Today’s News July 13, 2015

• America – We Have A Problem

  If “everything is awesome’… and 70% of the US economy is personal consumption… and Q1 weakness was all weather and port related? Then why are these charts doing this…

   

  Retail sales growth has fallen and can’t get back up…

  

   

  And Wholesale sales have collapsed…

  

   

  Perhaps, just perhaps, it really is all a big con and all the Fed really has is “confidence trickery” as a policy tool (and a horde of group-thinking, status-quo-beholden talking heads to ‘confirm’ anecdotes).

  

  

  

  

  

• Dow Futures 'Rally' 150 Points Off Opening Lows Into Positive Territory On Greek Makeshift "Deal" Chatter

  We have detailed just what a total farce of a day this has been in Brussels, but even more farcical is the reaction in equity markets in the last few minutes…

   

  

   

  Because it wouldn’t be a stock market if buying the dip didn’t work…

  

  

  

  

  

• China Stocks Mixed After Regulators "Bust Illicit Stock Sellers" And Unhalt Over 400 Securities

  A modestly positive open in China quickly turned negative as regulators un-halted 408 more stocks, reducing the number suspended to just 36% of all stocks. Along with disappointing trade data (and expectations of “extreme pressure in the next 2-3 months”) and regulators cracking down on investors with multiple illegally-obtained margin trading accounts, early strength has faded (for now). Unsurprisingly, the three regions with the most exposure to the crash in stocks are Shanghai, Shenzhen, and Guangdong and, as Bloomberg notes, Chinese police have found their scapegoat some trading companies may have manipulated stock futures (lower we assume, as manipulating a price higher appears to be policy). Stocks are mixed with high beta ChiNext and Shenzhen higher and Shanghai and the CSI-300 lower (the latter having gone nowhere for the last 2 days).

   

  The 24% explosion off the lows is stalling…

  

   

  Shanghai, Shenzhen, and Guangdong dominate the nation’s equity maket exposure

  

  Source: @KangHexin

   

  Scapegoats are being lined up… (as Bloomberg reports)

  China police investigation team led by Vice Minister of Public Security Meng Qingfeng found signs some trading cos. may have manipulated stock futures, Xinhua reported, without saying where it got the information.

   

  The team visited China Securities Regulatory Commission head office Thursday morning to investigate what it called “malicious short-selling of stocks and stock indices”: Xinhua

   

  The team arrived in Shanghai Friday to continue the probe

  And regulators are attempting to manage the multiple margin accounts problems (as Xinhua reports)…

  China’s securities watchdog announced on Sunday that it will crack down on illicit securities trading so that the market can recover steadily.

   

  “Some institutional or individual investors hold ‘virtual’ securities accounts or trade with borrowed accounts. As real-name registration is required by the law, this illicit conduct may damage other investors’ legitimate interests,” said the China Securities Regulatory Commission (CSRC).

   

  The commission asked local authorities to verify the authenticity of securities accounts and be more strict when supervising them.

   

  Institutional and individual investors will be prohibited from lending their accounts to each other.

   

  The CSRC said it will clamp down on any illicit conduct in accordance with the law, and will transfer violators to the police.

  “Free” markets…

  • *NUMBER OF CHINA TRADING HALTS DROPS TO 36% OF OVERALL LISTINGS
  • *NUMBER OF CHINA TRADING HALTS DROPS BY 408 TO 1,045 VS FRIDAY

  Trade data suggests extremely weak foreign and domestic demand…

  • *CHINA 1H EXPORTS RISE 0.9% Y/Y IN YUAN
  • *CHINA 1H IMPORTS FALL 15.5% Y/Y IN YUAN
  • *CHINA 1H TRADE SURPLUS 1.61T YUAN
  • *PRESSURE ON EXPORTS RELATIVELY SEVERE IN NEXT 2-3 MOS: HUANG

  And perhaps hints of what is  to come…

  • *NOT EASY FOR CHINA EXPORTS TO KEEP RISING AS YUAN STRONG: HUANG

  QE?

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• Why NATO Fears 'Grexit'

  Originally posted at SputnikNews.com,

  With Greece tottering on the brink of leaving the Eurozone, experts of all stripes have been debating Grexit's security implications, including Athens' relationship with NATO. While naysayers argue that the geopolitics behind Grexit "are actually pretty boring," others warn that the implications for the bloc could be far more serious.

  Over the past couple of weeks, US and European media have been busy pondering the implications of the Grexit for European security, particularly as it relates to the NATO alliance. Following an initial outburst of panic and alarm about NATO standing to lose its Mediterranean outpost to Moscow before being flooded by immigrants, NATO Secretary General Jeans Stoltenberg urged for calm, noting that the Greeks "have not linked the problems within the European Union and the euro with their strong commitment to NATO," and adding that Athens will remain "a close partner."

  Influential US news and geopolitical analysis publication Foreign Policy echoed Stoltenberg's tone, brushing off security fears with a recent headline reading "The Geopolitics of a Grexit Are Actually Pretty Boring." The piece, written by former European Council on Foreign Relations Senior Policy Fellow Dimitar Bechev, argues that "those fretting that a Greek departure from the Eurozone will unleash a flood of migrants and send Athens into the arms of a waiting Putin should calm down," noting that "none of this is going to happen."

  Bechev states out that the "alarmist" arguments over Greece have turned the country, a "peripheral member of the West that accounts for a mere 3 percent of the eurozone's GDP, into a pivotal country."

  Moreover, dismissing arguments about the country's 'dangerous' "flirtation with Russia," Bechev posits that in actuality, the "Russian gambit," aimed at providing the Syriza-led coalition with "some space to maneuver" in relation to Brussels and Berlin, has "failed to pay off."

  As far as Greece's geopolitical importance is concerned, Bechev notes that geopolitical considerations have not really given the country "much mileage in the debt talks," adding that "even if Athens wanted to foment trouble –and there are few signs that it does –it has little power to actually do so."

  Ultimately, according to the analyst, Greece is and will remain unlikely to rock the boat on any of Europe's major security and foreign affairs issues, from anti-Russian sanctions, to the US-EU trade pact, to immigration controls.

  Trojan Horse, or Weakest Link?

  But Bechev's calm and level-headed analysis is contradicted by other experts, no less dispassionate and rational than he is, including fellow FP contributor and former NATO commander James Stavridis, who noted in a piece preceding Bechev's that even if the "angry, disaffected and battered nation" remains a NATO member, it could nonetheless become an obstructive one. This, in Stavridis's view, would be a very serious problem for what is ostensibly a consensus-driven organization.

  According to the former Navy commander, this obstructionism could come to a head when it comes time for the organization to make decisions against perceived threats, including Russia. It could also lead to thorny issues over the use of Greek bases in the Mediterranean, or Athens' participation in NATO military missions.

  Politico Europe echoes Stavridis's analysis, noting in a recent article that with NATO "rely[ing] on unanimous approval from all 28 members for all major decisions, Greece, especially one shored up with economic reprieve from Russia, could prove to be a major headache for future Alliance maneuvers" to counter Moscow. Furthermore, the publication notes that "NATO's unanimity clause applies not only to deploying military forces, but also to essential day-to-day functions of the Alliance such as arms sales and major political decisions such as invoking Article 4 or 5 of the Washington Treaty to consult and defend fellow allies."

  Challenging Bechev's argument that Greece could not put a crimp in NATO's plans 'even if it wanted to', numerous analysts have cited Athens' history of obstructing NATO decisions when necessary, from the country's outright withdrawal from the organization's military command structure in the 1970s, following Turkey's invasion of Cyprus, to its condemnation of NATO's 1999 bombing campaign of Yugoslavia, to recent efforts to block NATO-EU cooperation over the Turkey-Cyprus dispute.

  Moreover, even if Stoltenberg is correct, and an Athens left to its economic fate continues to be NATO's "close partner," its impoverished status would likely leave it NATO's weakest link. As recently noted by The Guardian's John Hooper, while Greece is presently one of the few NATO members which abides by the requirement to spend at least 2 percent of its GDP on defense, the country's economic collapse would not only cripple the country's participation in NATO missions; it would also signal the weakening of the organization's south-eastern flank, while sparking fears of a Russia looking to take military advantage of the situation.

  Economic Ripple Effects

  Even if the naysayers are correct, and Moscow shows that it does not have the political will or the financial wherewithal to attempt to pry Greece from NATO's warm embrace, analysts note that the Greek crisis has had, and is likely to continue to have, a knock-on economic effect on European economies.

  In a recent op-ed for Indian Express, University of Cambridge lecturer and Greek Public Policy Forum member Nikitas Konstantinidis argued that "the chain set off by Grexit" could be "even more painful than events following the Lehman Brothers bankruptcy" in 2008. As a result, Politico Europe notes that if the recession-treading members of the EU were to face further economic shocks resulting from Grexit, this will not "augur well for NATO militaries," shifting "NATO members' focus further away from defense spending."

  Security Issues Surrounding the Migrant Crisis

  With Greece turning into one of the main points of entry for tens of thousands of African and Middle Eastern refugees fleeing war and instability across the Mediterranean, analysts warn that Grexit is likely to have a negative impact on this pressing issue as well. And While Bechev's argument that Greece is unlikely to "use migration controls as a weapon in a guerilla war against Europe" stands to reason, this does not mean that economic collapse and the ensuing political and social fallout will have a positive impact on the country's ability to control the flood of immigrants.

  As Politico Europe points out, the worsened economic situation following Grexit will severely "undercut badly needed funding for Greece's ability to track refugees and retain border security" which in turn "poses a very real danger to NATO members' security, especially as reports begin to filter in of Islamic State fighters slipping into Europe in the wave of refugees.

  300 Spartans

  Ultimately, while some analysts now attempt to downplay Greece's importance in the political, economic and security geography of Europe, others, including Konstantinidis, maintain that the country remains "a core member of some of the world's largest regional blocs." Therefore, "the ramifications of a potential Grexit" are likely to be highly "disproportionate to the country's economic size and geopolitical clout."

  As far as transatlantic security is concerned, the danger posed by the Grexit is not confined to the questions it raises over Greece's NATO membership, or the security ripple effects caused by the Greek economy's collapse. Grexit's danger lies in the fact that it serves as a symbol of the reversal of transatlantic institutions' fortunes in their attempts to build and maintain a hegemonic political, economic and military order in Europe.

