Why Is Europe Teetering On The Edge Of The Financial Abyss?

Europe can't get their financial houses in order. They try to put out one financial meltdown and they turn around and another country is in financial peril. The fact is they don't adhere to their own rules of the Euro Union, The Maastricht Treaty.

From The Daily Pfennig:

 "The Maastricht treaty set a limit of 60% for Government debt as a Percentage of GDP. As of May, 2011 only 4 of the 17 countries in the Euro-zone are below this requirement. The worst violators of the debt limit requirements are probably obvious: Greece at 157.7%, Italy at 120.3%, Ireland at 112%, Portugal at 101.7%, and Belgium at 97%. (By the way, Belgium debt was downgraded on Friday following downgrades of Portugal and Hungary.)

But readers will probably be surprised by the next two countries which are currently above the Maastricht limit: France currently has 84.7% debt to GDP and Germany is close behind with 82.4%. Both of the two 'fiscal leaders' of Europe have a worse debt to GDP than Spain which is three places better than Germany at 68.1%!

The only countries which currently adhere to the Maastrict treaty limit for debt to GDP are Finland, Slovakia, Slovenia, and Luxembourg, certainly not what most investors would consider the leaders in Europe! The average Euro-zone debt limit as of last May is 87.7%, over 25 percentage points above the required limit. I have gone on a bit too long about this, but the slide really brings home the fact that the treaties of the EU don't need to be tightened, but instead the adherence to these treaties need to be strengthened. Leaders can talk about new requirements all they want, but what good is this talk if no-one is going to adhere to these new requirements anyway?"

Chris Gaffney, The Daily Pfennig, 28 Nov 2011

A rather Sad state of affairs, Euroland. So, if France and Germany, "The" Euroland financial behemoths can't control their debt, how will the weaker economies solve their financial debts?

They won't. They will default. The math doesn't lie, it is factual. There is no easy way out. The IMF will not come to the rescue, even though next weeks headlines will make you think they have. Italy will be hosed along with the rest of Euroland. You can't paper this problem over with more debt. The problem is the same here in America. It is a three card monte street hustle and the "noobs" and those on "hopium" will get sheared once again.

Bruce Krasting summed it up succinctly here:

In the real world of global finance the reality is that any country that is forced to accept an IMF bailout is also blocked from issuing debt in the public markets. IMF (or other supranational debt) is ALWAYS senior to other indebtedness of the country. That’s just the way it works. When Italy borrows money from the IMF it automatically subordinates the existing creditors. Lenders hate this. They will vote with their feet and take a pass at Italian new debt issuance for a long time to come. Once the process starts, it will not end. There will be a snow ball of other creditors. That's exactly what happened in the 80's when Mexico failed; within a year two dozen other countries were forced to their debt knees. (I had a front row seat.)

I don’t see a way out of this box. The liquidity crisis in Italy is scaring us to death, the solution will almost certainly kill us.

And so it goes....Please don't ignore the warning signs. You future is quickly eroding away.

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MG Global Debacle Is the Tip Of The Iceberg

It has been almost 3 weeks since MF Global dropped a very scary halloween bankruptcy surprise on the markets. And just like a halloween trick, most observers just thought this was an isolated incident and is how the capital markets should work. Boys will be boys, right!?! Well when you make grave investment errors, Mr Corzine, your account and funds will go boom and everyone eats it big time!

Well not so fast. MF Global clients didn't make the bad trades, Mr. Corzine and MF Global did. There is now no doubt that MF Global illegally mixed segregated funds -client funds- with their own brokerage funds and lost the farm. Client funds were stolen by MF Global and yet, there is no one in jail, no one has been accused of fraud and MF Global paid their London office bonuses before filing bankruptcy. WTF!?! News like this usually would drop the markets like a steaming hot pan of burned potatoes. Guess what?!? Didn't happen. Just business as usual on Wall Street.

