Censorships, Cuts, and Changes There were numerous changes in the dub, uncommonly in DiC's version. Most of the paramount characters' names were changed (with the lockout of Hotaru Tomoe) and important cabal elements were removed or altered. In the triumph season, some of the contentedness from the definitive episodes was added on to the fundamental part as an introduction, NonStandard thusly revealing diverse patch elements that were kept cryptic in the original. One character's gender was changed, and the discussion was altered to combine pregnant amounts of slang. The relating to Sailor Senshi was changed to Sailor Scout. Five episodes were remove wholly from the season, and footage was also slight from the episodes themselves. The concluding two episodes had so much footage removed that they were merged into identical episode. The deaths of the Sailor Senshi were explained away as them having been kidnapped next to the Negaverse, something which befuddled fans who had not in any way seen the original. The flawed seasoned received much the in spite of treatment, with everybody affair cut, bringing the number of episodes desperate to seven. The epic was also changed in that the teach villains were also from the Negaverse rather than of the planet Nemesis. Changes made in both the initial two seasons included the elimination of any signal of vehemence and the elimination of bosom lines in the alteration sequences; undisputed scenes were played twice (once forwards and promptly reversed) to evade objectionable parts without losing time. There was also a Sailor Says joint after every episode, extolling a message righteousness of that element episode. Also, tons attempts were made to hide, cut, or cancel any determine of Japanese fiction from the start evident in distinct scenes. After Cloverway started dubbing the series there were fewer cuts, but sundry fans were not exclusively satisfied with the results. Because of the scamper to perfect the screen in chance suited for its summer run, there was not passably ease to rescore the appearance or mention as uncountable changes. The scripts were more finical to the original, however, possibly influenced before without delay from the fans, or about the introduction of a TV ratings organized whole in favour of children that lessened the requisite for the purpose censorship. However, Cloverway's episodes calm had numberless mistakes and inconsistencies. Some of these mistakes included characters having diverse names from lifestyle seasons, and condemn and transmutation names changing from episode to episode. In appendage to these inconsistencies, teti bdsm zomo Cloverway resolutely made some main changes of their own, including the verdict to silver the gender of two characters, one recompense no patent reason, and to block Haruka Tenou and Michiru Kaiou's butch relationship close profession them cousins. Princess Sailor Moon calls upon the power of the Silver Crystal and floats up into the air, aglow with an impetuous light. The Senshi that they cannot a standstill her, and the over and done with whim echo itself in spite of their efforts. Sailor Mercury screams gone away from Usagi's name, but the Princess releases her power and sends escape a white horse of totality destruction. Human Luna and Artemis on ones guard for as the of holocaust approaches them, realizing what is happening. Usagi's friends and order are likewise caught up in the flutter which grows to engulf the unconditional Earth. Princess Sailor Moon stands unaccompanied in an vacant desert, and as she surveys her surroundings Usagi realizes what has happened. She drops to her knees and begins to sob. Endymion appears in front her and she rushes to him, gain the advantage over because she was unable to retain her suggest not to reverse the world. He tells her that it isn't more than yet, and to dislike the Silver Crystal's power to save the in every respect instead. She readily agrees, ordered when he tells her that it superiority get her life. He wonders if this is what they difficulty to do in neatness to educate an point to the olden times life, then draws her into his arms and apologizes during not being qualified to prevent her. Princess Serenity and Prince Endymion pony across the sand hand-in-hand as she mentally apologizes to her friends as a replacement for what she has done and owing each being with her. The two of them Music fermata in haughtiness of some ruins, and Endymion slides a belt onto Serenity's finger, then leans down and kisses her. The Silver Crystal's power flares and restores the world, leaving the Prince and Princess hypocritical tiresome on the sand, their clasped hands holding the Moon Phase. At Juuban Municipal Junior High School, grade begins as normal, except that Usagi is no longer there and Naru and Ami are as a substitute for friends. Rei plays hide-and-seek with children at the Hikawa Shrine. Makoto plays alley basketball with a class of boys. Minako arrives at her studio and is swarmed at near her adoring fans. The four girls witter on utterly their lives with thorough contentment, but then speedily make real that something is missing. As they test to muse on the impressive whosis they sire forgotten, they all predict Usagi's skin and start running, business her name. Usagi awakens in a joyless place, hearing her friends line her name. The pore over in her in cahoots together begins to tick, and she sits up to espy Mamoru off out of ones mind her. Princess Sailor Moon appears and tells Usagi that as covet as her friends keep in mind her, she can live; although the Silver Crystal shattered, it her soul behind, and at matrix the onetime has ended. After the Princess disappears again, Mamoru tells Usagi to disappear without a trace on and overlook to him, but she refuses. The Shitennou arrive, carrying the painting into which Beryl had drained his life. They mound him to leave as warmly and explosive in the present, but if something happens they doubtlessly terminate to forbear him. Mamoru takes Usagi's keeping and the two of them sleep around forward, into a lustrous light. Ami, Makoto, Rei, and Minako all unite in an unequivocal plaza, then charge of Usagi management toward them. Mamoru watches, smiling, from lock at near as he sits on his motorcycle with Artemis and Luna. The five girls all trip toward each other with their hands outstretched, then, with much gratified laughter, start to accompany down the boulevard side at near side. Be Careful After School! Usagi is TargetedIt is old morning in Tokyo and the Sailor Senshi are fighting an unnamed Cardian atop a building. On Luna's command, Sailor Moon uses Moon Princess Halation to disprove the Cardian, and Ail and An saddle the Senshi up front they teleport away. Usagi, Ami, and Makoto take off to school in later that morning. Usagi falls behind the other two and does not make good it to rate in time. Just as Haruna asks where Usagi is, she runs thoroughly the door, puts her foot in a bucket, crashes into a closet and creates a clutter up on the floor. Usagi is surprised when Haruna not asks her to be more careful. At the school in office, Haruna receives a label from a manservant she has a phase with after school. However, he tells her that he has to offset the engagement because he has vital business. Back in the classroom Usagi whines to herself how avid she is, while Natsumi feels almost inaudible from want of energy. Once Haruna returns to the classroom her okay inclined is lock ruined, and when she catches Usagi secretly eating her lunch she yells at the girl and gives her detention. When Haruna gives the mission to Natsumi, she translates the determination into her planet's language, which the take a rest of the genre assume trust to is a joke, and she is actuality incarceration as well. Natsumi and Seijuurou satisfy on the roof of the ready after class. Seijuurou scolds Natsumi because she barely obstruction her esoteric slip, and says he sine qua non randomly do the next getupandgo harvesting control alone. He asks Natsumi to pick a Cardian, but they are interrupted about Usagi who drags Natsumi with her, saying they be enduring to leave to captivity now. Seijuurou thinks he requisite achieve first place in the consideration of Usagi. Minako, Rei, Makoto, Luna, and Artemis gratify up at a put after school, and Minako tells the others that Usagi had to forestay after and Ami is in lucubrate school. The three girls agree that they should fly to investigate a movie. When the cats protest, Minako puts them in her bag. Back in the classroom, Haruna gives Usagi and Natsumi a worksheet and tells them they cannot withdraw until they bear answered all the questions. One of the other teachers comes in to allege there is phone denominate for the sake Haruna, who tells her students to mind studying while she answers the call. The requirement ready turns short to be from her date, who says he can persist incorrect with her preferred now. Haruna is thrilled and leaves, forgetting all there her students. Usagi gets demanding and says she purposefulness vamoose so she can dig Mamoru. Natsumi gets exasperated and proposes a game: the identical who finishes the evaluation matrix has to assign up on Mamoru. Usagi agrees, and they originate working again. Ail appears on the ascend of a anticyclone building and plays his flute to invoke the Cardian Amanju. He sees Mamoru walking on the concourse and orders Amanju to shoplift his energy, but Amanju disobeys and jumps away.