  

  

  

  

  

• GMO's Montier Shifts To 50% Cash, Sees 3 "Hellish" Scenarios For Markets

  "This is definitely the most difficult time to be an asset allocator," warns GMO's James Montier, telling conference attendees in Munich that he hasn't been this risk-averse since 2008. Having warned six months ago that "stocks are hideously expensive…in a central bank sponsored bubble," Montier sees three different "hellish" scenarios and as CityWire reports, warns investors, "I think it's best to stand a bit and hold onto some dry powder," despite the groupthink idolatry being practiced around the world.

   

  As CityWire reports,

  "This is definitely the most difficult time to be an asset allocator. It’s very hard to find value," Montier told Citywire at the Value Intelligence Conference in Munich, an event hosted by Value Intelligence Advisors (VIA).

   

  The fund manager recently cut his equity exposure to US 'quality' names and, as such, has upped cash in his Global Real Return fund. He currently holds 20% in liquid assets, i.e. cash and derivatives, while a further 30% is invested in fixed income.

   

  "2007 and 2008 we had about 80% of the fund in non-risky assets. This has been the first time since that we have had over 50% in very liquid assets," he said.

  And various levels of hell are on their way…

  Montier said he is currently breaking up his market view into three different 'hellish' situations.

   

  Firstly, there is a kind of 'stable' hell, for Montier this is the worst and least likely situation, where rates stay low over a long period and volatility and as such entry opportunities are minimal.

   

  Then he describes something near to purgatory, which, Montier said, is the most helpful environment for investors. This is where he sees the market still moving between a low interest rate and a rising interest rate scenario.

   

  The final of the three scenarios is an ‘unstable’ hell, where the market goes in one direction but keeps getting back off of course.

   

  "I can't tell you exactly how it is going to work. We may see US rates rise in the autumn but I wouldn’t take it for a given."

  So where to invest?

  His recent cut in US equities included exiting stocks such as Proctor & Gamble and Microsoft, which he sold on valuation grounds.

   

  "We still see these names as a relatively good option for equity investors but as we are value investors, we decided to cut them back a bit as they were getting expensive and so we’d rather hold cash."

   

  One area where Montier thinks there is still opportunity to select find value is in the emerging market space. Here he has added to names such as Russian oil and gas major Lukoil and Korean telecoms group Samsung.

  But ultimately, Montier has strong words for investors…

  "Investors are constantly asking me how long I’m going to keep the cash position and what is going to be the ultimate trigger for reducing. I can’t say that, it does worry me if we are in this stable hell environment but at the moment, I think it’s best to stand a bit and hold onto some dry powder."
   

  

  

  

  

  

• Immigration Policy Must Be Decentralized

  Submitted by Ryan McMaken via The Mises Institute,

  Last month, the United States Supreme Court declined to take up a case involving Arizona’s and Kansas’s attempts to require proof of citizenship to vote in federal elections. The two states sought SCOTUS review in an attempt to overturn a prohibition imposed by lower federal courts. Had the two states been allowed to impose more stringent citizenship requirements, the effect on the voting population would have likely been small, but the overall legal effect of the court’s decision is significant.

  The refusal of the Supreme Court to hear the case yet again sends a message to state and local governments that the federal government shall continue to centrally direct election and immigration law. As noted in The Hill:

  “This is a very big deal,” Rick Hasen, a University of California Irvine law professor, wrote on his election law blog. “Kobach had the potential to shift more power away from the federal government in administering elections toward the states.”

  Centrally Planning Immigration Policy

  The Arizona and Kansas voting restrictions had been efforts to affect national immigration policy via state laws. But, as has been the trend over the past century, the federal government has repeatedly asserted itself as the last word in policymaking in citizenship and immigration matters.

  Indeed, the Federal Courts explicitly declared the states powerless to attempt to control immigration within their own borders when Federal Judge Mariana Pfaelzer struck down California’s voter-approved Proposition 187 in 1994 and wrote:

  California is powerless to enact its own legislative scheme to regulate immigration. It is likewise powerless to enact its own legislative scheme to regulate alien access to public benefits.

  Naturally, this decision sent the message nationwide that states should not bother to limit access to taxpayer-funded amenities (with public education being a central issue) because the federal government will simply declare such efforts illegal.

  Thus, through these cases, federal courts have made it clear that no state (or anyone other than the feds) can meaningfully prevent participation by non-citizens in political activities such as elections, nor can the states limit the ways in which immigrants can access government benefits, even when those benefits are locally-funded. 

  The net effect is an imposition of a migrant subsidy scheme across all states regardless of the local economic and demographic realities, while ignoring the fact that residents of certain states bear a greater tax burden in subsidizing migrants.

  The Answer Is Not More Government Intervention

  At this point, it is important to note that the antidote to government subsidies (i.e., government intervention) is not more intervention. If the federal government insists that the taxpayers subsidize the immigrant population, then the proper response is to simply eliminate the subsidy. This is exactly what voters had attempted to do with Proposition 187 (and Arizona Proposition 200).

  This correct approach is to be contrasted with the draconian methods employed by other states which have centered on punishing employers and landlords (and the immigrants themselves, of course) for engaging in private contracts and non-violent market transactions.

  Such efforts only expand the size and scope of government, and they ultimately involve federal agents raiding private establishments and combing through lease agreements and payroll documentation to make sure that workers and renters bear an arbitrarily-assigned status as “legal” immigrants.

  When states turn to these methods, we end up with the worst of both worlds, since not surprisingly, federal courts have been relatively tolerant of state and local efforts to punish local businesses and employers while at the same time remaining steadfast in opposition to efforts to limit the scope of government programs.

  The Answer Is Decentralization and Smaller Government

  Thus, while states and local government are given a small space to act around the edges of immigration policy, all regions and states are tethered to a single national policy on citizenship and immigration. However, we can guess that, if they were given greater leeway to do so, states would offer a very diverse array of immigration-related policies.

  In research conducted by Huyen Pham and Pham Hoang Van, the authors attempt to measure the legal “climate” for immigrants for all fifty states by evaluating state and local legislative and legal efforts to limit (or encourage) immigrant activity in each state. The authors unfortunately do not distinguish between efforts that restrict private property (i.e., employment restrictions) and efforts that restrict government growth (i.e., limiting health care benefits). In the following chart, we find Pham’s and Van’s rankings:

  

  Source: Immigrant Climate Index from “Measuring the Climate for Immigrants: A State by State Analysis,” by Huyen Pham and Pham Hoang Van

   

  The legislative and legal climates differ broadly, and this suggests that ideology, economics, and demographics produce some areas (i.e., California and Illinois) that tend to favor and subsidize immigration while other areas (i.e., Arizona and Virginia) would thoroughly limit subsidies.

  If we took this a step further and gave states and localities the power to determine all eligibility to both state and federal benefits, such measures by themselves (assuming benefits were not transferrable across state lines) would serve to place the burdens of subsidized immigration onto the states that mandate it.

  And, of course, there’s nothing to say that the state level is the optimal level of decentralization. As with any truly laissez-faire proposal, the ultimate goal is complete privatization of immigration policy. That is, the ability of immigrants to relocate to a community would be dependent on the dispersed and individual decisions of employers and other property owners who can decide on their own to employ or house migrants in the community. This is, of course, the democracy of the marketplace described by Mises in which individual persons — by making decisions about whom to employ or sell property to — collectively determine who is a member of each community. Any employer who wished to fully staff his operation with so-called illegal immigrants would be legally free to do so, and his decision would be subject to approval or veto by his customers, not by arbitrary government fiat.

  But even in the absence of this ideal, movement toward more locally-focused immigration policy gives existing residents greater choice in where to reside and place their property. Without decentralization, the taxpayers (many of whom will want to live in jurisdictions with laissez-faire attitudes toward conducting business with migrants) are powerless to make meaningful choices in this matter without completely uprooting his life and leaving the country.

  The Problem with Imposing Top-Down Policy

  The goal of laissez-faire immigration policy is to both diminish the availability to taxpayer-funded programs for immigrants (on the way to eliminating these programs overall) while also avoiding anti-private-property regulations that prohibit owners from freely contracting with immigrants in general.

  As we have seen, there is no technological or practical barrier to decentralizing this effort immediately. As is so often the case, however, there is significant ideological and legal opposition.

  Among those who insist on a single nationwide policy are those who assert that the best way to ensure the protection of property rights (for both property owners and migrants) is to impose it from above.

  Unfortunately, we’ve seen this movie before on other issues ranging from eminent domain to drug policy. In each case, however, the more practical, enduring, and least-risky solutions come from decentralization.

  Following the Supreme Court’s Kelo decision in 2005, for example, many advocates for free markets condemned the court for not issuing a top-down prohibition on certain types of eminent domain. As Lew Rockwell pointed out, however, Kelo was one of the few cases in which the court was actually correct in deferring to local control. Even when the central government agrees with us, political decentralization remains the prudent choice:

  We are … opposed to top-down political control over wide geographic regions, even when they are instituted in the name of liberty.

   

  Hence it would be no victory for your liberty if, for example, the Chinese government assumed jurisdiction over your downtown streets in order to liberate them from zoning ordinances. Zoning violates property rights, but imperialism violates the right of a people to govern themselves. The Chinese government lacks both jurisdiction and moral standing to intervene. What goes for the Chinese government goes for any distant government that presumes control over government closer to home …

   

  There are several reasons for [this position].

   

  First, under decentralization, jurisdictions must compete for residents and capital, which provides some incentive for greater degrees of freedom, if only because local despotism is neither popular nor productive. If despots insist on ruling anyway, people and capital will find a way to leave. If there is only one will and one actor, you cannot escape …

  This is certainly true in the case of immigration policy. Those states that turn to raiding employers and fining landlords as “solutions” to perceived problems with immigrants will lose their most productive citizens and property owners to states that shy away from such interventionism. Moreover, those states that choose to heavily subsidize immigration will also suffer the loss of many of their taxpayers.

  In such a system, would some states still indulge in massive redistribution schemes and other unsustainable public policies? There is no doubt that would occur, but it’s best to limit the damage to a handful of states than to impose the same fate on everyone nationwide.

   

  

  

  

  

  

• The Depressing Similarity Between The US and Iran

  The share of Americans living on more than $50-a-day dropped from 58% in 2001 to just 56% in Pew Research Center's latest report. The dubious disctinction of this depressing reality is 'exceptional' America is the only developed nation to see its standard of living drop… a narrative not even Greece suffered (but Iran did!!)

   

  

   

  As Bloomberg reports,

   The retreat in the U.S.'s share puts the world's largest economy in the same league as Iran, the pariah state with whom it's trying to broker a nuclear deal,  and a handful of other countries: Nicaragua, the Philippines, Dominican Republic, El Salvador, Bulgaria and Serbia.

