless the US and Asians can wrench the
institution back from the Europeans.
The US is the IMF's biggest shareholder and can veto aid packages,
though it has never done so because the Fund has never been so stupid
as to defy the world's dominant financial and strategic power.
In this case it fair to assume that China shares many of the Senate's
concerns. The latest US Treasury Tics data shows that China is
rotating is vast reserves back into dollars, and presumably away from
euro bonds. If we treat this as Chimerica – the US/Chinese single
currency or condominium – we have a force in the world that cannot be
pushed around.
Personally, I have changed my mind on Greece. My initial reaction
earlier this year was that it had to be saved to avoid a sovereign
Lehman. Many posters on this blog cried "shame", saying it was just
another moral hazard rescue for bankers. They were right. I flagellate
myself and wear a dunce's hat.
The correct policy would have been – and still is – to help Greece out
of its debt-deflation death spiral through an orderly "pre-emptive
debt restructuring" along the lines of the IMF package for Uruguay. In
Greece's case it would require a haircut of 50 per cent or so for
foolhardy creditors, ie your bank and mine, your pension fund and
mine. This would not do much good unless Greece also devalued by 30
per cent to 40 per cent to retrieve competitiveness and put the whole
fixed-exchange nightmare behind it.
This would be the normal IMF policy in these circumstances as
countless ex-IMF officials have stated. I suspect that many in the
Bundesbank and the Bundestag finance committee would have liked this
policy too – making an example of a country that was so far gone, and
had so flagrantly broken the rules.
The IMF-EU should instead have drawn up its defences in Iberia, along
the Lines of Torres Vedras – to borrow from Wellington. Portugal and
Spain are at least defensible – arguably – and more deserving.
The solution is being blocked because Brussels views any step back in
the EMU Project as intolerable. So the IMF is squandering its scarce
resources on an unworkable plan in Greece.
As we can now see, by misusing the IMF so cavalierly the euro-elites
have provoked a reaction from Washington that will vastly complicate
any future rescue for any eurozone state.
In fact, we are already living in a post-IMF world. There is no
bailer-of-last-resort. Sobering, isn't it?
===============================
BANK OF ITALY ALLOWS NEW REGULATORY CAPITAL RULES FOR EU BONDS
2010-05-18 17:42:11.416 GMT
STORY TO FOLLOW.
--MARCO BERTACCHE
2010-05-18 17:42:11.416 GMT
STORY TO FOLLOW.
--MARCO BERTACCHE
================================
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