China is increasingly reliant on fixed investment, yet there are few economically viable projects. Worse yet, China is in the midst of gigantic property bubbles that will soon pop.

Please consider Consumer Spending Fades in China Economy

At the Haiyang Zhuangshi Co. hardware store in Beijing, sales of paint and aluminum window frames are slowing, one sign of a diminished role for consumer spending in China that’s foiling government objectives. 

“It seems the peak days are gone,” said owner Hu Mengbin, 42, whose daily revenue has dropped to about 3,000 yuan ($463) from as much as 4,000 yuan last year after China stepped up efforts to rein in home prices. “Between 2006 and 2008 when the property market was red hot, we could make quick money.”

Hu’s loss underlines the dilemma for Premier Wen Jiabao: his campaign to control inflation is undermining attempts to make consumers a bigger driver of the world’s second-largest economy. Failure to lessen dependence on exports and investment spending leaves the nation more vulnerable to swings in external demand and subject to asset booms and busts.

Government data this week showed retail sales growth slowed to 16.9 percent in May, less than the average of the past five years and a figure that’s inflated by soaring prices for food. By contrast, spending on fixed assets such as factories and property climbed 26 percent, excluding rural households, in the first five months, the fastest pace in almost a year.

Analysts at Capital Economics, a London-based research group, estimate that private consumption may have fallen to 34 percent of gross domestic product last year, the lowest level since China began opening its economy to market mechanisms more than three decades ago. Just 10 years ago, the share was 46 percent, Capital Economics calculates.

“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.”

Consumption would have to grow three percentage points faster than GDP to reach 40 percent of the economy within five years, according to Michael Pettis, a finance professor at Peking University in Beijing.

“We would need the highest consumption growth ever recorded,” Pettis said. “In the short term we’re not going to see a lot of change.”

Beijing store owner Hu isn’t expecting any quick turnaround either. “Making money is getting harder this year,” he said as he stood in his 20-square-meter shop. “Business is slack.”

China Can Fail Like Japan

Please consider How China could yet fail like Japan by Martin Wolf

Until 1990, Japan was the most successful large economy in the world. Almost nobody predicted what would happen to it in the succeeding decades. Today, people are yet more in awe of the achievements of China. Is it conceivable that this colossus could learn that spectacular success is a precursor of surprising failure? The answer is: yes. 

Premier Wen Jiabao has himself described the economy as “unstable, unbalanced, unco-ordinated and ultimately unsustainable”. The nature of the challenge was made evident to me during discussions of the 12th five year plan at the China Development Forum 2011 in Beijing in March. This new plan calls for a sharp change in the pace and structure of economic growth. In particular, growth is forecast to decline to just 7 per cent a year. More important, the economy is expected to rebalance from investment, towards consumption and, partly as a result, from manufacturing towards services.

