The European debt crisis is rolling across the continent at alarming speed, proving that almost no country is immune to the contagion unleashed by Greece and Italy as confidence in the region’s ability to reduce its debt loadsevaporates.
Yields on the 10-year bonds of France, Belgium, Spain and Austria all soared to record euro zone highs on Tuesday in spite of fresh data showing that the German economy is still expanding and despite the tentative launch of caretaker governments in Rome and Athens with mandates for economic reform.
The mass selloff drove up the debt yields of countries that had been considered havens, including Finland and the Netherlands. “Global financial markets are facing a key pivotal point,” analysts at Barclays Capital said in a Tuesday research note. “A further escalation of the European debt crisis is putting at risk the nascent stabilization of global growth.”
Italy’s post-Silvio Berlusconi honeymoon proved exceedingly short-lived. Last week, yields on 10-year Italian bonds went to a record 7.48 per cent. They dipped after Mr. Berlusconi resigned as prime minister, then came roaring back, climbing back above 7 per cent on Tuesday, even as Mario Monti, his replacement, came close to forming a new, cross-party government. Mr. Monti is to unveil his cabinet on Wednesday in Rome.
The bond selloff hit France, whose triple-A credit rating is at risk. The French bond spread over equivalent German bonds widened by 23 basis points to 188 basis points, the most since the common currency was launched in 1999 (100 basis points equals one percentage point).
The yield on German debt – the euro zone’s last low-yield sanctuary – continues to sink as investors rush to safety. At 1.76 per cent, the yield on 10-year German bonds is now less than half of the French yield.
Spain, where the economy is on the verge of another recession and unemployment is still rising – it reached a new euro zone high of 22.6 per cent in September – saw its 10-year bond yields surge to 6.3 per cent. That took the spread over German bonds to a record 458 basis points.
The resurgence of Spain’s debt crisis was underlined by the treasury’s failure on Tuesday to reach the target sale of €3.5-billion ($4.8-billion) of 12- and 18-month bills. The yield on the 12-month securities went to 5 per cent, well above the 3.6 per cent at a similar sale only a month ago.
The rising bond yields throughout the euro zone, outside Germany, can in good part be blamed on the banks’ wholesale retreat from sovereign debt. The banks are under political pressure to keep their Greek bonds, for fear that a wave of selling would destroy what little remains of the country’s debt market. That means the banks are unloading other risky sovereign bonds, in particular Italy’s, to bring down their overall exposure.
BNP Paribas, one of the largest French banks, reduced its Italian bond holdings to €12.2-billion from €20.8-billion in the third quarter. Deutsche Bank reduced its Italian exposure by 88 per cent in the first six months of the year. Germany’s Commerzbank AG said earlier this month that it is selling sovereign bonds at a loss, and Global Sovereign Open, Japan’s biggest mutual fund, unloaded all of its Italian bonds this month, according to a Bloomberg News report.
Economists think the rush to sell sovereign bonds was triggered by several factors: a European Union agreement with the banks to write down Greek bonds by 50 per cent, creating a precedent that bond investors fear will be repeated elsewhere in the euro zone; the European Central Bank’s reluctance to buy distressed bonds; and European politicians open talk about member countries leaving the euro zone.
On Tuesday, Dutch Prime Minister Mark Rutte said it should be possible to expel members from the euro zone. The day before, German Chancellor Angela Merkel’s Christian Democratic Union party voted to allow countries to leave the euro zone. While the vote carries no legal weight, it reflects the CDU’s rising skepticism about the euro project.
The near certainty that the euro zone is about to enter another recession also spooked the bond markets.
Eurostat, the European Union’s statistics agency, reported Tuesday that the euro zone’s gross domestic product expanded by a mere 0.2 per cent in the third quarter over the previous three months. While Germany performed well (with third-quarter growth of 0.5 per cent) economists warned that 0.2 per cent was probably as good as it gets and that the next figure might be negative because of the escalating debt crisis and austerity programs.
