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World Bank on Greece Crisis: Spain and Italy Could Be Next

c.carver — Thu, 17 May 2012 16:27:26 +0000

MSNBC.com
By Alastair Jamieson, msnbc.com and Reuters
May 17, 2012

Visit msnbc.com for breaking news, world news, and news about the economy

Spain and Italy will be the next victims of the European financial crisis if Greece crashes out of the euro currency zone, the head of the World Bank has warned.

Fears that Athens may be forced to issue registered warrants or return to its former currency, the drachma, have rattled global markets and alarmed world leaders, with Greece set to figure high on the agenda at the G8 summit in Camp David later this week.

A cabinet of professors and diplomats was sworn in Thursday, to steer the debt-ridden eurozone state into repeat elections on 17 June, the BBC reported.

The risk of the contagion spreading to bigger European economies that are vulnerable due to high debt or weak banks has sent stocks and commodities tumbling, and has driven Europe’s single currency toward its lowest levels this year.

“The core question will be not Greece, but Spain and Italy,” World Bank President Robert Zoellick said on Wednesday.

Reuters reported that a Greek exit from the eurozone would have effects reminiscent of the collapse of the Lehman Brothers investment bank collapsed in 2008, which spread panic on global financial markets, and said that it could expose other European nations to hundreds of billions of euros in losses.

Recession-hit Spain, which faces deep concerns over the health of its banks, is set to see its medium-term borrowing costs rise sharply at an auction on Thursday of 1.5-2.5 billion euros of bonds expiring in 2015 and 2016.

Meanwhile International Monetary Fund chief Christine Lagarde warned of “extremely expensive” consequences were Greece to leave the eurozone, a once taboo possibility that European leaders have now begun to discuss openly.

Echoing Zoellick’s comments, Lagarde told Dutch television that a Greek departure from the euro “would be extremely expensive and hard, and not just for Greece.”

Greeks have withdrawn hundreds of millions of euros from banks in recent days as fears grow that the country might be forced out of the eurozone, although there has been no sign of a run on individual Athens bank branches.

In March, Greece agreed to extensive budget cuts as part of the conditions of a $165 billion bailout package organized by the European Union and the IMF.

European shares edged lower at the start of trading on Thursday, having closed down during the last three sessions.

The BBC said Panagiotis Pikrammenos, the senior judge who has taken over as prime minister of Greece, views the cabinet’s sole task as leading the country into the poll in the hope of producing a more conclusive result.

On May 6, voters punished the two mainstream parties that had imposed austerity measures under the terms of international bailout deals.

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European Leaders Add To Rising Fears Of Breakup

c.carver — Thu, 17 May 2012 15:46:02 +0000

MSNBC.Com
By John W. Schoen, Senior Producer
May 17, 2012

European officials are playing a dangerous game of chicken with Greece.

In an apparent signal to Greek voters, the head of the World Bank warned Thursday that if Athens were to depart from the common currency, Spain and Italy could well be the next dominoes to fall in Europe’s widening financial crisis.

After ousting the Athens government that agreed to deeper spending cuts in return for a financial lifeline, voters return to the polls in June after the winning parties failed to form a new government. Apparently hoping to convince Greek voters to return a pro-austerity government to power, European officials are now openly discussing the likely dire consequences if they don’t.

But the comments may have only served to heighten fears of a wider breakup of the eurozone should Greece exit the monetary union.

Investors backed away further from Spain’s government debt Thursday, raising the country’s borrowing costs to levels that sparked the Greek debt crisis in the first place.

Bond buyers were also reacting to fresh economic data showing that Spain’s economy is beginning to shrink, which makes its existing debt load even harder to carry.

The growing crisis also has caused growing nervousness among U.S. investors. Since the inconclusive Greek vote May 6, the Dow Jones industrial average has fallen in seven out of eight sessions and was down again Thursday. U.S. banking giant JPMorgan Chase send another ripple of worries through the market May 10 when it said it had lost at least $2 billion in a failed attempt to hedge against European volatility.