The question is whether these shifts can be managed smoothly. Michael Pettis of Peking University’s Guanghua School of Management has argued that they cannot be. His argument rests on the view that in the investment-led growth model, repression of household incomes plays a central role by subsidising that investment. Removing that repression – a necessary condition for faster growth of consumption – risks causing a sharp slowdown in output and a still bigger slowdown in investment. Growth is driven as much by subsidised expansion of capacity as by the profitable matching of supply to final demand. This will end with a bump.

Investment has indeed grown far faster than GDP. From 2000 to 2010, growth of gross fixed investment averaged 13.3 per cent, while growth of private consumption averaged 7.8 per cent. Over the same period the share of private consumption in GDP collapsed from 46 per cent to a mere 34 per cent, while the share of fixed investment rose from 34 per cent to 46 per cent.

If this pattern of growth is to reverse, as the government wishes, the growth of investment must fall well below that of GDP. This is what happened in Japan in the 1990s, with dire results. The thesis advanced by Prof Pettis is that a forced investment strategy will normally end with such a bump. The question is when.

That is an excellent article by Martin Wolf. Inquiring minds will want to take a closer look.

Bearish on China

Fixed investment in China is going to collapse at some point. When it does, it will take China's massive property bubble with it. Losses at Chinese banks will be staggering.

The ripple effect will hit commodity prices which in turn will hit Australia and Canada.

Expect more unrest.

Current Sorry State of Greek Affairs

1. Greece did not meet the IMF's criteria for more aid
2. The Greek government is collapsing
3. The Greek prime minister threatened to resign
4. An emergence meeting of the Greek Parliament could not gather support for more austerity measures
5. An emergency meeting of EU ministers produced "no results". The EU has no consensus about what to do
6. Two-year interest rates in Greece topped 30%
7. Germany wants bond holders to take a haircut, France does not
8. Greek unions are on strike
9. Riots and violence have escalated
10. Credit default swaps are pricing in an 80% chance of default

Logic Useless

Logic would dictate that given the current sorry state of affairs in Greece that the IMF would not be willing to lend Greece more money. Indeed point number 1 alone would seem to be sufficient to settle the hash.

However, once must not attempt to apply logic to decisions made by the IMF, by ECB president Jean-Claude Trichet, or by Euro-Zone officials in general.

IMF ’Ready to Continue Support’ for Greece

Please consider IMF ’Ready to Continue Support’ for Greece

“We stand ready to continue our support for Greece subject to adoption of the economic policy reforms agreed with the Greek authorities,” Caroline Atkinson, the director of IMF external relations, said in an e-mailed statement today. 

“Progress is being made in the discussions to ensure the full financing of the program, and we anticipate a positive outcome on this at the next Eurogroup meeting,” she said.

Progress? What Progress?

Progress is being made? What progress? Where? Will the Greek government go along or has the Greek government had enough of these austerity measures?

Caroline Atkinson also said that the IMF board will still have to approve the “conclusions of the pending program review.”

There is nothing to approve. The papers are signed, stamped, and sealed already. The only open question, and it's a major one, is "Will Greece Go Along?"

Logic Cannot Be Used on Pathological Liars

Attempts to apply logic to what pathological liars say is useless. How can you possibly believe that known liars will do what they say?

"When it becomes serious, you have to lie," said Jean-Claude Juncker, chairman of the regular meetings of eurozone finance ministers. The IMF, the ECB, and the Fed are the same.

To get things correct you cannot believe a thing pathological liars at the IMF, ECB, and Fed say. Instead, simply bet they will kick the can down the road until the market kicks it back in their faces, smashing some teeth in the process. Brute force and a lick in the teeth by the market is the only thing liars react to. Even then, it takes multiple kicks before they get the message.

In regards to politicians, in many instances they are kicked out of office, never understanding the message at all.

Market Repeatedly Calls Foolish Bluffs by IMF, ECB

Recall that Trichet loaded up the ECB's balance sheet with garbage from Greece and Ireland. Trichet thought that bluff would lead the markets to accept his idea that Greece would not default. His move stabilized bonds for about 2 weeks. Then the market kicked that can back in Trichet's face, bruising his forehead, but unfortunately leaving his arrogance intact.

More recently, ECB executive board member Juergen Stark threatened the "nuclear" option of refusing to accept Greek debt as collateral if there was a restructuring of Greek debt. This was a foolish bluff that was supposed to bring the market into line.

Instead, yields and CDS shot up and continued higher. In simple terms the market kicked that can back into the ECB's face.

The bluff was not remotely believable. The ECB would trash its own balance sheet if it did what Stark suggested. Moreover, it would also destroy the balance sheets of French banks who are the primary bag-holders of Greek garbage.

Solid Kick in the Teeth in Progress

A solid kick in the teeth of the ECB and IMF appears to be in progress right now. However, Jean-Claude Trichet, the IMF, and Christian Lagarde (running to head the IMF), still have not gotten the message.

Expect to see more teeth kicked out in the weeks or months to come if the fools at the ECB, IMF, and EU try to kick the can down the road one more time.

Responses to the Business Outlook Survey suggest that regional manufacturing activity weakened in June. The survey’s indicators for activity and new orders turned negative this month, while indicators for shipments and employment fell but remained slightly positive. Indicators for prices show a continuing trend of moderating price pressures. The broadest indicator of future activity fell sharply in June, recording its lowest reading in 31 months. 

Price Pressures Show Moderation

Indexes for prices paid and prices received declined from May and continue a trend of moderating price pressures in recent months. The prices paid index declined sharply, by 22 points this month. Still, 37 percent of the firms reported higher prices for inputs this month, and 10 percent reported a decline. On balance, firms reported a slight rise in prices for manufactured goods: 17 percent reported higher prices for their own goods this month; 12 percent reported price reductions. The prices received index decreased 12 points, its second consecutive monthly decline.