Logic would tell you that you have to think that with the recent history of all of the accounting frauds like Enron, AIG and Lehman Brothers and  ponzi schemes like Madoff, Allen Stanford and Mutual Benefits in Flordia,  insider trading on Wall Street and in the US Congress, and misappropriation of customer funds which is commonly called embezzlement (Quite the list of ugly achievements for the 2000's! And there are plenty more) that the public would be up in arms demanding justice and change?  Well they aren't, except for a few hardy individuals in the widely disparaged OWS movement. The complacency of the American public regarding their financial future is disturbing. They are, in my opinion, either blissfully oblivious or blatantly ignoring the financial news from Wall Street and Washington and are completely unaware of the risk of their inaction. The signs are clear and here now! What is coming is a financial tsunami that will completely alter our lives and our futures. We will be living in a financial first world economy one day and the next, we will find we have dropped down in a free fall to join the financial ranks of Zimbabwe and the Weimar Republic in the third world. Americans will not deal with this reality very well and yet, this is becoming a cruel fact because we, the American People, are not demanding change from our elected officials on all levels of government and demanding that Banks and Wall Street stop bribing Congress with campaign contributions. The ownership of Congress by the Banks and Wall Street continues to let the monsters like Mr. Corzine rape and pillage at will, without the fear of handcuffs and major jail time. Senator Dick Durbin clearly stated in a radio interview in 2009 that despite having caused the 2008 financial crisis, Banks and Wall Street firms "are still the most powerful lobby on Capitol Hill. And they, frankly, own the place."

Yep, The Banks and Wall Street just got bolder and are stealing money from clients accounts out in the open and getting away with it. And now you have brokerage firms calling the markets rigged and quitting the business.

From Barnhardt Financial Management

BCM HAS CEASED OPERATIONS 

POSTED BY ANN BARNHARDT - NOVEMBER 17, AD 2011 10:27 AM MST

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

.....................

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

...............

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Whole letter on their website here:

So what does this mean?   That there are people of ethics and morality on Wall Street? Some, maybe, but this is the beginning of the end of the world as we know it. You have, right here, today, a Wall Street broker who is calling the game rigged and that all client capital is a potential loss. This is a broker who is telling you that Washington will not follow the letter of the law and put the thieves in jail. The rule of law is lost and MF Global is a very clear sign that no one in the CFTC, SEC, FBI, Justice Department or Congress gives a damn.

Euroland is fixing to detonate, Italian banks are begging for funds of last  resort. The London Stock Exchange has become their last chance at funding, using client margin accounts, and what happens if the Italian banks go bust, and they will, and can't pay? They go MF Global, margin calls abound in a financial contagion, which waterfalls through banks around the world and your money goes POOF! 

Think Your 401k Is Safe? Pension Funds? Trading Accounts? Poof! They Are Gone!

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John Mauldin - It's Europe's Move, A Big Bang Moment

King World News has an interesting interview with the normally, don't worry about it - pie in the sky - the market is fine, John Mauldin. He has actually woken up from his comfy hedge fund world and realizes that it is really raining hard out here in the real world.

He is under the impression that Euroland must sell everything not nailed down - to whom they will sell, he doesn't mention - or crash and burn.

Wow!  When you stop drinking the cool aid and find yourself too close to the sun, you will get burned & reality will slap you hard right across the face. Doesn't matter who you play the game for, just ask Gerald Celente or Bill Fleckenstein.

For the King World Interview with John Maudlin follow links below.

You can read the transcript here.

Or hit the link and scroll to the bottom of the page and listen to the interview with Eric King.

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Is Any Broker Held Account Safe?

The MF Global scandal should have put you on double super alert regarding your trading accounts.
MF Global mixed company funds with their client funds, used that as collateral for short term loans
and bet the house on Greek bonds that blew them up. As Rick Perry might mumble, "ooops!"
Except that if you had an account at MF Global you are completely screwed. Any positions in trades you want to keep have new margin calls. To keep that trade in play, you have to immediately raise the cash to meet the new margin on your trade.

So where does that leave you? Six years ago,  I read an interesting historical book on the early history of wall street tycoons in the 1840's by Daniel Drew, who founded the Wall Street brokerage firm of Drew, Robinson & Company in 1844. The Book is called "The Book of Daniel Drew" and is a fascinating account of Mr. Drews life in his own words.  Mr. Drew was in cahoots with Jay Gould and James Fisk in the infamous battles over ownership of the Erie Canal and Erie railroad Company with Commodore Cornelius Vanderbilt. And, paraphrasing here, one tenet that he underscores time and again is you can't compete against the big boys unless you have inside information. That is where we
sit today, we don't have inside information like the big Wall Street players. However, as the MF Global debacle clearly illustrates  the corruption continues on Wall Street, much like it did in the days of the Erie Railroad.

As Jessie, at Jesse's Cafe Americain clearly states Who and what is safe today?

14 NOVEMBER 2011

Gold Daily and Silver Weekly Charts - Who and What Is Safe?