The recession is also putting more pressure on Spain’s banks, which have been saddled with bad mortgages as the country faces a deepening housing bust. Last week, the government took over Bankia, which holds 10 percent of the banking system’s deposits, after it reportedly suffered an large outflow of deposits.

The news follows reports that depositors pulled another $900 million out of Greek banks on Wednesday, extending a capital flight that could bring down Greece’s banking system. The fear is that those worries spread among depositors in other countries like Spain where the banking system is already under pressure.

Until very recently, European officials were loath to even discuss the idea of Greece’s departure from the compact binding 17 nations with a common currency. For one thing, the treaty that created the euro has no provision for a member country to abandon the currency or for its expulsion by the rest of the monetary union.

But central bankers and officials of agencies like the World Bank and International Monetary Fund have begun to think – and discuss – the unthinkable. IMF chief Christine Lagarde warned this week that Greek’s departure from the euro would be “quite messy” and ”extremely expensive.”

Analysts who are looking at the potential impact say the losses and economic pain would be widely felt.

Replacing the euro with a new, devalued currency would wipe out much of the remaining assets on Greek bank books. Europe’s central bankers have already pulled back some forms of funding for Greek banks that have been hit hardest by withdrawals. Hundreds of billions worth of additional borrowing by Greek households and businesses would be in legal limbo.

Any new currency – or a return to the pre-euro drachma – would be massively devalued, by some estimates as much as half the value of a euro. That would help Greece’s economy eventually get back on a growth path because it would make its products and services cheaper for buyers spending dollars and euros. A week’s vacation in Crete would cost half the price of a comparable trip to Sardinia.

But Greek households and businesses would bear the immediate pain. Imported goods and commodities like oil would suddenly cost twice as much. Households and businesses making good on outstanding loans written in euros would see repayment double in local currency terms.

European officials who engineered the costly plan to “save” Greece — led by France and Germany — would also feel the pain. Much or all of the more than $200 billion in loans already extended to the Greek government by the IMF, European Central Bank and Europe’s private banks would be at risk. That would mean explaining to French and German taxpayers what went wrong with the grand plan.

It would also raise the political costs of extending further bailouts to weaker, debt-burdened countries including Spain and Italy. As Greece demonstrates that a once-unthinkable exit from the euro is now possible, other countries may follow. If investors continued to shun Spanish and Italian government bonds and depositors flee their banks, the choice facing Europe grows more stark.

Worries about the fragmentation of Europe’s monetary union have already sapped business and consumer confidence and brought the region’s economy to a dead stop. Government austerity measures imposed on weaker economies are driving them deeper into recession.

As that recession spreads, the pain of Greece’s departure from the euro would be felt even more broadly, according to Michel Juvet, an economist at Bordier, a Swiss bank.

“At the same time we have China, which is slowing down very, very fast, we have the U.S. economy, which is losing momentum, and we have this global slowdown, “ he said. “All economies are so connected that when one country or one big zone is suffering, the others are suffering as well. This is globalization.”

Others see the crisis in starker terms.

“This is phase two of the global financial crisis,” said R. Seetharaman, CEO of Doha Bank in Qatar. “That’s the reality.”

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Greeks Pull Cash Out Of Banks As Confidence Wanes

c.carver — Thu, 17 May 2012 15:37:46 +0000

USA Today
By Nikolia Apostolou and Renuka Rayasam
May 17, 2012

ATHENS, Greece – Worried for the future, Greeks are pulling money out of banks at an increasing rate and either transferring it abroad when they can or hiding it at home.

“I know a lot of people have drawn their money from the bank,” said Apostolis Manafas 57, unemployed, of Athens. “I have friends that even hide their money in their closets. It reminds me of our grandparents and old Greek movies, where people sewed their savings in their mattresses.”

Greeks withdrew more than $900 million Monday and another $600 million Tuesday, according to the Greek Central Bank. While deposits have been steadily leaving banks since the start of the country’s debt problems in 2009, this week’s outpouring of cash reflects a new level of panic, analysts say.