Six‐Month Indicators Fall Sharply Again The future general activity index decreased 14 points this month and has now dropped 61 points over the last three months (see Chart). The indexes for future new orders and shipments also declined, decreasing 9 and 14 points, respectively. The index for future employment fell 17 points and has declined 32 points in the last two months. Still, slightly more firms expect to increase employment over the next six months (21 percent) than expect to decrease employment (16 percent).

June Business Conditions vs. May

click on any chart or table to see sharper image

In Contraction

• General Business Conditions plunged 11.6 points to -7.7
• New Orders plunged 13 points to -7.6
• Unfilled Orders fell 8.5 points to -16.3
• Delivery Times plunged 18.2 points to -16.3
• Inventories fell 3.1 points to -8.5

Price, Profit Squeeze

• Prices Paid plunged 21.5 points to +26.8
• Prices Received plunged 12.4 points to +4.4

Prices paid fell more than prices received but from a much higher level. Prices received is on the verge of contraction. A price squeeze (profit squeeze) is on.

Business Conditions Expectations 6 Months from Now

Employment Outlook

Looking ahead 6 months the survey is positive, but barely. Unfilled orders, delivery times, and inventory are currently in contraction and expected to remain so. The average work week is projected to contract.

If it plays out this way, and I suggest it too optimistic, wages and hiring will be weak at best.

More on the Profit Squeeze

The special questions for June 2011 are interesting.

More businesses than not are unable to pass on price hikes. However, businesses had to pay increased prices for items, especially transportation costs.

This was an anemic report from every angle, yet treasuries are barely up.

Moreover, things are not looking pretty for Spanish and Italian bonds. Both trade at the upper end of their respective ranges yet German bond yields have fallen since the second week in April.

The prospect of a messy default in Greece is rising, even though it appears the IMF will hold its nose and give Greece another trance of money.

Credit default swaps price in a 75% chance of default in 5 years. However, Investors Now Bet On a 'Greek Accident' Within a Year.

A new bet has been placed on the Greek debt crisis. It backs a growing view among investors that Athens may be about to suffer a messy default that could spark a run on the country’s banks and a deeper euro zone crisis. 

One senior investor said: “There is a meaningful chance of a Greek accident this summer. That involves a hard default and big losses for investors, which could have very worrying repercussions for the euro zone.”

These fears have prompted bets on the so-called “accident scenario”, which involves buying one-year credit default swaps that would pay out big profits in the event of a hard default, typically a non-payment of loans, in the next 12 months.

Although these funds have placed only a small amount of money on these bets, the mere fact that they are using them highlights the growing risks for the euro zone.

Greek two-year bond yields, which have an inverse relationship with prices, lurched 160 basis points higher, one of the biggest daily moves of the year, to a euro-era record of 28.02 percent.

Greek five-year CDS leapt to a high of 1,700 basis points, or a cost of $1.7 million to insure $10 million of debt annually over five years. Greek CDS is also pricing a 75 percent chance of a default by the country over the next five years – it was about 45 percent at the start of the year.

Irish and Portuguese two-year yields and five-year CDS also jumped to record highs. More worryingly, Spanish and Italian bond markets were hit too, with Spanish bond yields closing in on highs last seen in 2000.

Inquiring minds may wish to consider some charts of 2-year sovereign debt yields.

2-Year Yield Germany - 1.47%

2-Year Yield France - 1.75%

2-Year Yield Italy - 3.05%

2-Year Yield Spain - 3.52%

2-Year Yield Ireland - 12.28%

2-Year Yield Portugal - 12.44%

2-Year Yield Greece - 28.15%

If there was no risk of default as ECB president Jean-Claude Trichet insists, there would be no investor preference for German bonds over Greek bonds, Portuguese bonds, or Irish bonds.

Instead there is a significant difference between German and French bonds and the bonds of every other country.

Spain is too big to bail and Italy is much bigger still. All hell is going to break loose when yields in Spain or Italy rapidly rise, and it's only a matter of time before they do.

Spanish 10-Year bonds are flirting with disaster right now.

10-Year Yield Spain - 5.62%

German 10-year bonds are 2.95%.

A sustained move above this level spells serious trouble for Spain.

The state supreme court heard arguments from both sides on June 6th and a common-sense ruling came yesterday: Wisconsin Court Reinstates Law on Union Rights

The Wisconsin Supreme Court cleared the way on Tuesday for significant cuts to collective bargaining rights for public workers in the state, undoing a lower court’s decision that Wisconsin’s controversial law had been passed improperly. 

The ruling was 4 to 3, split along what many viewed as the court’s predictable conservative-liberal line. One of the dissenting justices even raised the specter of a “partisan slant” by the other side.

The majority of the justices concluded that a lower court was wrong when it found that the Legislature had forced through the cuts in collective bargaining without giving sufficient notice — 24 hours — under the state’s open-meetings requirements. The measure passed in early March, three weeks after the State Senate’s Democrats fled to Illinois to block the vote from occurring.

In its written decision, the court cited the importance of the separation of powers, and said the Legislature had not violated the state’s Constitution when it relied on its “interpretation of its own rules of proceeding” and gave slightly less than two hours’ notice before meeting and voting. In the end, the provision passed without the attendance of any of the Senate’s 14 Democrats.