With all the insider trading, ponzi schemes, accounting frauds, and misapporpriation of customer assets, investors have to be asking themselves,'what is the real value of things, what are the hidden risks, and what is really safe anymore?'

So the average person seems to be flocking to US Treasuries, often held for them by brokers. This rush to paper dollars may be the last bubble, the great killing field of personal wealth and value, as the oligarchs take your savings and wipe you out with a few strokes of the keyboard.

If you think they will protect and save you because you are 'one of them,' and vote their party line and watch their news channels and promote their interests and look down on your fellows, you are wrong.

You are not one of the elite, the .1%, except in your own misplaced aspirations, and delusions of grandeur. To the power of darkness in high places you are prey, and your purpose is to be devoured.

The time to do something to protect yourself and your family, and restore equal protection and the rule of law, is now. You will not appease the madness by throwing victims to it, and hoping it becomes satiated. Its hunger only grows, and serves no other than itself.

See Jesse's blog here.

I would suggest you consider a small investment in physical gold and silver for the upcoming maelstrom. 

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An Unmitigated Disaster - SilverSeek.com

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MF Global Stole Clients Funds

Looks like it is official. Brokerage firms CAN STEAL from their customers.
So, if you still held out hope the market isn't rigged to Wall Street and Washington political
cronies, read it and weep.


From Robert Lenzner at Forbes

After an intense day of investigation, I have just discovered that a CFTC rule (1.29) allowed Jon Corzine’s MF Global to use the margin and cash in customers heretofore segregated accounts to amass a risky $6.3 billion investment in European sovereign debt that backfired. Nor did Corzine have the obligation to inform any of these customers he was gambling with their money. Or that he was intending to keep all the profits for himself and his troubled firm. Nothing for the customers.


The language of Rule 1.29 allows “The investment of customer funds in instruments described in 1.29 shall not prevent the futures commission merchant (MF Global) or clearing organization so investing such funds and retaining as its own any increment or interest resulting therefrom.” Increment refers to any trading profits or gains.


The criminal division of the Justice Department in New York — as well as the SEC and the CFTC and members of Congress– are investigating whether any laws were violated and if so, whether any criminal charges can be brought. As of 3 pm today, there has been no sign of the missing $633 million. My sources believe it was probably grabbed by the institutions that made the margin calls on MF Global as the European bonds sank in value.


This shocking loophole, which is available to all commodity traders, whether giant ones like Goldman Sachs or members of commodity exchanges, means that huge risks are being taken with money that does not belong to the trading firms– without the customers having any idea of the danger they are in. As Andy Abraham, a futures trader in Israel put it to me today; “this means they can take segregated funds and leverage them to kingdom come. It means nothing is safe.”


This rule, which has been in effect since 1974, is shocking and highly irregular since it allows any futures dealer to use customers money for its own selfish purposes– and never inform its customers it is doing so. What’s even more unfair is that the dealer (MF Global) gets to keep all the income and the trading profits, if any from a transaction that uses other people’s money– not its own house capital. That is unless some prior arrangement about sharing profits was made privately beforehand with the client. None of the MF Global clients I’ve spoken to today had the foggiest notion about this arrangement– which at minimum is outrageously unfair to the rule that the customer comes first. All losses must be made up by the dealer, which in this case may be totally impossible..."

Read the rest here.

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Italy Teeters On The Brink Of Insolvency. Euroland spins around the drain

You didn't think that crisis in Euroland was going to end with the Greek debt crisis did you!?!

No worries,  the Italians have just stepped into the fire.

Italian bonds surpassed the 6.6% yield for 10 year bonds, while the 2 year yield approaches the 10 year. Italy has to rollover quite a lot of debt in december and can not afford 6.6% payments on the new 10 year bonds while they run their GDP at 120%, so.....expect Italian bond prices to rise as the number three economy in Europe goes bust. Zero Hedge notes here that the Italian Treasury cancelled this weeks bond auction. What will Berlusconi do? He has already refused to resign again. And we know that the Italian populace won't accept any austerity measures, so Berlusconi's hands are tied. Goldman Sachs warned the markets today that Italy might have to take "unilateral decisions" like seizing banks or stepping on the bond market, effectively taking direct control of the people's cash and assets. Fears of bank runs? No doubt. If they don't back stop this with some sort of ECP purchase of Italian bonds,
we will see the contagion burn through Euroland banks, then jumping the pond and wiping out
American banks as well. It is that critical and extremely dire.