Meanwhile, in Spain, the newspaper El Mundo said customers have withdrawn more than €1 billion ($1.27 billion) since the state took over Bankia, the country’s fourth-largest lender, a week ago. Bankia insisted its depositors’ money was safe, and the government denied there was a run on the bank.

The withdrawals in Greece follow that country’s failure to form a unity government after recent elections. A coalition of leftists insisted the country refuse to enact budget cuts agreed to by the previous government in order to qualify for billions of dollars in debt relief from Europe and the International Monetary Fund.

Greece’s caretaker Cabinet was sworn in Thursday and will lead the country into a new election June 17.

Some Greek fears the fight against austerity could force Greece out of the 17-member eurozone of nations that use the euro as currency and require the country to return to the drachma, the previous Greek currency that would likely be worth far less than euros.

“It’s a game of chicken between the EU and Greece,” says Raoul Ruparel, head of economic research at Open Europe, a London based think tank.

Ruparel says new elections may give one side the political majority to take action. But until then, “It leaves [Greeks] in a very uncertain position. As long as this is going on, there is a cloud hanging over Greece as a whole.”

Margarita Manousou, editor of a Greek tourism publication in Athens, says most Greeks want to remain in the eurozone but are worried about being punished by the European Union for objecting to what they consider harsh cuts in public benefits and welfare demanded by terms of a debt bailout.

“People are scared they will lose their money,” she said.

The EU has threatened to withhold further bailout loans if Greeks elect a government that opposes the bailout’s austerity measures.

Bank withdrawals seem to mirror the mood of the country at various points.

Deposit outflows have averaged between $2.5 billion and $3.8 billion a month, some of that from unemployed Greeks drawing down their savings. But in March and April after Greek’s international lenders agreed to fund bank recapitalization, Greeks put $2.5 billion back into their accounts.

For a while in the spring things were looking up, says Stathis Christophi, associate director of global banking at HSBC in London.

“But now it is a really bad situation,” he said.

Originally from Greece, Christophi said even he had a former colleague call this week asking how to open a bank account in London. He says wealthy friends are buying property abroad or moving money where they can.

“The whole banking system is paralyzed,” Christophi said.

The more money that leaves, the more Greece is dependent on the EU, says Ruparel. And the EU will continue to demand political and economic reforms in return for additional funds. It’s a contradiction that will continue the country’s tailspin until it can gain more secure footing.

Greece is in its fifth year of depression, and its economy has contracted 22% in that period while unemployment has soared to 21%. In spite of two approved bailouts, the last in March, as well as a shaving of its debt, the economic crisis in the country hasn’t eased.

So for now, withdrawing money from bank accounts “is a natural response when you are [being] blackmailed,” says Manousou. “The choice is either you vote right wing or Europe will take away your money.”

Greeks Withdraw $894 Million In A Day: Is This Beginning Of A Run On Banks?

c.carver — Wed, 16 May 2012 17:16:09 +0000

WorldNews on MSNBC
By Alastair Jamieson, msnbc.com and NBC News
May 16, 2012

Visit msnbc.com for breaking news, world news, and news about the economy

Updated at 12:05 p.m. ET: Political leaders in Athens were due to discuss an emergency government Wednesday to deal with a possible run on banks as it emerged Greeks withdrew almost $900 million in a single day, fearing their country could crash out of the euro currency by the end of the week.

An interim government would take the country through to new elections on June 17, triggered by the collapse on Tuesday of talks to form a coalition between winners of the inconclusive May 6 election.

Greeks are withdrawing euros from banks, apparently afraid of the prospect of rapid devaluation if the country leaves the European single currency and returns to the drachma.

President Karolos Papoulias warned of “great fear that could develop into a panic,” the minutes of Papoulias’ negotiations with political leaders showed, according to Reuters.

The minutes also reveal Papoulias was warned by George Provopoulos, head of the country’s central bank, that savers withdrew at least 700 million euros ($894 million) on Monday, Reuters said.