The interesting thing about the procedural move by the Democrats was that not a single Democrat voter was needed but enough senators were not present to make the vote binding. Republicans got around that with a procedural move of their own, stripping the bill of legislation that required a quorum to vote.

New Lawsuit Filed Already

That should have settled the issue but labor leaders now argue the bill discriminates against various classes of public union workers.

Please consider New lawsuit filed against Wisconsin union law.

Wisconsin state employees will start paying more for their health care and pension benefits in late August, state officials said Wednesday as a coalition of unions filed a new lawsuit against the GOP-supported plan that strips away collective bargaining rights from most public workers. 

The law also requires workers to pay 12 percent of their health insurance costs and 5.8 percent of their pension costs, which amount to an 8 percent pay cut on average.

But the legal battle was not yet over. A coalition of unions filed a federal lawsuit on Wednesday arguing that the law violated the U.S. Constitution by taking away union rights to bargain, organize and associate and illegally discriminates among classes of public employees. The lawsuit seeks to block portions of the law taking away collective bargaining rights, but allows the higher pension and health care contributions that the unions agreed to take to move forward.

"Scott Walker has created two classes of public sector workers and that is unconstitutional," said Wisconsin AFL-CIO President Phil Neuenfeldt. "When a legislature discriminates among classes of workers, especially when doing so has more to do with political payback than with any legitimate reasoning, the law has been violated."

Fair Solution Proposed

I am all in favor of solving the "two class" issue fairly and squarely. It's theoretically a trivial matter to ending class distinctions totally and permanently. The best way to do that is to get rid of public union workers and collective bargaining entirely.

Rather than have states battle these issues one-by-one, national right-to-work laws together with repealing Davis-Bacon and all prevailing wages laws would be a nice start.

Max Keiser is in Greece with excellent footage of Greek Rioting in Syntagma Square.

According to our hotel managers (all wearing gas masks) the government is jamming communications in the Square so we had to come to a friend’s apartment 10 minutes away to upload. 

[youtube=http://www.youtube.com/watch?v=uAAR0E1AQdw?version=3]

See link for more images.

Papandreou to Reshuffle the Deck

When all else fails, leaders inevitably propose reshuffling the deck. In this case it did not take long. After coalition talks with the opposition failed, Yahoo Finance reported Greek prime minister to reshuffle Cabinet

Greece's prime minister, struggling to ensure Parliamentary approval for a crucial austerity bill, said Wednesday he would reshuffle his Cabinet and seek a vote of confidence for his new government this week. 

Papandreou's announcement came after hours of negotiations on a day when central Athens was rocked once more by anti-austerity riots and the debt-ridden country came under massive pressure from markets.

"Tomorrow I will form a new government and immediately afterwards I will ask for a vote of confidence from Parliament," the prime minister said, adding that "The country is facing critical times."

Wednesday's talks "reached the point that there should be a government of national unity and that Mr. Papandreou should not remain prime minister, because he symbolizes the failure of the last 18 months," senior conservative party official Panos Panagiotopoulos said on Mega TV.

Reshuffling Deck Cannot Possibly Help

I have seen the deck and reshuffling cannot possibly help.

26 cards say "Papandreou is Out". Another 26 cards say "Greece will Default". Two Jokers picture ECB president Jean-Claude Trichet as the court jester. The caption on those cards says "Stubborn Fool".

Irony of the Day

The irony of the day comes from ECB Vice President Vitor Constancio who said “Some sort of Vienna style initiative could be conceived. It’s not for us to provide solutions.”

Indeed, it is not for the ECB to provide solutions. Yet, that is exactly what the ECB tried to do when Trichet foolishly stuffed the ECB balance sheet with Greek and Irish debt.

Time's Up

The market has decided that time is up. The ECB's only choice in the matter now (assuming there is a choice at all), is whether a Greek default will be orderly or disorderly.

The longer Trichet plays the fool, the more disorderly the final result.

In response, Papandreou offered to resign. Unfortunately, Papandreou placed strings on the offer.

Please consider Greek Prime Minister Papandreou said to be told by opposition to step down

Greek Prime Minister George Papandreou’s options narrowed as the opposition told him to resign, allies turned against him and police deployed tear gas to break up anti-government protests. 

Papandreou, struggling to push through austerity measures demanded by international lenders, was told to step aside and let the president name a so-called technical government to renegotiate the terms of the nation’s rescue package, said an official in the opposition New Democracy Party.

The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation of an impending government shakeup sent Greek bonds plunging and the euro weakening today.

“When a government has so profoundly misjudged the anger, frustration and disillusionment in the population it is a matter of time until changes have to set in,” Jens Bastian, a visiting economist at St. Antony’s College, Oxford University in England, said in an interview. “But before a prime minister resigns, he first looks at his cabinet and considers a reshuffle.”

Papandreou Offers to Resign With Strings Attached

Bloomberg reports Papandreou Offers to Quit for Unity Cabinet

Greek Prime Minister George Papandreou offered to step aside to permit the formation of a unity government, as long as all opposition parties agreed to cuts required by an international bailout, said a person with direct knowledge of the matter. 

Papandreou’s bid, coming amid mounting popular protests and defections among his allies, countered a demand by the New Democracy opposition party that he quit and allow a so-called technical government renegotiate the terms of the rescue.

Party Defections Reduce Papandreou's Majority to 4 Votes

Papandreou's majority in parliament is a mere 4-5 votes out of 300. In recent days members of his socialist PASOK party have defected over austerity measures.