   

  Even Greece saw its share more than double to 23 percent in 2011 (although this improvement will almost certainly be less impressive if the data stretched out to more recent years, given the continued contractions in Greece's economy).

   

  So what happened?

   

  The report says: "The lack of movement up the income ladder in the U.S. is the result of two recessions over the period of 2001 to 2011 —the first in 2001 and the second from 2007 to 2009. The median annual household income in the U.S. fell from $53,646 in 2001 to $50,054 in 2011."

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• The Latest Out Of Europe: "Pretty Steady Level Of Shittiness"

  Moments ago, after yet another weekend in which Europe was said to have given Greece yet another “absolutely final” deadline in which to agree to deal terms, terms which now Europe can’t agree on, when after five years of recovery we found out that the Greek economy is so bad it will have to put in escrow some €50 billion in assets to preserve the ECB’s financial lifeline of its banks which just in October of 2014 passed the same ECB’s “stress test” with flying colors, we had a revelation:

  We may have hit peak bullshit

  — zerohedge (@zerohedge) July 12, 2015

  Turns out, we weren’t too far off. This is how Sky News’ Ed Conway summarized the events to date:

  Me: How are the talks going?
  EU source: “Shitty.”
  Me: “Getting more shitty or less?”
  Source: “Pretty steady level of shittiness”
  #Greece

  — Ed Conway (@EdConwaySky) July 12, 2015

  So for those who still care, where do we stand now? Before answer that, here is a rather florid visual of what happened just last night, when Germany’s Schauble, seemingly pushed into a demonic fit of existential rage with Greece, decided to unilaterally tear apart the Eurozone just to teach Athens a lesson.

  According to Reuters, what happened during last night’s Eurogroup finmin meeting which concluded without a deal, is that in a “tough, even violent” atmosphere, in the words of one participant, after an overnight break the German and French finance chiefs, Wolfgang Schaeuble and Michel Sapin, sat down to clear the air between them before resuming on Sunday.

  Schaeuble also crossed swords with ECB governor Mario Draghi, snapping at the Italian central banker “I’m not stupid!”

   

  “It was crazy, a kindergarten,” said a source describing the overall course of nine hours of talks on Saturday among weary ministers attending their sixth emergency Eurogroup in three weeks. “Bad emotions have completely taken over.”

   

  Schaeuble and others seemed to favour a “Grexit”, another participant said. The European Central Bank’s Draghi seemed “the strongest European” in the room, most opposed to the risky experiment of cutting Greece loose and braving Schaeuble’s ire by interrupting him during a discussion on Athens’ debt burden.

  The new Greek finmin was calm, appearing resigned to whatever his country’s fate would be:

  By contrast, Greek Finance Euclid Tsakalotos, appointed last week in place of the often provocative Yanis Varoufakis, seemed calm and expressed a willingness to take steps to convince creditors Athens could be trusted to implement budget and economic reform measures to unlock tens of billions of euros.

   

  At one point a fellow minister turned to Tsakalotos and told him to ignore the rows raging around him: “Don’t worry Euclid,” he said. “It’s not your problem any more, it’s theirs.”

  But while the future of Greece is now open-ended, with emotions overruling logic and certainly financial interests, the one things that will be the legacy of this weekend’s European summit is that the fissure right across the center of Europe is now plain for all to see:

  “Schaeuble’s positions are irresponsible and can bring disaster,” said Gianni Pittella, an ally of Italian Prime Minister Matteo Renzi. Leader of the centre-left bloc in the European Parliament, Pittella spoke at a meeting in Brussels.

  That reflects something of a left-right split across Europe.

   

  French President Francois Hollande’s Socialist party issued a comradely appeal to Sigmar Gabriel, the German Social Democrat leader who sits as deputy to conservative Chancellor Angela Merkel in a coalition. It said: “The peoples of Europe do not understand the increasingly hardline position taken by Germany.”

   

  Gabriel, also in Brussels, said he aimed to keep Greece in the euro and stressed that France and Germany, traditionally the twin motors of European integration, would work together.

   

  In Berlin and Paris, officials have played down differences in tone on Greece, stressing that Merkel and Hollande must sell their decisions to different national constituencies.

  Of course, all of this is meaningless: in Europe it has always been, and always will be, Germany’s way or the autobahn. Don’t like it, don’t let the door hit you on the way out, especially since it still appears confusing to all but Germany that the biggest beneficiary of the Eurozone was the German export sector.

  

  As for almost everyone else, well… ask the Greeks.

  Anyway, that was last night. Where are we now, as the European summit of leaders is currently entering 2am in the morning?

  Well, some good news: outright talk of Grexit, and a 5 year “time out” appear to have dropped out of the draft.

  #Greece was close to signing the creditors’ proposal before ideas of euro time-out and privatization fund were tabled – EU source

  — Jarno Hartikainen (@JarnoHa) July 12, 2015

  Which may help Greece but it still doesn’t explain how Tsipras will pass into law the Draconian measures demanded of Greece especially since there are purely logistical hurdles which can’t be forced:

  #Greece says can’t pass legal system reforms & rules for dealing w/ bank failures by July 15, asks for week extension http://t.co/84fEtKhPj6

  — Tara Palmeri (@tarapalmeri) July 12, 2015

  But “time out” or not, that “other” demand for a Greek €50 billion escrow pre-privatization fund appears to remain. And the biggest irony: now it is the IMF itself which is spraying doubts Greece can ever deliver on this…

  #EuroSummit has doubts over 50 bn€ privatization target. IMF don’t think it’s realistic. – EU source

  — Jarno Hartikainen (@JarnoHa) July 12, 2015

  … the same IMF which in 2011 came up with the same privatization target, only to be severely disappointed:

  

   

  As for the biggest question of the night, namely where will Greece obtain the funding assuming Tsipras can pass through parliament the latest and harshest Eurogroup term sheet yet, at this point it is better not to ask too many questions, because while the Greek program envisions €86 billion in funding needs over 3 years, it also projects a whopping €22 billion in August alone!

  Greece needs an infusion of 22 billion euros ($25 billion) to pay its bills through the end of August, Maltese Finance Minister Edward Scicluna said.

   

  This figure includes 7 billion euros by July 20, when Greece owes about 3.5 billion euros to the European Central Bank, Scicluna said in an interview. It includes 10 billion euros for banks and 5 billion euros for other needs. He spoke on the sidelines of Sunday’s euro-area summit after finance chiefs concluded their session.

  As Zero Hedge first noted even with the full Third Bailout paid in full, an amount of debt that would bring its total debt/GDP over 200%, Greece will likely be at the same bargaining table in a few months, only this time with its prized assets already pledged as secured collateral to a loan which will, drumroll, be used to repay the Troika, and with virtually nothing left over for the Greek people. This is about as close to an example of aggravated asset-stripping of a bankrupt debtor without the debtor of even having the benefit of being in default, as one can find in real life.

  Some have suggested a combination of EFSF funding, others have said French bilateral loans (subsequently denied), but the reality is that this is irrelevant: if new money comes it will be secured from day one with Greek assets. In other words, any new money coming to Greece will be in the form of a DIP loan, secured with liens on tangible assets and when (not if) Greece is unable to repay, the creditors – who have created paper out of thin air – will be first to collect all too real Greek assets held in escrow in a Luxembourg subsidiary.

  So what happens next? Well, Tsipras may finally be granted permission to go back to Athens and try to sell this disastrous “deal” to his people, but not for a few hours more.

  “Will probably take some more hours.” #EuroSummit

  — Stefan Leifert (@StefanLeifert) July 12, 2015

  We expect some resolution around first light this morning, and while another Greek can kicking and some last-moment “hope” is surely in the cards, we know two things: Greece is officially finished – there is no way the Tsipras or any other government can politicall recover after such a humiliating spectacle when half of Europe made a mockery of the Greek people; and perhaps better, we finally have seen the true face of Europe: visible only when things are finally falling apart.

  It is a very ugly face as Greece, where the #ThisIsACoup hashtag is now trending, have finally realized.

  And somehow we doubt, if asked or otherwise, they will want to be a part of it ever again…. and not just Greece but every other country in Europe as well.

  The #Eurogroup right now. pic.twitter.com/lxcqTfgM88

  — Theodora Oikonomides (@IrateGreek) July 11, 2015

  

  

  

  

  

• How Fascist Capitalism Functions: The Case Of Greece

  Authored by Eric Zeusse,

  There is democratic capitalism, and there is fascist capitalism. What we have today is fascist capitalism; and the following will explain how it works, using as an example the case of Greece.

  Mark Whitehouse at Bloomberg headlined on 27 June 2015, “If Greece Defaults, Europe’s Taxpayers Lose,” and presented his ‘news’ report, which simply assumed that, perhaps someday, Greece will be able to get out of debt without defaulting on it. Other than his unfounded assumption there (which assumption is even in his headline), his report was accurate. Here is what he reported that’s accurate:

  He presented two graphs, the first of which shows Greece’s governmental debt to private investors (bondholders) as of, first, December 2009; and, then, five years later, December 2014. This graph shows that, in almost all countries, private investors either eliminated or steeply reduced their holdings of Greek government bonds during that 5-year period. (Overall, it was reduced by 83%; but, in countries such as France, Portugal, Ireland, Austria, and Belgium, it was reduced closer to 100% — all of it.) In other words: by the time of December 2009, word was out, amongst the aristocracy, that only suckers would want to buy it from them, so they needed suckers and took advantage of the system that the aristocracy had set up for governments to buy aristocrats’ bad bets — for governments to be suckers when private individuals won’t. Not all of it was sold directly to governments; much of it went instead indirectly, to agencies that the aristocracy has set up as basically transfer-agencies for passing junk to governments; in other words, as middlemen, to transfer unpayable debt-obligations to various governments’ taxpayers. Whitehouse presented no indication as to whom those investors sold that debt to, but almost all of it was sold, either directly or indirectly, to Western governments, via those middlemen-agencies, so that, when Greece will default (which it inevitably will), the taxpayers of those Western governments will suffer the losses. The aristocracy will already have wrung what they could out of it.

  Who were these governments and middlemen-agencies? As of January 2015, they were: 62% Euro-member governments (including the European Financial Stability Facility); 10% International Monetyary Fund (IMF), and 8% European Central Bank; then, 17% still remained with private investors; and 3% was owned by “other.”