Please note that not just Italy's feet are in the fire, France has just revealed the toughest austerity measures since World War II, in a fleeting hope to stave off losing their AAA bond ratings.

Also, please note that the Swiss have threatened to devalue the Swiss franc again and that sent the franc tumbling 2.3% against the Euro.  Switzerland was once known as a safe haven for your currency. Not anymore. This is a lot of bad fiat paper racing each other to reach the drain.

The question of using Italian gold holdings to backstop Italian bonds was brought up today. Another reminder that "Gold isn't Money" from Zero Hedge. Germans didn't like the suggestion that they use their gold to back the fiat Euro either. So what is this "relic" called gold and why won't the Euro's use it to stop their financial woes? You should be asking yourself the same question. Are you backstopping your financial future with physical gold or silver?

MF Global Margin Calls Eerily Similar to Movie

MF Global Pushes Futures Markets To More Risk, Bad Idea!

Two separate reports from Zero Hedge are questioning the liquidity of major futures indices here in America. One is the CME announcement, made well after hours on Friday where they notified the markets that they are reducing margin requirements by 30% on all trading accounts starting this monday.
The CME is asking for more risk in the futures markets just when it seems that there should be less risk after the MF Global meltdown. Then you have ICE futures announcing the same plan later on friday, reported by Zero Hedge here, which begs the question....Why are they doing this?  Dave in Denver outlined margin calls that would be required by all MF Global customers to cover their cash losses by MF Globals plundering of their accounts on Friday. Which would require these same MF Global customers to raise cash for their margin accounts or have them liquidated.  Dave in Denver also noted today that IB (Interactive Brokers), who was looking to buy MF Global before it collapsed, doesn't want anything to do with MF Global customers. This probably means that the MF Global situation is much worse than reported so far. This doesn't bode well for the market open on monday and probably will lead to a big down day across the board, including metals. Could this there be excessive leverage and a lack of liquidity? Could this cause a huge selloff and a run for the exits? Maybe. It is all a ponzi scheme and if you aren't on the inside with intimate knowledge of the gambit, you will be fleeced!

Got Gold?

http://www.inflateordie.com/files/Gold%20Silver%20%2010-14-2011.pdf

Greece Prepares to Default. Will Europe Implode?

That loud din you heard last week, where world wide markets were cheering and celebrating the 5% market rise in the Euroland bailout just went bust. The beer goggles didn't last long and after a weekend of introspection, investors everywhere are starting to freak out over a Greek default that will tumble Euroland banks. Which will leap across the pond and strangle the US banks.  Boom! So with the Greek default, it isn't a matter of.. if... any more, it is a matter of when.

What caused all of the hand wringing today is that Greek Prime Minister George Papandreou announced that the Greek government is calling for a referendum on the Euroland bailout package for Greece. This call for a Greek referendum shocked Euroland leaders who had thought they had finished the rape of Greece and were moving on to Italy. The New York times outlined the Greek announcement here.

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders -- the European Union, the European Central Bank and the International Monetary Fund -- which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation's painful economic choices from Mr. Papandreou's Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political position and avoid the instability of early elections.

Does Papandreou have a chance of passing this referendum?  Markets don't think that the Greek people will go for this as the Dax dropping 5%
overnight and the Dow falling today should tell you.

This will lay bare the global banking problems which will implode in Euroland first and most likely in the next 12 to 14 months. Why Euroland?  Euroland banks are leveraged at least 26 to 1, which, if they lose a small 4% drop in their asset prices, make them insolvent.  But the bigger problem is that most of the Euroland banks have debt that needs to be rolled over before the end of 2012. Graham Summers of Phoenix Capital Research reported...

Between now and then...

• French banks need to roll over 30% of their TOTAL debt.
• Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
• German banks need to roll over nearly 40% of their TOTAL debt.
• Irish banks need to roll over almost HALF (50%) of their TOTAL debt.

And this is going to happen in an environment in which sovereign debt auctions are failing (or would fail if not for ECB intervention)?

I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe's ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks.

This is Lehman 2008 with a much larger Boom!  Don't forget that US banks are as deeply leveraged or worse than their Euroland counterparts. Add to this the MF Global failure run by another Obama crony and you have to really start to take stock in your financial future.  Time to buckle up that helmet. This ride is going to get really bumpy!

Keiser Report Nov. 1st, 2011