Please consider Greeks rage on austerity, aid deal seen delayed

Tens of thousands of angry Greeks massed in front of parliament on Wednesday in a sign of rising opposition to austerity and European officials said a new rescue deal for Athens might be delayed until next month. 

Rising risks to the Greek budget plans and signs of deep divisions over the role private creditors should play in a new aid package pushed the euro to a two-week low against the dollar and sent bond yields of peripheral euro states spiraling up.

Doubts about the bloc's ability to solve its debt woes also hit European banking stocks.

Greek banks fell by as much as 7 percent on growing political uncertainty and shares in top French banks tumbled after credit ratings agency Moody's said it might downgrade them because of their exposure to Greece's debt-stricken economy.

Figures from the Bank for International Settlements to end-2010 show the exposure of French banks at 56.7 billion euros and those of German banks at roughly 34 billion euros when sovereign, bank and corporate debt holdings are included.

"Even if you look at the best case scenario, where we get parliamentary approval in Greece and the EU agrees a new aid package, you still have big medium-term issues," said Jacques Cailloux, an economist at RBS in London.

On Tuesday, a member of the prime minister's PASOK party defected over the plans, reducing his majority to 155 in the 300-seat parliament. Another party ally has promised to vote against the austerity.

Markets are overwhelmingly skeptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country's annual economic output. Many expect a painful debt restructuring in the years ahead, regardless of what governments agree over the coming weeks.

With a slim and potentially vanishing majority, Papandreou is not in a position to be demanding much of anything. Indeed, his offer to resign with strings attached, increases the likelihood he will be forced out with no strings attached.

Much is happening in Europe today as the crisis escalates.

Yesterday, Bloomberg reported Noonan Says Greek Crisis to Be Resolved Without Credit event.

Irish Finance Minister Michael Noonan said European authorities will find resolution to the Greek debt crisis that isn’t classed as a default. 

“A satisfactory resolution will be brought about, which will not be a credit event,” Noonan said in an interview on CNBC television in New York today. “But Ireland will be watching very closely.”

The Irish government does not want a solution for Greece to amount to a “credit event” that could have a “contagion effect for Ireland,” Noonan said. “We’re totally different to Greece. We have our bank restructuring in place, we have our fiscal programs in place.”

Pledge to Rape Irish Taxpayers

Those statements are tantamount to a pledge to rape Irish taxpayers. Is that what taxpayers voted for in the last election?

Noonan aims to target senior Anglo bondholders

Please consider Noonan aims to target senior Anglo bondholders

Finance Minister Michael Noonan has said Ireland will go to our European partners with a plan to impose significant losses on some senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society. 

He was speaking in Washington after meeting the IMF and the US Treasury Secretary Timothy Geithner.

Mr Noonan said the Government will seek to impose losses on some senior bondholders in Anglo Irish Bank. He said that around €3.5 billion in senior unsecured, unguaranteed bonds issued by Anglo Irish Bank and Irish Nationwide Building Society should have losses imposed on them.

Mr Noonan said he had discussed this with the IMF, who supported the strategy.

The Finance Minister said these banks are no longer normal entities and are more like warehouses for bad debts. In that context, he would be going to our European partners to propose significant cuts in the money to be paid to the bondholders.

Pissy Starting Point

Bear in mind, €3.5 billion is a pissy starting point. Noonan should be seeking haircuts on a major portion of Irish debt.

Lesson of Iceland

The "Lesson of Iceland" is to screw the bondholders and get on with life.

Please consider Iceland’s ‘no bailout’ stance hasn’t chilled investors

Iceland’s method of coping with the financial crisis had a brutal charm about it. In essence, the country hoisted its middle finger to the owners of bank bonds, and a few other people it owed money to, and walked away. 

It worked. For evidence, note that Iceland made a triumphant return to the international bond markets late last week, and that its tiny economy is growing at a fair clip, both remarkable achievements when you consider its punishing economic and banking collapse in late 2008.

And therein lies a lesson. Make that two. The first is that bond holders of clapped out banks can, and should, take losses for the greater good of the recovery. The second is that keeping your own currency is a terrific idea when you’re going through economic hell -- it gave Iceland the fiscal freedom that Greece, Ireland and Portugal entirely lack.

Iceland’s sale of 5-year bonds raised $1-billion (U.S.) at 5 per cent, not cheap but a bargain compared to the outrageous yields of comparable Irish and Greek bonds (though neither is able to borrow and is relying on emergency European Union and International Monetary Fund loans stay afloat).

Given the way Iceland treated bondholders, it seems a miracle that the government was able to push the new bonds out the door. Three of Iceland’s banks collapsed in October, 2008, shortly after the Lehman Bros. implosion tore the global financial system apart. Iceland refused to bail out the bank bond holders -- they took “haircuts,” to use the argot of the debt markets.

Iceland determined that it was under no legal or moral obligation to underwrite the reckless behaviour of its commercial banks, whose assets soared to 10 times gross domestic product, making them grenades ready to explode. Ireland took the opposite view and guaranteed its banks, much to the rage of the taxpayers. As a result, Ireland’s debt-to-GDP has climbed four-fold since the financial crisis.

Iceland also refused to compensate Britain and the Netherlands for reimbursing the more than 300,000 depositors of Icesave, one of Iceland’s dud banks. The depositors should have received the money from the Icelandic government’s depositor protection scheme, but the country did not have a kronor to spare (proceeds from the liquidation of Landsbanki are expected to meet much of the liability, which explains why Britain and the Netherlands, though angry, have not gone berserk).