“Withdrawals and outflows by 4:00 p.m. when I called him exceeded 600 million euros and reached 700 million euros,” the president said according to the minutes of the meeting. “He expects total outflows of about 800 million euros.”

Several banking sources told Reuters similar amounts had also been withdrawn on Tuesday. Nevertheless, there was no sign of panic or queues at bank branches in Athens on Wednesday. Bankers dismissed suggestions that a bank run was looming. A senior executive at a large Greek bank told Reuters: “There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one.”

Still, some were taking no risks. Jenny P., an Athens private medical clinic receptionist originally from Ohio, told msnbc.com she had withdrawn 85 per cent of “what’s left” in her bank account.

“We could have a new currency in a couple of days and nobody knows for sure what will happen,” she said. “There are no lines to withdraw money, but maybe that’s because many Greeks have precious little left in the bank. Many have been surviving on [$500] 400 euros a month, which has to cover tax, bills, food and medical costs.”

She said she was planning to return to the United States amid the economic turmoil which has left her Greek husband unemployed. ”It is hard to see what the future will be here,” she said.

Greeks have already been withdrawing their savings from banks at a sharp clip – nearly a third of bank deposits were withdrawn between January 2010 and March 2012, reducing total Greek household and business deposits to 165 billion euros.

A senior bank executive said there had been withdrawals in recent days but there was no sign yet of a panic, as had happened in April 2010 when eight billion euros were withdrawn just before Greece obtained its first foreign bailout.

The political vacuum in Greece has hampered the country’s chances of making the budget cuts required by the European bailout deal. Without more austerity measures, the flow of bailout money will dry up, raising the prospect of a euro exit with all its wider ramifications.

The likelihood of a Greek exit from the euro – dubbed the “Grexit” by commentators – is now so high that even political leaders committed to avoid it admit preparations are under way.

Asked in an interview whether Greece could leave the euro zone, IMF director Christine Lagarde replied: “We certainly don’t hope so, from the IMF point of view … but we have to be technically prepared for anything”.

Will there be a run on Greek banks?

A Twitter image shared by economics blogger Tyler Durden, posted on UK website Zero Hedge, showed what appeared to lines outside ATMs in Greece, although it was impossible to verify where the picture was taken or if lines were longer than normal.

Reuters reported early Wednesday that there has “so far been no sign” of lines at banks in Athens, despite the likelihood that an exit from the euro would see a dramatic devaluation in of Greek currency.

CNBC’s John Carney raised the prospect of reduced limits on ATM withdrawals, citing a calculation by London analysts Capital Economics that if every working-age Greek withdrew the maximum permitted ATM amount of 300 euros a day, every single deposit of Greek households would be gone within 61 days.

“So the controls put in place in advance of an exit from the euro would have to include not only limits on moving funds abroad, but limiting withdrawals from ATMs and possibly declaring a bank holiday,” Carney wrote.

In practice, however, any Greeks lucky enough to possess any savings have already taken the precaution of withdrawing them from banks.

“Over the last two years Greeks withdrew approximately 70 billion euros from their bank accounts, an amount equivalent to approximately 35 percent of Greek GDP,” Dr Michael Arghyrou, senior economics lecturer at Cardiff Business School in Wales told msnbc.com.

“This is a negative demand shock of enormous proportions and with increased uncertainty this trend will almost certainly accelerate. So yes, we will almost certainly see more deposits withdrawals over the next few days, I just hope is that they will not be so large as to lead to a full-blown bank run.”

How likely is ‘Grexit’? Are drachma notes being printed?

A year ago, it was nearly impossible to get officials and political leaders to talk about the possibility of Greece leaving the eurozone. Now it appears to be an open secret.

Ireland’s central bank chief and European Central Bank policymaker, Patrick Honohan, signaled on Sunday that a Greek exit might not be as painful as previously thought.

“Technically, it can be managed,” he told reporters. “It would be a knock to the confidence for the euro area as a whole … It is not necessarily fatal, but it is not attractive.”