  Whitehouse says: “Ever since the region's sovereign-debt crisis first flared in 2010, European nations have been stepping in for Greece's private creditors — largely German and French banks — by lending the country [Greece] the money to pay them off. Thanks to this bailout [of ‘largely German and French banks’], banks and [other private] investors have much less at stake than before.”

  So: what got bailed-out was private investors, not ‘the Greek people’ (such as the ‘news’ media assert, or try to suggest). For example, a reader’s comment to Whitehouse’s article says: “A reasonable assumption is that a large part of the Greek debt to the Germans was the result of Greek consumption of German goods and services bought with the German provided credit. In that case, the Germans have lost the Greek goods and services that could have potentially been bought with the money that is owed to them.” But this is entirely false: that “consumption” was by the aristocracy, not by the public, anywhere or at any time. After all: It’s the aristocracy that get bailed-out — not the public, anywhere. (The same thing is happening now in Ukraine.)

  The assumption that the aristocratically-owned press want to convey is, like the sucker there said: consumers, and not bondholders, receive these bailouts from taxpayers. They actually receive none of it. They didn’t receive the loans, and they certainly aren’t receiving any of the bailouts. In fact, the contrary: Greek consumers have been getting hit so hard by the aristocracy’s system (dictatorial capitalism, otherwise known as fascism), that they’re suffering an enormous depression — this is even a condition, a requirement, of such “bailouts.” It’s called “austerity,” and it’s imposed by the IMF. And yet, millions of suckers go for the inference that the aristocrats’ ‘news’ media convey. After all: would people such as Mark Whitehouse have been hired or keep their jobs at major ‘news’ media such as Bloomberg ‘News’ if they didn’t convey this false impression? He’s just doing his job; he’s doing what he’s paid to do. It’s enormously profitable for his employer and for “the investment community” worldwide.

  The whole system is a money-funnel, from the public, to the aristocracy.

  The independent economics-writer, Charles Hugh Smith — who was one of only 29 economists worldwide who predicted the 2008 crash in advance and who explained accurately how and why it was going to occur — has provided a more honest description of the sources of Greece’s depression:

  1. Goldman Sachs conspired with [actually: were hired by] Greece’s corrupt kleptocracy to conjure up an illusion of solvency and fiscal prudence so Greece could join the Eurozone [despite Greek aristocrats’ massive tax-evasion, which created the original problem].

   

  2. Vested interests and insiders gorged on the credit being offered by German and French [and other] banks, enriching themselves to the tune of tens of billions of euros, which were transferred to private accounts in Switzerland at the first whiff of trouble. When informed of this, Greek authorities took no action; after all, why track down your cronies and force them to pay taxes when tax evasion is the status quo for financial elites?

   

  3. If Greece had defaulted in 2010 when its debt was around 110 billion euros, the losses would have fallen on the banks that had foolishly lent the money without proper due diligence or risk management. This is what should have happened in a market economy: those who foolishly lent extraordinary sums to poor credit risks take the resulting (and entirely predictable) losses.

  The Greek Government currently owes 323 billion euros — almost three times as much. The debt rose 213 billion euros, during 5 years of IMF-imposed “austerity” — the Greek depression.

  What even Smith fails to recognize is that this money was not ‘foolishly lent.’ (No more, for example, than the Wall Street banks that had tanked the U.S. economy but grew even larger by doing so, had ‘foolishly lent’ it.) The foreign lenders were deceived by lies from the Greek aristocrats’ agent, Goldman Sachs, but, even so, were ultimately able to sell their garbage to Eurozone taxpayers, not always at a loss as compared to what they had originally paid for those bonds; and the original owners of those bonds were receiving interest from those bonds, throughout. Even Smith has been somewhat duped by the aristocracy’s blame-the-victim basic message, that the people who walked off with this money were the Greek public — not Greek aristocrats.

  Another well-informed economics-writer, Peter Schiff, likewise is suckered by that false message from aristocrats. He writes: “It's hard to feel sorry for the [Greek] people standing in lines at the ATMs when they knew this was coming every day for the last four years.” As if they necessarily did. But, even though some did, the accusation that those people are to blame is still off-base. Schiff, a libertarian, goes on to say: “When you borrow more than you can pay back and your creditors have cut you off there are no good options. Your life tomorrow is going to be worse than it is today; it is just a question of how you want to take the pain.” He’ too, implicitly cast blame at the public, not at the aristocrats, who actually have been bailed-out by the public.

  In way of contrast, democratic capitalism is bailing out only the public, when times go bad, just like FDR did during the Great Depression, and like socialist countries (Norway, Sweden, Denmark, and Finland, being examples) still do. The aristocracy have managed to fool the public to equate aristocrats’ fascism with ‘capitalism,’ and to equate democracy with ‘socialism’ (meaning, to them and their suckers, communism, or even fascism itself), so that the public will falsely think that what we now have is ‘the free market’ — something that cannot even possibly exist, anywhere, because every economy (every market) is based upon laws that determine who owns what, and who owes what, and under what circumstances, in accord with what laws and economic regulations, all of it being subject to the police power of the State. This ‘free market’ is all a big aristocratic con. It’s just as big as the con that the present Greek government — which had promised, and whose voters a few days ago reaffirmed with a 61% to 39% vote for no more “austerity” — are now delivering, to their victims.

  This is not democratic capitalism. It is not socialism. It is, instead, fascism. It is dictatorial capitalism. We have it in the United States. And it predominates also in the Eurozone.

  In fact, it predominates around the world. And its grip gets tighter every year now in the United States.

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

   

  

  

  

  

  

• Russia Readies Fuel Deliveries To Athens, Will Support Greek "Economic Revival"

  Russia and Greece have a “special relationship of spiritual kinship and religious and historical affinity,” Vladimir Putin said yesterday, following the BRICS summit in Ulfa. 

  Over the course of the unfolding crisis in Greece, Athens has at various times gone out of its way to remind Angela Merkel that allowing the country to crash out of the currency bloc may force the Greeks to turn to their other international “friends” (to use Nigel Farage’s words) for assistance. Facing economic sanctions from the EU in connection with its alleged role in destabilizing Ukraine not to mention a spiteful anti-trust suit against Gazprom, the Kremlin has been more than happy to use the rising tensions between Athens and Brussels to its geopolitical advantage. 

  So far, discussions between Russia and Greece have revolved primarily around energy, and several months back, when negotiations between Athens and creditors began to deteriorate in earnest, reports began to surface that Moscow may consider advancing Greece some €5 billion against the future proceeds from the Greek portion of the proposed Turkish Stream natural gas pipeline.

  Although the loan never materialized, the agreement on the pipeline did, and it was held up last week as proof that Greece is “no one’s hostage.”

  Now, that contention will be put to the test as Greece faces the prospect of a “swift time-out” from the eurozone if PM Alexis Tsipras can’t convince parliament to agree to a new term sheet from creditors which seeks the implementation of a number of draconian measures in exchange for a third bailout. Of course, as we noted earlier today, a “time-out” is a polite way of saying “get the hell out,” and in the event of a messy exit and forced redenomination, an acute cash and credit crunch will likely mean a shortage of critical imports and, in short order, a humanitarian crisis.

  Given the mood in Brussels over the weekend, Greece could be forgiven for not putting much faith in Jean Claude-Juncker’s “humanitarian plan”, but that’s ok because as AFP reports, Russia is ready to help: 

  Russia is considering direct deliveries of fuel to Greece to help prop up its economy, Energy Minister Alexander Novak said Sunday, quoted by Russian news agencies.

   

  “Russia intends to support the revival of Greece’s economy by broadening cooperation in the energy sector,” Novak told journalists, quoted by RIA Novosti news agency.

   

  “Accordingly we are studying the possibility of organising direct deliveries of energy resources to Greece, starting shortly.”

   

  Novak said that the energy ministry expected “to come to an agreement within a few weeks,” but did not specify what type of fuel Russia would supply.

   

  Greece’s left-wing leadership has made a show of drawing closer to Moscow in recent months as the spat with its international creditors has grown more ugly.

   

  In June, Greek Prime Minister Alexis Tsipras during a visit to Russia sealed a preliminary agreement for Russia to build a 2-billion-euro ($2.2 billion) gas pipeline through Greece, extending the TurkStream project, which is intended to supply Russian gas to Turkey.

  And so it begins. Angela Merkel has long known that one consequence of a Grexit would be a stepped up role for the Kremlin in the Greek economy and Greek politics.

  This effecitvely gives Moscow a foothold in Europe just as Russia’s deteriorating relationship with the West threatens to plunge the world into a new Cold War (a situation that’s been made immeasurably worse by recent NATO war games and sabre rattling). 

  Or, summarized visually (because this never gets old):

  

  

  

  

  

  

• The Greek "Choice": Hand Over Sovereignty Or Take Five Year Euro "Time Out"

  For those who missed today’s festivities in Brussels, here is the 30,000 foot summary: Europe has given Greece a “choice”: hand over sovereignty to Germany Europe or undergo a 5 year Grexit “time out”, which is a polite euphemism for get the hell out.

  As noted earlier, here are the 12 conditions laid out as a result of the latest Eurogroup meeting, which are far more draconian than anything presented to Greece yet and which effectively require that Greece cede sovereignty to Europe, this time even without the implementation of a technocratic government.

  1. Streamlining VAT
  2. Broadening the tax base
  3. Sustainability of pension system
  4. Adopt a code of civil procedure
  5. Safeguarding of legal independence for Greece ELSTAT – the statistics office
  6. Full implementation of autmatic spending cuts
  7. Meet bank recovery and resolution directive
  8. Privatize electricity transmission grid
  9. Take decisive action on non-performing loans
  10. Ensure independence of privatization body TAIPED
  11. De-Politicize the Greek administration
  12. Return of the Troika to Athens (the paper calls them the institutions… for now)

  One alternative, generously presented to Greece, is for the country to put some €50 billion of assets – the best ones – in escrow to creditors. A more polite was of putting would be a Greek secured loan. This is how the Luxembourg FinMin Pierre Gramegna laid it out:

  “A few new ideas were added to the table, especially one which is very important for some member states, which is that Greece would put a portion of its assets into a company that would be more independent from Greece.”

  “More independent” from Greece and “more dependent” to Berlin.

  Greece would place about €50 billion of state assets into an independent company. Those assets could serve as collateral against aid loans, Gramegna says. “It would act as a kind of guarantee. There is great hesitation from the Greek side and now the heads of state and government have to choose.”

  “It would be a company structure based in Luxembourg, which would be managed from Greece with supervision by the European Commission and by the European Investment Bank. It would remain in Greek hands but it would create more assurances if it was known that a lot of assets were in this company.”