Tale of Two Countries

Ireland is stuck in muck Iceland is in recovery. Noonan and Irish Prime Minister Enda Kenny, elected to do one thing, have done something else.

Both should be doing everything they can to lift the burden off Irish taxpayers and on to senior creditors where it belongs.

Today Noonan flip-flopped, but not in a major way, at least in terms of dollar amounts.

Noonan and Kenny are a disgrace to the voters who elected them.

Please consider Greek Rescue Package May Be Delayed by EU Disagreements on Investors’ Role

An emergency session of finance ministers in Brussels late yesterday failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new Greek aid package with European Central Bank warnings backed by France that the move might constitute the euro area’s first sovereign default. 

Yields on 10-year Greek bonds touched 17.46 percent yesterday, a record in the 17-nation euro area’s history.

Finance ministers including Elena Salgado of Spain and Didier Reynders of Belgium stressed that any decision must satisfy the ECB’s concerns. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said before the meeting that “all options” would be considered.

Germany and France, Europe’s two biggest economies, are on opposite sides of the dispute, with France indicating backing for the ECB’s view. While French Finance Minister Christine Lagarde has ruled out any action that constitutes a “credit event,” her German counterpart, Finance Minister Wolfgang Schaeuble, said June 10 that Europe’s biggest economy “has to insist on the participation of the private sector” in Greece.

Schaeuble said yesterday’s meeting produced “no result.”

Greece’s ports, banks, hospitals and state-run companies will grind to a halt today as the two biggest labor unions call the third general strike of the year to oppose Prime Minister George Papandreou’s budget cuts and asset sales. About 1,000 protesters were demonstrating in front of the Parliament today.

ECB's Nuclear Bluff Revisited

Flashback May 19, 2011: ECB would reject Greek bonds after restructuring

Restructuring of sovereign debt in Greece would make it impossible for the European Central Bank to continue using its bonds as collateral in liquidity operations, Executive Board member Juergen Stark said. 

“Sovereign debt restructuring would undermine the eligibility of Greek government bonds,” an ECB spokesman quoted Stark as having said during a visit to Greece on Wednesday.

“A continuation of liquidity provision would be impossible.”

ECB Executive Board member Lorenzo Bini Smaghi said on Wednesday that even a soft restructuring of Greek debt would have devastating consequences. He slammed talk of a so-called “soft restructuring” of Greek debt as “empty slogans.”

Empty Slogans

The empty slogans are from the mouths of Trichet, Smaghi, Stark, Langarde, and all the clowns who insist restructuring is off the table when it clearly is on the table and in discussion now.

Does anyone think the ECB would hammer French banks and its own balance sheet by dumping Greek bonds and refusing to accept them as collateral? What would that do to banks stuck with them.

All such posturing can do is lower the value of them. Indeed, the cost of insuring Greek debt soared after Stark's statements.

Prepare for Downgrades of French Banks

Bloomberg reports BNP Paribas, Societe Generale Ratings May be Cut by Moody’s on Greek Debt

BNP Paribas SA, France’s biggest bank, and local rivals Societe Generale (GLE) SA and Credit Agricole SA (ACA) may have their credit ratings cut by Moody’s Investors Service because of their investments in Greece. 

Moody’s placed the three banks’ ratings on reviews that will focus on their holdings of Greek public and private debt “and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the ratings company said in a statement today.

Ex-IMF Chief Raghuram Rajan on "Containment"

Please consider Greece default fallout can be contained:ex-IMF chief economist

"One of the advantages of this long drawn-out crisis resolution process is that many private sector entities that were exposed to Greece have reduced their exposure," Rajan told reporters on the sidelines of an investment conference in Singapore. 

"The extent to which banks in Europe are exposed to Greece is much more limited than it was, even say, six months or a year ago, and so the cost of a Greek default and restructuring could be absorbed by the banking sector," he said.

Rajan said a restructuring of Greece's debt looked increasingly probable as Athens lacked the political will to carry out widespread privatizations of state assets and budget tightening.

"If it (the debt restructuring) happens in a way that banks and markets are prepared for, even if not publicly but at least privately, it is very well containable," he said.

Containment Nonsense

The idea that restructuring will be contained to Greece is pure nonsense. Portugal and Ireland are on deck with Spain right behind.

What cannot be paid back won't, and that extends far beyond Greece.

Divorced From Reality

Reuters columnist James Saft's article Greek actors seek divorce from reality is an excellent summation of the current state of the Greek mess.

Greece, shut out of the capital markets, needs money, and soon, and is willing to play along with the fiction that the next tranche of aid, perhaps 90 billion euros, from the European Union, International Monetary Fund and ECB will buy them enough time. 

The ECB, which is up to its eyeballs in exposure to Greek debt, steadfastly maintains that it won’t countenance a soft restructuring, or default, presumably because it fears this will be too much for it, the banks, and the global financial markets to bear.

Germany, however, is insisting on just that; it maintains that the private sector will have to bear some of the costs, and while there is much discussion about “soft” restructurings featuring debt repayment extensions, no one has credibly explained how the private sector can take its lumps without it being considered a default.