The tone from the European Commission, the EU’s executive, has shifted too.

On Monday, spokeswoman Pia Ahrenhilde-Hansen said: “We wish Greece will remain in the euro and we hope Greece will remain in the euro … but it must respect its commitments. Greece has its future in its own hands and it is really up to Greece to see what the response should be.”

Asked about contingencies, she did not rule them out.

Reuters quoted one European Commission official saying: “Clearly, the future of Greece is in the Eurozone. We are working on that. The 16 other governments in the Eurozone really are at the end of their patience with Greece. There isn’t room or any willingness to move. The decisions are really in Athens’ hands. But it doesn’t look good.”

However, the official response remains that a Greek exit is not being considered.

In an interview with NBC News on Wednesday, Angela Merkel, the German Chancellor, said: “I have the will, the determination, to keep Greece in the Eurozone. I think it will be good for Greece and good for all of us. We want Greece to stay in the Eurozone.”

Some commentators have pointed to a 13 percent rise in the share value of British firm De La Rue, which is the world’s largest currency printer, amid speculation it is best placed to pick up the contract for issuing new versions of the drachma, the Greek currency phased out in 2002.

It has remained tight-lipped on whether it is working for the Greek government, but in the meantime an interim solution has been mooted in which existing euro notes would be converted into drachmas by being endorsed with an official stamp.

Would a ‘Grexit’ be so bad? If so, what are the alternatives?

Lagarde said a Greek exit from the Eurozone would “have consequences on growth… consequences on trade and…consequences on financial markets “. She added: “You can certainly assume it would be quite messy.”

Global financial institutions have a $536 million exposure to Greek debt, according to the latest figures from the International Monetary Fund, although almost all is borne by France, Germany and other key European economies.

The Institute of International Finance has estimated that the global cost of a Greek exit could hit $1.2 trillion, according to the Daily Telegraph in London. When Argentina defaulted in 2001, foreign debtors lost around 70 percent of their investments, it said.

The Telegraph said a report in Germany’s Wirtschaft Woche magazineforecast that a Grexit would cost the Eurozone governments alone $300 billion, pushing the whole European economy – which narrowly avoided entering recession on Tuesday by recording exactly zero quarterly growth – into a crisis not seen since the 1930s.

Many are looking at the possibility that Athens issues IOUs to meet salaries and key service bills for a fixed period, much in the way California did during its budget crunch in 2009 when it issued ‘registered warrants’ with a coupon in place of dollar salaries and which banks then accepted for cash.

Much hinges on whether the European Central Bank would allow the Greek central bank to accept such IOUs and there’s little clarity on those hypotheticals.

However, strategists believe any Greek government IOUs would quickly act as a proxy for a new drachma and exchange values against the euro would mostly likely plummet in practice as people rushed to cash out – offering Greeks a glimpse of the shock of devaluation in a euro-ised economy with euro-denominated debts.

“I’m really not sure Greece could survive for very long if external money was cut off,” said Darren Williams, economist at fund manager AllianceBernstein. “But what an experience of IOUs may do rather quickly is bring home to the average Greek citizen just how much more difficult a place it is outside the bailout programme and outside the euro.”

What would happen to the euro?

Besides the huge liabilities, there is the risk that a Greek exit from the euro would set a precedent for the possible exit of other weakened economies including Spain and Portugal.

“Opening up the Pandora’s box of exit means deposit risk across the periphery,” an RBS analyst told Reuters.

Jan Randolph, head of sovereign risk, IHS Global Insight, told the BBC: “It would be difficult for the [European Central Bank] to keep banks afloat. The Greek banking sector would collapse as well. What happens next is a political question. European nations would probably not accept another Western European country descending into chaos and collapse.”

What is the political future for Greece?

Rampant inflation, civil unrest and even a return to dictatorship could be on the cards, analysts warn.

Arghyrou told msnbc.com: “There will be no credit for Greek banks or the Greek state. That could mean a shortage of basic commodities, like oil or medicine or even foodstuffs.