  “If one knows that the third bailout package would cost more than EU80B, one understands that countries are urging for some guarantees from Greece.”

  In other words, Greece is told to set aside a quarter of its GDP for Europe to do as it sees fit, and which can be “seized” if Greece is seen as veering away from its third bailout promises again.

  And since Greece has no option but to promise everything and the moon, it will surely comply hoping that it is once again allowed to promptly forget all the promises as soon as it pockets some of that €86 billion in new bailout funds just to unlock the €120 billion in deposits held hostage in Greek banks by the ECB, even if the resulting debt will push Greek debt/GDP well above 200%.

  Why?

  Because the alternative is, and we quote…

  “In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possibly debt restructuring.”

  … from the Eurogroup document:

  

  No wonder Tsipras looks like this at the moment:

  

  Somehow we think that if the only “alternative” is ceding sovereignty to Merkel and the rest of the northern European state, the vast majority of the population – which now clearly understands there is little further upside from remaining in Europe – may just opt for the aptly named “time out” from the most destructive experiment in Greek history. And even beg to make it permanent.

  

  

  

  

  

• The Crony Capitalist Pretense Behind Warren Buffett's Banking Buys

  Submitted by Alhambra Investment Partners' Jeffrey Snider via RealClearMarkets.com,

  When Warren Buffet put $5 billion in Berkshire Hathaway funds into Goldman Sachs the week after Lehman failed, amidst total turmoil and panic, it appeared from the outside a high risk bet. Buffet had long tried to portray himself as a folksy engine of traditional stability, investing only in things he could understand, so jumping into a wholesale run of chained liabilities may have seemed more than slightly out of character. Some of that was explained later via Buffet's apparent hands on TARP, particularly version 1, but also later investments in Wells Fargo and US Bancorp.

  I have no particular issue with Buffet making those investments, only the pretense of intentional mysticism that surrounds them. The reason the criticism of crony-capitalism sticks is because this was not Buffet's first intervention to "save" a famed institution on Wall Street. If Buffet's convention is to stick with "things you know" then he has been right there through the whole of the full-scale wholesale/eurodollar revolution.

  On August 21, 1991, Calpers announced that it was cutting ties with Salomon Brothers, explicit in its condemnation, saying it was "outraged and disappointed" that the investment house would knowingly try to circumvent securities rules. There was a Congressional investigation and SEC threats, even criminal beyond the typical slappish fines that are used now. It was so outrageous that even Treasury Secretary Nicholas Brady, purportedly with Alan Greenspan on board, considered yanking Salomon's primary dealer privilege – which would have meant the end of Salomon right then and there.

  With almost a quarter century having passed, Solly, as the firm used to be known, has faded from memory in its more detailed contributions. It was the Wall Street firm that epitomized the 1980's far more than any others, being famously written up in Michael Lewis' Liar's Poker and Tom Wolfe's The Bonfire of the Vanities and giving rise to the colloquialism Masters of the Universe (and another, far less family-friendly description). Gordon Gekko may have been a corporate raider in the movie version of Wall Street, but it was the bond traders who made bank (and still do).

  The heart of Solly's business was arbitrage, an unusual term as in pure English the word's definition suggests something like no risk. You find a couple of related securities that aren't what they "should" be and trade into that gap until prices converge to where they were supposed to be in the first place. That meant, of course, you had to find out what "shouldn't" be before anyone else, which further meant being right about prices before, during and after. What set Salomon apart during the 1980's was their high-level willingness to bring on the finance professors, the early quants that were so sure they could find the "right" prices and thus identify the fattest, and cleanest, arb spreads.

  What happened in late 1990 and 1991 is still a matter of conjecture, even on the government side. What is not in doubt is that Solly's chief government securities trader, Paul Mozer, was openly flaunting US Treasury rules about the federal government's debt auctions. Treasury had never restricted how much any particular dealer could bid for debt at auction, but would from time to time make individual and ad hoc efforts to ensure orderly and "fair" operation. During the December 27, 1990, treasury auction, Mozer via Salomon's own account bid for $2.975 billion of the $8.5 billion total four-year note, or 35%, and also what would later be uncovered as an unauthorized use of a customer account for an additional $1 billion bid.

  In April 1991, Salomon bid for $3 billion of a $9 billion five-year note auction, being awarded that full allotment plus an overbid on a customer account which was not again authorized (Mozer placed $2.5 billion in bids for a customer that claimed it only approved $1.5 billion, which placed $600 million into Salomon's account and thus more than 35%). But it was the May 22, 1991, auction that went not just too far, causing more than a little consternation and attention. All told, Salomon placed bids for its accounts and those of customers, plus an undisclosed existing long position, for more than 100% of available two-year notes. Further, these bids were highly aggressive, priced a full 2 bps through the when-issued price.

  What was most egregious about all of this was that only months before these auctions (and a few others that were uncovered) a 35% limitation on bid amounts was put in place specifically to stop Paul Mozer. Deputy Assistant Treasury Secretary Michael Bansham had called Mozer in June of 1990 after Salomon had bid more than 100% for $8 billion notes auctioned then. Bansham later testified that he told Mozer not to do it again during that call, but just a week later Mozer did (along with another, undisclosed dealer). That led to the 35% restriction being adopted as a rule by Treasury, which carried the name Mozer-Bansham Rule!

  For Salomon's part as the offending firm, Treasury was incensed that management, including CEO John Gutfreund, found out after that May 1991 auction but told no one about it, even after several official contacts between the government and Salomon. For several weeks, the firm kept mostly silent while Treasury, the Fed and the SEC all went about investigating. That led to, on August 18, Treasury announcing (to whom is not clear) that it would suspend Salomon from its auctions, again a virtual death penalty for the bank – until Buffet intervened that afternoon personally with Secretary Brady. He even testified before both houses of Congress that the bank was completely contrite and reflective, the guilty parties included management had been expunged from the operations, and that there would be no more absurdity going forward. He went so far as to publish a two-page letter to shareholders that October in the Wall Street Journal, Washington Post, New York Times and even the Financial Times of London.

  Buffet had already been a large shareholder in the firm, dating back to 1987 (and leading to, coincidentally, Salomon shutting down its muni desk just one week before the crash, but that is a whole other story) and his friendship with John Gutfreund. When Treasury came to shut down Solly in the middle of 1991, Buffet promised to clean house and take over himself in order to save the firm; Treasury modified its ruling to allow Salomon to continue operating as a dealer in treasury auctions but only for its own account. More firings soon followed, including, obviously (then, as different from now), Paul Mozer.

  There is a lot more here than just one bank looking to circumvent what may seem arbitrary rules and restrictions. The government has an indisputable duty to ensure good function of its debt issuance processes, but what few people then could understand was why Mozer was going to all the trouble. From the outside, convention saw very little, if any, upside to these activities and actions. Instead, it was largely left as a matter of ego, the Masters of the Universe simply flexing their muscles in a game of power.

  Contemporarily, that was how it was described, as the LA Times wrote in an extensive article only a few months after that hot summer:

  "Investigations are continuing, but findings so far indicate that the crisis escalated far out of proportion to the money involved. Mozer's inept little scam had netted the firm only a pittance, between $3.3 million and $4.6 million, and cost taxpayers nothing in interest. Contrasted with the billion-dollar looting of the stock market by convicted felons Ivan F. Boesky and Michael Milken, Mozer's crime was small potatoes–but it was enough to bring his swaggering company to the brink of ruin."

  To the unfamiliar, it did seem an "inept little scam" that brought minimal actual profit – at least as far as what could be easily seen. Repo markets were, sadly, largely unknown and unexplored at that time, but already the bedrock of Salomon and then its competitors as the 1990's dawned. The term "corner the market" had been around for as long as Wall Street had, a conceptual strategy carried out time and again. The Hunt brothers had endeavored something very similar in 1979 in silver, but it was beyond comprehension in 1990 and 1991 how that might apply in treasury notes.

  Even the official Treasury Department report on the affair, which runs to 197 pages http://www.treasury.gov/resource-center/fin-mkts/Documents/gsr92rpt.pdf, is non-committal. However, they make it quite clear, implicitly, as to why they believe Mozer was acting infelicitously; the section immediately following the factual descriptions of Salomon's actions was all about short squeezes. Even Section B-1, beginning Section B, which goes into great detail about how the auction process works, was a narrative of the short squeeze process.

  Though they never put the two directly together, it isn't much left apart either. The report states clearly in describing the May 1991 auction, "Even before the May two-year notes were settled on May 31, 1991, rumors began to surface of a short squeeze in the market for those notes. On May 29, 1991, Treasury staff called the SEC's Divisions of Market Regulation and Enforcement to notify them of possible problems stemming from the auction."

  As troubling as all that might have been what becomes clear was this was not a rogue operation, either. What has been left buried under decade's old history is another part of that Treasury Report that quietly uncovered what I think is a pivotal turning point in monetary evolution. Not only was Solly likely after repo collateral, controlling the supply and thus rates and downstream "liquidity" through other mathematical factors, this extended deep into agency debt. Through its investigation into Paul Mozer's actions at treasury auctions, the Department also found widespread and often serious over-bidding in GSE issuance (GSE debt was not issued via auction, it was subscribed via an allotment process of what would now seem to be dinosaur technology – phone calls between GSE handlers and dealers).

  "As described below, a number of selling group members reported to GSEs inaccurate information concerning customer orders during the pre-allocation period and nearly all selling group members reported inaccurate information concerning their sales of the securities after settlement. In providing such inaccurate information, selling group members prepared and maintained books and records reflecting the inaccurate information."

  In total, the joint investigation, which included the SEC and Treasury, but also OCC, FRBNY, the NYSE and NASD, found ninety-eight dealers, again, nearly all that were investigated were involved in flagrantly overbidding for agency securities.

  "Some traders added random amounts to their actual customer orders. Others increased the number and amount of customer orders reported to the GSEs to include "anticipated" or "historic" sales, i.e., an amount that the trader believed, based on past experience, the selling group member would be able to sell after the GSE announced the price. Even in those instances where a selling group member had identifiable customers for the number and amount of the customer orders reported to the GSEs, the trader would not indicate to the GSEs that many of the orders were subject to significant conditions."