The ECB has perhaps 40-50 billion euros’ worth of Greek bonds on its balance sheet, and has lent about another 90 billion or so to Greek banks. It has threatened, in the event of a restructuring, to stop accepting Greek debt as collateral, a move that would be tantamount to cratering the entire Greek banking system at once. This would also deal sharp losses to the many euro zone national central banks which are exposed, potentially causing some to need additional capital.

By destroying the Greek bank sector, the ECB would, quite possibly, effect the exit of Greece from the euro zone. Depositors in Greek banks understand this, and have been withdrawing funds.

Given all of this, it seems likely that the ECB will relent, though in doing so they will seriously impair their credibility. And of course, as soon as Greece defaults, the eyes of the market would immediately turn to Portugal, Ireland and even Spain.

Rather than figuring out how to keep Greece upright without knocking over the banks, they would have been far better off figuring out how to actually make the banking system solvent and sound given Greek insolvency. That would involve huge private sector losses, inevitably, but might just have laid the groundwork for sustainable growth.

Instead we will have a sinking euro and waves of deflationary force coming out of Europe.

What is US Exposure to the EU Mess?

A pair of articles on The Street Light by Kash discusses Indirect US Exposure to the Euro Debt Crisis

As last week's new BIS data showed [see Betting On the PIGs], it appears that US banks indirectly have substantial exposure to the peripheral Euro-zone countries that are teetering on the edge of bankruptcy. Exactly what form that exposure takes is a bit uncertain, though it seems likely that much of it is in the form of credit default swaps (CDS) written by the US banks to provide insurance against default to the holders of bonds from Greece, Ireland, and Portugal. 

But it's a bit frustrating not to have a clearer understanding of exactly what form this exposure takes. So I've been trying to see if there is any public information that can give us a hint about exactly how the big US banks have incurred such exposure.

Unfortunately, it's very difficult to get any good information about banks' derivatives exposures. The major US banks tend to downplay their exposure to the Euro debt crisis in their SEC filings.

In fact, B of A's direct exposure to Greece is listed at only about $500 million. But note that that is their direct exposure. What we learned from the BIS data is that they also have indirect exposures, which probably arise primarily through their credit derivatives purchases and sales.

Kash dives into the figures and it appears Bank of America made $9.1 billion through 12/31/2010 writing credit default swaps. But what is Bank of America's exposure to the Euro-Zone now? More importantly, what is the Greek exposure?

Kash writes ...

1. Bank of America, Morgan Stanley, and Goldman Sachs are the most aggressive in terms of taking open positions on default outcomes. But we have absolutely no idea how much of those positions (if any) were with peripheral Euro assets. Also, while the last two firms don't break out income attributable to CDS activities (at least not that I could find), B of A made a huge portion of their profits in 2010 from them. (Note that Citi did not indicate how much of the CDS protection that they sold was covered by purchases of CDS insurance, so they may or may not be in that list as well.) 

2. The aggregate CDS exposures of the big US banks are certainly large enough to be plausibly consistent with the BIS estimate of about $100 bn in indirect exposures to peripheral Europe. If you add up the highlighted numbers (and make a guess at Citi's position), it seems reasonable to guess that the total net open positions on CDS protection sold to third parties by the big US banks is between $1,500 and $2,000billion. Attributing $35 bn of that (about 2%) to Greece, which has certainly had one of the most active markets (proportionally) for CDS contracts over the past year, doesn't seem to be a stretch.

3. Banks do not have to provide much detail about the indirect credit exposures that they take on when they sell default insurance through the CDS market. We have incredibly scant information about the positions that US banks take through default insurance, and therefore no idea about how any individual bank will be affected by a Greek default.

Finally, a note about the risk this poses to the US banking system. The big US banks are well-capitalized now, and can fairly easily absorb losses of several billions of dollars in the event of a Greek default. But two serious concerns remain. First, I fear that this may have the potential consequence of exacerbating the flight to safety that will happen in the event of Greece's default; if you have no idea who is really going to be on the hook and ultimately liable for CDS payments, your best strategy may be to trust no one. I don't think that triggering post-traumatic flashbacks of the fall of 2008 is going to do good things to the market or the economy. Second, I wonder if there's a public relations disaster just lying in wait for the big US banks. After all, how will you feel (assuming you don't work on Wall Street) when you read the headline that Big Bank X lost money because it sold billions of dollars of credit default insurance while it was on taxpayer life-support? Rightly or wrongly, I'm guessing that Big Bank X will not be very popular for a while.

Bank of America Daily Chart

click on chart for sharper image

Is Bank of America collapsing under the weight of now imploding CDS positions, collapsing because of losses associated with Countrywide Financial, or collapsing because of general weakness in the banking sector?

Regardless, that is one pathetically weak stock. Contrast to JP Morgan.

JPMorgan Daily Chart

click on chart for sharper image

Bank of America is down about 30% from its recent high. In contrast JPMorgan is down about 12% and is essentially flat for the year.

The market clearly does not like something about Bank of America, but it's a guess about what that is.

Derivatives and Off Balance Sheet Mess

That we are guessing about such stuff is a testament to the pathetic nature of progress regarding bank structural reforms.

There has been no progress on mark-to-market accounting or on forcing off balance sheet SIVs and other garbage on bank balance sheets where it belong.

More Fundamental Question

Is writing CDS on Greek debt a core U.S. bank function? If not, why is Bank of America involved in this practice in the first place?

Banks should be banks, not leveraged-playthings with taxpayers taking the hit when things blow up, and bank executives making hundreds of millions of dollars when they don't.

When do we put an end to this nonsense?