The country would end up in a volatile period. There would be institutional weakness. The worst case scenario would be a social and economic breakdown, perhaps even leading to a totalitarian regime.”

Henry Wilkinson, head of analysis at the Risk Advisory Group, said: “We are entering into unknown territory and it remains profoundly unclear what actually will happen. I wouldn’t overstate it, but I think the big concern out of all of this is that in times of great uncertainty and hardship, more extreme parties tend to find greater resonance with their message.”

Roger White, an American private tutor who moved back to the United States from Greece three weeks ago to escape the economic crisis, told msnbc.com: “I see violence on the Greek horizon. Will the Greeks continue to withdraw their savings? Yes, for as long as they can. Then, the government will intervene with limits on withdrawals and other controls. Then, Greeks will protest in the streets, light banks afire, smash bank windows and rip out ATMs.

“Oddly, I can say that in many ways my Greek experience gave me wonderful opportunities. Nonetheless, my epiphany came when Greece’s economic collapse and the government’s implosion revealed just how reliant on the government we are, and just how vulnerable to government mismanagement we are.”

Turk – Expect Tremendous Chaos, Europe Deteriorating Rapidly

c.carver — Wed, 16 May 2012 17:08:04 +0000

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/15_Turk_-_Expect_Tremendous_Chaos%2C_Europe_Deteriorating_Rapidly.html

Judge To Lead Greece To Fateful June 17 Vote

c.carver — Wed, 16 May 2012 15:17:31 +0000

Reuters
By Harry Papachristou and Lefteris Papadimas
May 16, 2012

(Reuters) – Greece put a senior judge in charge of an emergency government on Wednesday to lead it to new elections on June 17 and bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.

European leaders who once denied vociferously that they were fretting over Greece leaving their currency union have given up pretence. Asked if he was concerned about a Greek exit, European Central Bank chief Mario Draghi said simply: “No comment”.

Greeks have been withdrawing hundreds of millions of euros (dollars) from banks in recent days as the prospect of the country being forced out of the European Union’s common currency zone seems ever more real – although there has so far been no sign of a run on bank branches in Athens.

Political leaders failed to form a government following an inconclusive parliamentary election on May 6, leaving the state with its coffers almost empty and no elected cabinet in place to satisfy lenders it deserves the money needed to stay afloat.

President Karolos Papoulias, whose powers as head of state are limited, named supreme administrative court head Panagiotis Pikrammenos as caretaker prime minister. He will have no power to take political decisions, only to carry Greece into the vote.

The parliament that was elected on May 6 will convene on Thursday and be immediately dissolved, a presidency source said.

The interim leader is little known outside legal circles. State television said he was born in 1945 in Patras, western Greece and studied law in Athens and Paris. A court source said he would name a cabinet that would be as small as possible.

“Thank you for your trust, and I believe that I am worthy of this mission,” Pikrammenos said at a meeting with the president. “This is purely a caretaker government. However, it escapes no one that our country is going through difficult times.”

He repeated a joke he said he had read in the press, that his own name, which translates to “embittered” in English, made him suited to be the last prime minister of a political era.

LEFTISTS LEAD

A new poll confirmed what other surveys have shown: that radical leftists who reject a bailout agreed with the European Union and International Monetary Fund are poised for victory, and the two establishment parties that agreed the rescue are sinking further after an historic wipeout 10 days ago.

The leftists argue they can tear up the bailout and keep the euro, but European leaders say if Greece fails to meet promises to them, lenders will pull the plug on financing, driving Athens to bankruptcy and a swift exit from the EU single currency.

On Monday, according to an official account, the president told party chiefs that figures collated by the central bank headed by George Provopoulos showed savers withdrew at least 700 million euros ($890 million) from banks.

“Provopoulos told me there was no panic, but there was great fear that could develop into a panic,” the president was quoted as saying in minutes of a meeting that failed to yield agreement on a cabinet, condemning Greeks to vote again next month.

“Withdrawals and outflows by 4 p.m. when I called him exceeded 600 million euros and reached 700 million euros,” he said. “He expects total outflows of about 800 million euros, including conversions into German Bunds and other such things.”