  It is easier today to see this with much greater clarity, as the wholesale banking system is now fully revealed (to those that want to make even slight inquiry), but the contemporary haze should not excuse lack of appreciation then. There is great significance of government and agency debt at auction and issuance, as it is on-the-run securities that control the repo environment. A bond, note or bill just auctioned is the most liquid because it contains the most direct and quantifiable characteristics; once a security is replaced by the next auction in the series, that security becomes highly liquid OTR and the previous fades into trading obscurity (off-the-run). In short, the frenzy over OTR is repo at a time when collateral wasn't as widely available and the limited OTR's were quite limited (a shortage the bubbles, greater sovereign issuance and securitizations would eventually but temporarily overcome).

  Banking was still believed to be of the S&L model at that moment, but even they, or a good many of them as Resolution Trust and the FDIC would describe, had already transformed into the shadow visions that presaged everything that has come after. In other words, it was only being closed-minded about what was taking place in "money" that hid what Mozer and so many others were up to – collateral had become currency, maybe even at that early date the currency, and had thus attained "value" far beyond what was thought to be an "inept little scam." Rehypothecation and leverage, and the legal and accounting structures surrounding and abiding them, made that so.

  Salomon Brothers, for its part, didn't last the decade. By the middle 1990's, the math professors were all over Wall Street and the firm had lost whatever "informational" advantage it used to rule the 80's. By 1997, the bank was taken over by Travelers and folded into Smith Barney, thus largely lost to further experience of it even if we still feel its evolutionary reverberations throughout this eurodollar age.

  What Solly had pioneered, in the end, was not just expanding the envelope of financial processes and engineering, but how this wholesale system could obliterate that envelope altogether. In other words, the prior restraints that acted upon banking were no longer restraints, and that what lay ahead, if you could get there, was an entirely new framework of money and currency that was to be written as they went. That dream was realized fully by 1995 when JP Morgan ended the last vestiges of traditional banking as a marginal experience, fusing math with money and currency into traded liabilities of all kinds.

  By the late 1990's, Wall Street was using derivatives, funded by repo as well as treasury and agency collateral, to "engineer" trades that were previously far, far out of reach. JP Morgan, for example, "helped" in 1996 Italy get its official budget numbers in line with a currency swap. More infamous than that, now, Goldman Sachs in 2000 and 2001 arranged swaps with Greece to ensure that country could remain within the euro and the EU's Maastricht restrictions on deficits.

  Aeolos was the legal entity that pushed "debt", loosely defined, off balance sheet as that entity swapped airport landing fees for initial cash payments. That was preceded by Ariadne in 2000 where the national government in Greece gave up a significant portion of national lottery proceeds in exchange for, again, up-front cash. Greece could not have cared less about where that cash came from or even what exactly it was, since all that mattered was a positive number on a bank balance sheet in its name; the balancing liability was and remained the bank's problem. Though these were infusions of cash-like assets to be paid back over time from specific cash streams, all of which sound indistinguishable from debt or loans, it wasn't specifically treated that way because doors previously closed were now opened as money and banking left behind actual money and banking.

  It was Margaret Thatcher in a TV interview in 1976 who now famously said, "…and Socialist governments traditionally do make a financial mess. They always run out of other people's money." And that was true, except insofar as it pertained to what I have called the second age of economic socialism, dominated by general government redistribution and taxation. The distinction with the third age, which was just coming into view and finding itself, was exactly what Thatcher had described as intent, though I doubt she could have conceived how restraint would no longer be true. Socialists had indeed run out of "other people's money", but the eurodollar/wholesale system that was to follow simply removed those ideas of money in the first place.

  If a socialist impulse and intention could not tax toward what goals it wanted to achieve, the wholesale banking system would instead simply ignore money and conjure liabilities that functioned equivalently. Any socialist government could then never run out of "money" so long as there was a wholesale bank willing to trade. Even interest costs were no longer much impediment, as balance sheet expansion and incestuous Basel thinking ensured interest rates would always (so it was thought) be on the "whatever you want" side. It was more than symbioses between especially wholesale banks and government bonds, as Salomon was just starting to show, it was the operational union of banking and government deficits.

  In short, wholesale banking evolution "financed" the next socialist age, and not just in Europe. Profligacy was no longer a negative factor, indeed it was a signal of an engaging counterparty. An entire strain of "economics" roared back to life from the dead, the disastrous results of the same efforts put to real monetary limits in the Great Inflation; the very same that Mrs. Thatcher was correctly railing against at the very same moment the eurodollar system was starting, if very slowly at first, to bring it all back to life.

  Officially, none of the socialists ever seemed to care about how, exactly, all this magic worked. This included Alan Greenspan and all those setting out to control economic direction through "stimulating" debt. It was one episode after another where the FOMC, in particular, demonstrated time and again their unconditional un-interest in what was actually occurring at these banks. Not only was there Solly's rigging toward repo, which followed closely the S&L disaster, there was Orange County in 1994, LTCM in 1997, the entire dot-com mania and, the big finale, Greenspan's "conundrum" of the housing bubble catastrophe. Through it all, these same economists that had convinced themselves they could run the global economy viewed money and banking as if it were still 1929.

  It was, after all, Milton Friedman's intellectual framework that they were following. He had viewed the great crash and then the Great Depression as being of limited money expansion, but in that case real currency. That has never been questioned seriously by orthodox treatment of any smaller variety, just accepted. Whether or not that explanation is even valid is no longer really relevant, as the banking system no longer uses money and currency. It has instead moved to traded liabilities and wholesale leverage (and more dimensions of leverage ) which call into question not just Friedman's explanation for the depression, but whether anything Friedman suggested about how a "free" market might work even applies now.

  It left open the interdependence by which banking and government could eventually combine, to conspire of common interests in control and power. Real money is anathema to central control because it allows an exogenous removal, a very real open door for the people to withdraw in total from the exercise of debasing power. The wholesale model does not, especially when government sanction is really traded for bank-funded "liquidity."

  Maybe that was the point upon which Warren Buffet could maintain his timely investment in Goldman Sachs as consistent with his stated mantra of invest in what you understand. I cannot speak for the man as to his familiarity with wholesale banking, but all that the rest of the regulatory framework knew was that at that moment government and banking were inseparable; and thus the former would not fail without blowing apart the latter. Wall Street was not bailed out specifically to save the economy, but rather to save the economy as it would continue to be under the socialist and elitist doctrine.

  What is most relevant about what we are seeing in Greece now is, contrary to "expert" opinion, there are actually limits upon wholesale evolution; that there does exist restraint long thought absent. I call it innate value, but whatever it is it really suggests that what happened in the past few decades was indeed inflation, not just in prices, mostly assets, but in redefinition of all of finance and money. That "fooled" value but only for a time, and that the more organic, human characteristics that lay dormant trying to comprehend all the vast changes and misdirections has finally, inevitably re-emerged to deny much further. These redefinitions and true inflation, though far beyond what was imaginable in 1991, let alone 1976, are now just as flawed stagnation as they were once thought flawless advance. In other words, the "world" may not have quite grasped where money is absent, but has awoken sufficiently to finally notice the discrepancy and how that is, contra economics, fatally misguided.

  We have reached the outlines of another Thatcher moment, where socialism still makes quite the financial mess, this time, though, not running out of other people's money but rather finding an end to the total deference by which inflationary redefinition and redistribution can operate.

  

  

  

  

  

• This Better Be A Mistake…

  …or else a rather blatant Fox News error may be about to start a revolution…

   

  JUST IN: IMF asks that Greek PM Tsipras resign.

  — FOX Business (@FoxBusiness) July 12, 2015

   

  

  Source: @FoxBusiness

  *  *  *

  Seemingly confirmed by this…

  @zerohedge they are right. IMF proposed a govt of “experts” to handle the new agreement

  — olympiada (@olympiada) July 12, 2015

  
  

   

  Then minutes later…

  @zerohedge IMF already denied that about half an hour ago.

  — Manolis Vergetakis (@MVergetakis) July 12, 2015

  Followed shortly after by another Cable TV news provider…

  IMF source tells CNBC that reports that say the fund asked for Tsipras to resign are “rubbish” » http://t.co/jrVEV64CmY

  — CNBC Now (@CNBCnow) July 12, 2015

  * * *

  Update – as expected, it was a mistake:
  

  IMF denies reports it wants Tsipras out. Privately, I doubt they’d shed a tear.

  — Ashley Webster (@AshWebsterFBN) July 12, 2015

  

  

  

  

  

• "Efficient" US Equity Market 'Prices In' Grexit

  Presented with no comment whatsoever…

   

  

   

  Oh ok… some comments…

  So The Dow rallies over 300 points on the heels of a watered-down proposal that we already knew was not enough to satisfy EU leaders and when they turn around and say “nein nein nein” and demand a “time out Grexit” – the worst-case scenario from last week – it gives back just 100 points.

  “Efficient” markets indeed.

  With Sinn clearly in charge – believing in hope as a strategy is simply a fool’s game now; but then again, it’s been a greater fool’s game for a long time.

  

  

  

  

  

• Tsipras Responds To Eurogroup Proposal, Demands Changes

  Facing abject humiliation at the hands of the German finance ministry, Alexis Tsipras arrived at Sunday’s Eurosummit a broken man. 

  Having gambled his country’s future in the eurozone on a referendum he might well have expected to lose, the Greek PM found himself in a completely untenable position last Monday. Greeks had overwhelming rejected Europe’s latest proposal, sending the country’s economy into a veritable tailspin and leaving Tsipras to contemplate how he might salvage Greece’s place in the EU without betraying Syriza’s constituency. 

  It was an impossible task. 

  On Thursday, Tspiras submitted a “revised” version of the proposal Greeks had rejected at the ballot box. The revisions were insignificant to the point of meaninglessness, leaving voters with a feeling of betrayal. The silver lining was supposed to be that by the end of the weekend, Greece place in the eurozone would be secure, a new bailout program would be in place, and Greek banks would be on their way to reopening by mid-week. But Germany had other plans. Indignant at Tsipras’ brazen referendum call and incredulous at the prospect of putting German taxpayers on the hook for a recap of Greece’s banks, German finance minister Wolfgang Schaeuble (with the implicit blessing of Chancellor Angela Merkel) did not accept Tsipras’ surrender and instead rallied his fellow finance ministers around a new term sheet that outlined a set of draconian measures which Tsipras must now pass through the Greek parliament and enshrine into law by Wednesday or else face a five-year “time-out” (i.e. Grexit) from the EMU. 

  Likely realizing that Greece faces a euro exit or political upheaval as early as Thursday, Tsipras did his best to fight the good fight on Sunday evening (via Bloomberg):

  Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel aired differences during meeting they held in Brussels on Sunday on a possible new aid program, Greek government official said.