A senior executive at a large Greek bank told Reuters: “There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one.”

Still, some were taking no risks. A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow eurozone state Cyprus on Tuesday afternoon.

“Any way you see it, things are difficult. If they call elections on June 17 – a Sunday – then everyone will take their money out on the Friday.” That June 17 date was later confirmed.

BANK WITHDRAWALS

A senior bank executive said there had been withdrawals in recent days but there was no sign yet of a panic, as had happened in April 2010 when 8 billion euros were withdrawn just before Greece obtained its first foreign bailout.

Analysts predicted Greece would avoid a bank run, if only because so many people have pulled out their savings already.

“We have witnessed periods of tension before when the banks experienced large outflows. In my view, the majority of people with these concerns would have done so by now,” said Alex Tsirigotis, Greek banks analyst at Mediobanca.

Greek banks have made up for vanishing deposits on their balance sheets by accepting costlier European Central Bank financing through the Greek central bank.

The spectre of Greece quitting the single currency sent the euro and European shares to a fresh four-month low on Wednesday and raised the yields on Spanish and Italian debt, reflecting the risk that other European countries will be hurt.

Greece’s two wounded establishment parties hope to persuade voters that the election will be a referendum on the euro, which nearly 80 percent of Greeks say they want to keep. The view from Brussels is clearly that Greek euro membership is now at stake.

“It is important that the Greek people now take a decision fully informed about the consequences,” European Commission President Jose Manuel Barroso told a news conference.

“The ultimate resolve to stay in the euro area must come from Greece itself,” Barroso said. “We must tell the people that the program for Greece is the least difficult of all the difficult alternatives.” ($1 = 0.7828 euros)

(This story has been corrected to change day of convening of parliament to Thursday from Wednesday in paragraph 6)

IMF Stresses Need To Increase Reserves Due To Rising Credit Risk

c.carver — Tue, 15 May 2012 21:08:51 +0000

Commodity Online
By Commodity Online Staff
May 15, 2012

NEW YORK (Commodity Online): The International Monetary Fund (IMF) is planning to increase its precautionary reserves on account of rising global risks, the organization’s latest report says.

“The Fund is facing increased credit risk in light of a surge in program lending in the context of the global crisis. While the Fund has a multi-layered framework for managing credit risks, including the strength of its lending policies and its preferred creditor status, there is a need to increase the Fund’s reserves in order to help mitigate the elevated credit risks”, the IMF report states

“Directors supported an increase in the medium-term indicative target for precautionary balances to SDR 20 billion in light of the increase in total Fund credit and commitments since the last review in 2010”, the report adds

IMF’s borrowers include Eurozone countries like Greece and Portugal. Greece is IMF’s biggest borrower and the nation is currently caught in a political deadlock that seems bent on denying itself the much needed bailout fund.

Countries like Spain is also officially in recession after its first quarter GDP contracted. Other nations in the Eurozone region is also showing increased signs of slow manufacturing activity and economic growth.

U.S. Stocks Down On Europe Woes

c.carver — Mon, 14 May 2012 16:01:44 +0000

NEW YORK (MarketWatch) — U.S. stocks fell sharply Monday as investors worried about Greece’s potential exit from the euro zone and rising Italian and Spanish bond yields.

“The cost of ensuring against a Spanish default is now more expensive than for Hungary,” Peter Boockvar, equity strategist at Miller Tabak, noted in an email.

The Dow Jones Industrial Average fell 137.10 points, or 1.1%, to 12,683.50, with J.P. Morgan Chase & Co. down 2%, among the top decliners that included all but two of its 30 components.

Ina Drew became the first high-ranking casualty of the scandal that put a dent in J.P. Morgan’s reputation, with the bank saying its chief investment officer is resigning after more than 30 years with the bank.

The S&P 500 Index slid 14.97 points, or 1.1%, to 1,338.42, with financials leading the slide among its 10 sectors.

Electronics retailer Best Buy Co. Inc. said founder Richard Schulze would step down as chairman following a board probe that concluded he failed to report allegations of personal misconduct by former CEO Brian Dunn to its audit committee.

And Scott Thompson on Sunday stepped down as Yahoo Inc.’s chief executive officer, with the resignation coming 10 days after hedge fund activist Daniel Loeb accused him of faking a computer science degree.

The Nasdaq Composite declined 31.82 points, or 1.1%, to 2,902.14.

For every stock rising, eight fell on the New York Stock Exchange, where 173 million shares traded as of 10:30 a.m. Eastern.

In Greece, a political stalemate entered a second week with no agreement on a unity government and new elections considered likely as the nation looks at a potential exit from the euro zone.

Gold Bull Market ‘Is Not Over’ – Morgan Stanley

c.carver — Mon, 14 May 2012 15:49:22 +0000

Kitco.com
By Debbie Carlson
May 14, 2012

Gold is trading at its lowest levels since December, but Morgan Stanley analysts say gold’s bull market “is not over” and that they are buyers of the metal at current prices. The recent sell-off in prices is “consistent with distressed selling and long liquidation,” but they think prices will recover in the coming weeks. They say the factors that have supported gold remain in place: the European sovereign debt crisis and low interest rates. They also note that the low level of speculative net-length in the CFTC reports is a positive sign.

JP Morgan’s $2 Billion Loss, Explained

c.carver — Fri, 11 May 2012 16:15:54 +0000

NPR.com
By Jacob Goldstein
May 11, 2012

What just happened?

JPMorgan Chase, the biggest bank in America, announced that it lost $2 billion on a massive trade placed out of its London office.

What was the trade?

The trade came to light earlier this year, when reports surfaced of a “London Whale” — a trader at JPMorgan who had accumulated a position so big it was affecting the whole market.

The trade involved an index of corporate credit default swaps. These are essentially insurance policies that pay off if a company can’t make payments on its debts. (Credit default swaps became a household name during the financial crisis, when they were central to the blowup of AIG, a giant insurance company.)

JPMorgan took the big hit when it tried to back off from the trade and had to sell at a loss.

Doesn’t the Volcker Rule ban banks from this kind of trading?

The Volcker Rule, adopted after the financial crisis, will ban commercial banks from “proprietary trading” — using their own money to make speculative bets.

But the rule allows banks to make trades to hedge their risks. JPMorgan, not surprisingly, argues that this trade was a hedge gone wrong, not a speculative bet.

As regulators have been writing the details of the Volcker Rule, there has been a big debate over what counts as a hedge and what counts as a speculative bet.

Those pushing for a strict version of the rule argue that, to count as a hedge, a trade must hedge against a specific risk. So, for example, if a bank made a loan to a company, it could buy insurance that would pay off if the company defaulted on the loan.

The banks have been arguing for a broader definition. They want to be able to make trades as a hedge against their entire portfolio, not against particular, specific risks.

That’s exactly the argument JPMorgan made about the trade that just went bad.

“The purpose of this is to hedge the macro risk of the company,” a JPMorgan exec told ProPublica last month. “It’s what we are supposed to be doing.”

What’s the bottom line?

JPMorgan has more than enough money to cover the loss it announced yesterday. The bank made nearly $6 billion in profit in the first quarter of this year alone. And other profitable trades mean the bank’s current net trading loss is less than $1 billion.

But the news is likely to have an impact beyond the numbers.

For one thing, it will give more credibility to those arguing for a narrower implementation of the Volcker Rule that would do more to restrict the trades banks can make with their own money.

It will also hurt JPMorgan’s reputation. The bank was widely viewed as the best risk manager among the big banks. Throughout the financial crisis, JPMorgan made a profit every quarter.

The damage will be compounded by the fact that, less than a month ago, CEO Jamie Dimon called media coverage of this trade “a tempest in a teapot.”

Cut to yesterday’s conference call: “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,” Dimon said. “There were many errors, sloppiness and bad judgment.”