   

  Tsipras and Merkel were at odds over issues including the treatment of Greece’s debt and the role of the International Monetary Fund in a possible third rescue package, the official told reporters on the condition of anonymity during a meeting of euro-area leaders

   

  French President Francois Hollande, who also attended the meeting with Tsipras and Merkel, took positions more supportive of the Greek government, according to the official.

   

  European Central Bank President Mario Draghi has played a very supportive role with regard to Greece’s lenders during aid discussions, the official said.

   

  A battle is taking place over a document sent to the euro- area leaders on the basis of talks earlier among the region’s finance ministers.

  Acc to EFE “Greek government agrees to many hard measures but rejects participation of IMF to 3rd program” #Eurosummit #Greece

  — Yannis Karagiorgas (@IKaragiorgas) July 12, 2015

  Tsipras seeking 4 changes to EG note:

  1 No IMF involvement
  2 Stronger statement on debt
  3 Signal to ECB to maintain ELA
  4 Scrap 50bn idea

  — Tom Nuttall (@tom_nuttall) July 12, 2015

  But EU leaders now appear to be just as divided as their respective finance ministers with “Ireland, Italy, France, and Cyprus in favour of reaching a deal with Greece today while others such as Portugal have shifted from negative to neutral,” MNI says.

  Meanwhile, there are questions about what the new timeline means for Greek banks which were supposed to be cut off from their liquidity lifeline on Monday morning.

  As MNI reports, “Germany and its countries of influence want Greece to legislate a series of measures and reforms by Wednesday and then begin discussions for a new lending agreement [but] that would deprive Greece from the European Central Bank’s Emergency Liquidity Assistance support.” Draghi is apparently still supportive, but has “asked the leaders for a ‘clear political commitment for progress of the discussions in order to continue’ ELA.” In other words, “a strong signal must be given to the ECB on Monday in order to maintain the Emergency Liquidity Assistance,” MNI adds. 

  Tsipras’ move to begin purging Syriza of those who are likely to oppose the passage of the new term sheet indicates the PM intends to get the measures through parliament even it means selling his soul and leaving the Greek people in a perpetual state of apathetic disbelief. But Greece has run out of time financially if not yet politically, which means some manner of stopgap measures will be necessary to see the country through the next few weeks. “The total amount of funds available for Greece is an issue. There could be a transition period with a small amount under the existing laws of ESM and funds that were transferred from the EFSF to the ESM when the Greek programme ended on June 30,” MNI quotes an unnamed official as saying, adding that “another option speaks of a funding of a few weeks so that the ECB and IMF obligations which total E9 billion including interest payments until the end of August, will be paid and Greece would avoid a default.”

  In short, Tsipras now faces a political and economic nightmare which will either see him morph into his predecessors marking a tragic abandonment of his party’s mandate and complete betrayal of everything Syriza stands for or else simply do as we suggested earlier today and resign. 

  
  

  

  

  

  

  

• Why Greece Is The Precursor To The Next Global Debt Crisis

  Submitted by Charles Hugh-Smith via PeakProsperity.com,

  The one undeniable truth about the debt drama in Greece is that each of the conventional narratives—financial, political and historical—has some claim of legitimacy.

  For example, spendthrift Greeks shunned fiscal discipline: here’s an account from 2011 that lays out the gory details: The Big Fat Greek Gravy Train: A special investigation into the EU-funded culture of greed, tax evasion and scandalous waste.

  Or how about: Greek reformers want to fix the core structural problems but are being stymied by tyrannical European Union/Troika leaders: The Greek Debt Crisis and Crashing Markets.

  Rather than get entangled in the arguments over which of the conventional narratives is the core narrative—a hopeless misadventure, given that each narrative has some validity—let’s start with the facts that are supported by data or public records.

  The Greek Economy Is Small and Imbalanced

  Here are the basics of Greece’s economy, via the CIA’s World Factbook:

  Greece's population is 10.8 million and its GDP (gross domestic product) is about $200 billion (This source states the GDP is 182 billion euros or about $200 billion). Note that the euro fell sharply from $1.40 in 2014 to $1.10 currently, so any Eurozone GDP data stated in dollars has to be downsized accordingly. Many sources state Greek GDP was $240 billion in 2013; adjusted for the 20% decline in the euro, this is about $200 billion at today’s exchange rate.

  Los Angeles County, with slightly more than 10 million residents, has a GDP of $554 billion, more than double that of Greece.

  The European Union has over 500 million residents. Greece's population represents 2.2% of the EU populace.

  External debt (public and private debt owed to lenders outside Greece):

  $568.7 billion (30 September 2013 est.)

  National debt:

  339 billion euros, $375 billion

  Central Government Budget:

  revenues: $119.5 billion

  expenditures: $127.9 billion (2014 est.)

  Budget surplus (+) or deficit (-):

  -3.4% of GDP (2014 est.)

  Public debt:

  174.5% of GDP (2014 est.)

  Labor force:

  3.91 million (2013 est.)

  GDP – per capita (Purchasing Power Parity):

  $25,800 (2014 est.)

  Unemployment rate:

  26.8% (2014 est.)

  Exports:

  $35.8 billion (2014 est.)

  Imports:

  $62.8 billion (2014 est.)

  Imports – partners:

  Russia 14.1%, Germany 9.8%, Italy 8.1%, Iraq 7.8%, France 4.7%, Netherlands 4.7%, China 4.6% (2013)

  Reserves of foreign exchange and gold:

  $6.433 billion (February 2015 est.)

  By 2013 the economy had contracted 26%, compared with the pre-crisis level of 2007. Tourism provides 18% of GDP.

  What can we conclude from this data?

  1. Greece’s central government is roughly half of its GDP (by some measures, it’s 59%), meaning that the national economy is heavily dependent on state revenues and spending.  For context, U.S. government spending is about 20% of U.S. GDP. As a rule of thumb, the private sector must generate the wealth that pays taxes and supports state spending. This leaves a relatively small private sector with the task of generating enough wealth to support state spending, pay interest on the national debt and pay down the principal.
  2. Greece runs a trade deficit, i.e. a current account deficit of almost $30 billion annually.  In the 14 years that Greece has been an EU member, this adds up to roughly $400 billion—a staggering sum for a nation with a GDP of around $200 billion.
  3. Austerity and a reduction in borrowing/spending have devastated the Greek economy, as GDP has shrunk 26% while unemployment has soared to 26%.
  4. While public debt is pegged at 175% of GDP, external debt is roughly 285% of GDP—a much larger sum. By all accounts, a significant portion of the Greek economy is off-the-books (cash); even if this is counted, the debt load on the private sector is extremely high.
  5. Foreign exchange reserves and gold holdings are a tiny percentage of government spending and GDP.

  This data reflects an imbalanced, heavily indebted, heavily state-centric economy with major systemic headwinds.

  The Problem with Not Having a National Currency

  The problem with not having a national currency is that there is no mechanism to rebalance trade (current account) imbalances.

  Ideally, a nation’s exports and imports balance, but in the real world, nations generally run trade surpluses or deficits. A trade deficit is a negative balance of trade incurred when a country's imports exceed its exports. A trade deficit is settled by an outflow of domestic currency to foreign markets.

  Countries with trade surpluses end up with cash from their trading partners, while countries with trade deficits must pay the difference between their exports and imports.

  Trade must balance: every nation cannot run a trade surplus. The problem for nations with current account deficits is: where do they get the money to settle their negative balance of trade?

  Nations with their own currencies can simply create the money out of thin air. This is in essence how the U.S. supports its massive trade deficits: the U.S. imports goods and services and exports U.S. dollars in exchange for the goods and services.

  This works as long as the country running trade deficits doesn’t print its currency with abandon.  If a nation prints its currency in excess, the currency loses value, and imports become more costly to residents.  As imports rise in cost (priced in the local currency), people can’t afford as many imports as they once could, and imports decline, reducing the trade deficit.

  On the other side of the trade ledger, the exports of the nation that is depreciating its currency becomes cheaper in other currencies. This makes the nation’s exports a relative bargain, and this tends to increase exports as global buyers take advantage of the cheaper goods and services.

  In this way, national currencies provide a mechanism for rebalancing trade deficits. By eliminating national currencies, the Eurozone also eliminated the only market mechanism for rebalancing trade imbalances.

  With no currency mechanism left, nations borrow money to fund their trade deficit.  This is the engine of Greek debt since that nation adopted the euro in 2001.

  If Greece had kept its national currency, trade deficits would have declined as the Greek currency depreciated and the cost of imports soared. Lenders would not have based their loans on the illusory guarantee of Eurozone membership.

  For nations running large structural trade deficits, membership in the Eurozone was a guarantee of financial disaster, as the way to fund the deficit within the Eurozone was to borrow more money.

  There is no way for Greece to fix its debt problem if it keeps the euro as its currency.  Every purported solution that doesn’t address the core cause of the debt is mere theater.

  The Subprime Template

  In the subprime mortgage bubble of the mid-2000s, people with modest incomes were able to buy costly McMansions under false pretenses by exaggerating their income (via “stated income” or liar loans). The mortgage originators issued the mortgage under equally false pretenses—that there was proper risk assessment/due diligence and a fair appraisal value for the property.

  These false pretenses enabled unqualified buyers to borrow enormous sums—for example, someone with an actual annual income of $25,000 borrowed $500,000 with no down payment and very low initial rate of interest. While the borrower bought into the dream of get-rich-quick “house flipping,” the real money was made by the originator and the lender.

  It is widely accepted that Greece was admitted to the Eurozone under false pretenses—national debts were masked or understated, reportedly with the assistance of Goldman Sachs.

  That a few at the top of the political/financial heap gained from Greece’s entry into the Eurozone is demonstrated by the “Lagarde List” of 2,000 individuals who transferred 50 billion euros out of Greece to Swiss banks in 2010, when the debt crisis was first making headlines. These are clearly not middle-class households getting their assets out of risky Greek banks; these are oligarchs and the top .1%. (Source)

  Since these transfers do not include money that fled Greece into the shadow banking system or hard assets, we can estimate the total sum taken out of Greece by the top 2,000 is more on the order of 100 billion euros—roughly half the nation’s GDP.

  In the U.S. economy, this would translate to 60,000 households taking $8.5 trillion out of the U.S.

  It is also widely accepted that at best 10% of the bailout funds trickled down to the Greek people—the vast majority bailed out private banks and other lenders. (Source)

  These charts demonstrate how private loans to Greece have been transferred wholesale to the public ledger, i.e. taxpayers:

  

  

  This is roughly the same template the too big to fail banks followed in the subprime mortgage crisis: after skimming vast profits from originating the loans, the banks faced insolvency as the phantom collateral of subprime mortgages evaporated.  To rescue the financial markets, the federal government bailed out the banks.

  Faced with the prospect of a Greek default bringing down their overleveraged banking sector (i.e. the European equivalent of a “Lehman Moment”), the EU leadership opted to bail out their own too big to fail banks on the backs of their taxpayers.

  Two Conclusions

  There are two conclusions to be drawn from all this, and they have nothing to do with who is demonizing whom or the political theater currently being staged:

  1. Greece can never escape the cycle of increasing debt until it exits the euro and returns to a national currency.
  2. The debt is so outsized compared to Greece’s private sector that it must be written off. What cannot be paid will not be paid.

  These facts matter not only because contagion from Greek debt defaults may ripple in dangerous ways through the financial system, but because they are also true for many other members of the Eurozone. As I predicted in my first article for Peak Prosperity four years ago, the Euro is a fatally-flawed monetary concept and what we now seeing playing out was eminently predictable from the start.

  In Part 2: More Sovereign Defaults Are Coming – Prepare Ahead Of The Turmoil, we look at structural causes of the global debt crisis that are not limited to Greece. Many other countries are teetering on the same brink Greece is now falling off of. When they fail, the ripple effect their debt defaults will debilitate their creditor nations, causing a massive shrinking of the world economy. 

  The key takeaway is this: even if the countries we live in can't live sensibly and within their means, we as individuals have the power to do so. But we need to seize that power now, before the next crisis arrives, for it to matter.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

   

  

  

  

  

  

• The Purge Begins: Tsipras To Expel Hard Core Left Wingers, Including Energy And Deputy Labor Ministers

  In the first sellside reaction to the latest Greek tragicomedy, moments ago Citi’s Richard Cochinos, in a note titled “72 hours for Greece” said what our readers have already known for about 6 hours: namely that “Greece will have 72 hours to implement the changes” and goes straight to the bottom line: “If they are unable to get the package through parliament, then this ends the dialogue and the government collapses.

  He adds that “the issue that Greece faces is it might not be possible – cracks in Syriza appeared already over the proposal sent to Brussels, what is coming back is even more stringent than the rejected referendum. There is a decent chance the Greek government will reshuffle next week, possibly fold on reforms. Domestically they can’t afford 3-4 weeks for new elections. The Economic Minister has suggested capital controls will remain in place for the next two-months (though they may be lightened). During the tourist season this is proving to be a death touch to the economy. RyanAir announced last week it is discounting flights to Greece by 30% due to low volumes.”

  We had a more directed view: in light of his “mental waterboarding“, Tsipras who has already lost all his credibility with both his people and the Troika, should do the only possible thing he can at this point: preserve some integrity with his voters, and resign… 

  Following the “mental waterboarding” Tsipras should resign right now https://t.co/bhGJaPFiTj

  — zerohedge (@zerohedge) July 12, 2015

  … knowing full well that it is very likely that Syriza would be re-elected in the next elections, but meanwhile throwing the ball in Europe’s court for the final time, forcing the Eurozone to make the Grexit decision instead of, as Merkel has done passive-aggressively, letting Greece to pick its own poison. Also, in doing so, the blame for the collapse of the Eurozone would fall on Germany, something Merkel’s ego would hardly be able to withstand.

  And as if reading the collective’s mind, Tsipras did already begin the governmental reshuffling, only instead of quitting he has started the purge of the hard-core leftwingers still defending the anti-bailout platform, who are certain to make life a living hell for the premier once he returns to Athens from Brussels and has to explain his actions to both his party and to the population.

  As Reuters reports, the first targets of Tsipras purge of “party rebels opposed to an austerity package that will have to go through parliament within days” include the most prominent rebels, Energy Minister Panagiotis Lafazanis, leader of the so-called “Left Platform” within Syriza and Deputy Labour Minister Dimitris Stratoulis, a former unionist and a fierce opponent of pension cuts.

  Under a Syriza party agreement, deputies are supposed to resign their seats if they publicly disagree with government policy although there is nothing to stop them refusing to stand down and holding on to their seats as independents.

   

  Terence Quick, a member of the rightwing Independent Greeks, the junior coalition partner in the government, said that any deputies who voted against the government should resign.

   

  “I don’t think abstaining or being absent shows you are responsible or honorable in these particular circumstances. You either go in and say a forceful no and you leave or you say ‘Yes’ and you continue to fight,” he said

  The next scalp Tsipras would love to have is that of the “uncompromising speaker of parliament, Zoe Constantopoulou, who also defied Tsipras and abstained from the vote” although she would require a no confidence vote to be replaced “but the other rebels would be expected to resign their seats, the same people say.”

  And if not resign they will simply be among the first group of party leaders sacked, with many more to come as Tsipras effectively morphs into his predecessor Samaras.

  According to Reuters, the 40-year-old prime minister “can not afford to wait”  because “a mini-rebellion of lawmakers on Friday laid bare tensions in the ruling Syriza party. The revolt saw 17 deputies from the government benches withhold support in a vote to authorise bailout negotiations, leaving Tsipras reliant on opposition parties to pass the measure.”

  Dealing with the consequences of that revolt will provide a clear signal of how determined Tsipras will be in pushing through the reforms European partners are demanding.

   

  Whether cooperation with opposition parties leads to a full-scale national unity government, with seats in the cabinet is still unclear but the change has left the future of the radical leftwing government in doubt. The government has 162 seats in the 300 seat parliament.

  Then again after Friday’s vote, and following this weekend’s crushing blow by the Troika, it is almost certain that many Syriza loyalists will exit the party, either voluntarily or otherwise, leaving the ruling coalition with a minority vote, which in turn will likely result in a few round of government elections within 2-3 months.

  However, the purge will be only the first of many hurdles now facing the morally and financially bankrupt government:

  Clearing out the leftwingers still defending the anti-bailout platform on which Syriza won power in January would underline how seriously the situation has worsened for Greece in the past six months.

   

  With the financial system on the brink of collapse and shuttered banks running short of cash, the six-year Greek crisis has escalated dangerously, forcing Tsipras to change course only a week after voters resoundingly rejected a milder package of bailout terms in a referendum.

   

  There are also questions about how stable any such government would prove, given the deep ideological differences between Syriza and the centre-right New Democracy or Socialist Pasok parties.

  But the biggest hurdle is not what Tsipras will do to the government, but rather what, if anything, the Greek people will do to Tsipras. If they have had enough, they may just shift from the “radical left” to the “radical right” as the only remaining political party that hasn’t promised the sun, moon and stars, or been terminally discredited.

  Unless, of course, the population, so disenchanted by the endless game of political thrones, becomes the first social manifestation of “learned helplessness” and simply refuses to care, instead opting to go gentle into that good night and with it taking what was once the world’s oldest democracy.

  

  

  

  

  

• Is It Time To Panic Yet?

  The world’s ‘teacup’ runneth over with ‘storms’…

   

  

  Source: Townhall.com

  Perhaps that is why NYSE ‘broke’ this week…

  

  Source: @MattGoldstein26
  

  

  

  

  

  

• 'Greek' Finance In America: Pensions, Medicaid, & Entitlements Will Bankrupt State And Local Governments

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default.

  When you can't pay your bills, you can either cut expenses, borrow money or if you're extraordinarily privileged, print money. If you borrow money without cutting expenses, the interest on the borrowed money piles up and you can't pay that, either. Then not only do you have a spending crisis, you have a debt crisis, and so do those who lent you the money.

  Because the funny thing about borrowed money is it's a debt to you but an asset to the lender.

  Not only is your debt listed as an asset on the lender's books–it's collateral that supports whatever financial leverage the lender might engage in.

  If you default on the debt, not only is the lender's assets impaired–all his leveraged bets built on the collateral of your debt are suddenly impaired, too.

  The preferred solution nowadays to a spending/debt crisis is to borrow your way out of the crisis: if you can't pay the interest and debt that's due, just borrow more to cover the interest payments and roll the old debt into new loans.

  In a variation that we can call The Japanese Solution, the lender decides not to list your defaulted loan as impaired–he places your loan in a special zombie debt column–it's neither a performing loan nor a defaulted loan; it is a zombie loan.

  The other solution (again from Japan) is to roll the defaulted debt into new loans at near-zero rates of interest that allow the borrower to pay a nominal sum every month, just to maintain the illusion of solvency. If you owe the bank $10 million, the bank loans you $11 million at .01% rate of interest and you promise to pay $100 a month.

  There–problem solved! The loan is now performing because the borrower is once again making payments. But is either the borrower or lender actually solvent? Of course not.

  Another trick is to guarantee the borrower is solvent. It's all smoke and mirrors, of course, but the empty guarantee is enough to smooth things over and maintain the illusion of solvency right up to the moment when the house of cards collapses.

  Debt and all these tricks to mask insolvency are scale-invariant, meaning they work the same on household debt, corporate debt and national debt. Many of these scams were used to mask the subprime mortgage debacle, and they are being routinely applied to private and public debt.

  Why? To avoid the consequences of losses being forced on overleveraged private banks and other lenders. Were those losses to be taken, those entities would be insolvent: their assets would be auctioned off, their shareholders, bond holders and creditors would receive pennies on the dollar (if that) and the lender would close their doors.

  The losses to the Financial Aristocracy, pension funds, etc. would be immense. So rather than deal with the realities of an insolvent, overleveraged, over-indebted and intrinsically corrupt financial system, everyone plays shadow games to maintain the illusion of solvency.

  If you can't print money or slash expenses, you have to borrow more money. The more you borrow, the greater the odds that in the next downturn, you won't be able to pay your bills, the interest on the debt, and roll over debt coming due into new loans.

  That's the template not just for Greece, but for many state and local governments in the U.S. As Gordon Long and I discuss in GREECE: A US State & Local Template?, state and local governments share key characteristics with Greece: they have soaring pension, Medicaid and employee healthcare obligations, but their tax revenues are either stagnant or prone to boom and bust cycles–and the current boom cycle is now entering the inevitable bust phase, when tax revenues plummet but the obligations just keep piling up.

  The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default, more financial tricks to mask the default, and eventually, insolvency, bankruptcy and massive losses being distributed to everyone foolish enough to choose financial trickery over dealing with reality back when the pain would have been bearable.

  As for printing your way out of a spending/debt crisis: that's just another form of financial trickery that keeps the illusion alive for a few more years.

  GREECE: A US State & Local Template? (27:46 video, with Gordon T. Long)

  

  

  

  

  

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