The Globe
Former U.S. Senator and New Jersey Gov. Jon Corzine is a man known for taking risks. In 2007, he wasn't wearing a seatbelt when his chauffeur-driven SUV crashed on the New Jersey Turnpike doing 90 miles per hour. Corzine was severely injured.
Now, critics, are saying Corzine brought that same level of risk to his management of MF Global -- a company that crashed in spectacular fashion last month after it disclosed a $6 billion exposure to Eurozone nations like Italy and Portugal.
The former Goldman Sachs CEO’s penchant for juggling finances was once considered an asset. During the tumultuous early months of the Obama administration -- as it faced the immensity of recession -- Vice President Joe Biden hailed Corzine as a wise financial sage. At a campaign stop in October 2009 in support of Corzine's gubernatorial re-election bid, Biden recalled that time and Corzine's counsel.
"I literally picked up the phone and called Jon Corzine and said, 'Jon, what do you think we should do?'"
Just two years later, as the country struggles with recovery, Corzine sits atop the wreckage of MF Global. Its demise is the subject of at least six investigations, including by the FBI and Commodities Futures Trading Commission.
In addition to its bankruptcy filing and lay-offs of more than 1,000 employees, MF Global has told investigative authorities that $600 million of customer money is missing. The shortfall was withheld from investigating authorities for five days -- an apparent violation of the law, according to the head of the Commodities Futures Trading Commission.
"The statute is quite clear that customer money has to be segregated at all times of the day, at every moment of the day," CFTC Chairman Gary Gensler testified recently before a congressional committee. "They're in deficiency in their own words of their own email."
Not long after those remarks, Gensler recused himself from the investigation, admitting to a long relationship with Corzine. The two worked together at Goldman Sachs. Corzine helped arrange a speaking engagement for Gensler at Princeton University last year. Gensler also contributed $10,000 to the New Jersey Democratic Party in 2005.
On Thursday, as the bankruptcy court tried to sort through the debris of MF Global, Judge Martin Glenn ordered 23,000 of 38,000 personal accounts to be reassigned to other brokerage dealers. The move is worth about $520 million. The trustee in charge of the MF Global's liquidation had been cautious about moving too much too fast since so much money is still missing, but Glenn ruled the customers need access to their cash.
"It will take unfortunately some period of time for all of these accounting issues and other issues to be sorted out, and it would be inappropriate in the court's view to delay any distributions to customers," Glenn told the court, The Wall Street Journal reported.
Meanwhile, Corzine has been keeping a low profile since he resigned as CEO of MF Global earlier this month. Repeated attempts by Fox News to reach him at his New Jersey home and his New York City apartment have been unsuccessful. He has hired a prominent defense attorney.
Read more: http://www.foxnews.com/politics/2011/11/17/once-hailed-for-financial-prowess-corzine-takes-steep-fall-after-mf-global/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fpolitics+%28Internal+-+Politics+-+Text%29&utm_content=Google+Reader#ixzz1e4DO7eIY
The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.'s steep stock decline.
In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.
The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. It no longer includes $5 billion it set aside to guarantee payments to auto suppliers in 2009.
The big increase is a reflection of the sharp decline in the value of GM's share price.
The current estimate of losses is based on GM's Sept. 30 closing price of $20.18, down one-third over the previous quarterly price.
GM's stock closed Monday at $22.99, up 2 percent. The government won't reassess the estimate of the costs until Dec. 30.
The government has recovered $23.2 billion of its $49.5 billion GM bailout, and cut its stake in the company from 61 percent to 26.5 percent. But it has been forced to put on hold the sale of its remaining 500 million shares of stock.
The new estimate also hikes the overall cost of the $700 billion Troubled Asset Relief Program costs to taxpayers. TARP is the emergency program approved by Congress in late 2008 at the height of the financial crisis.
In total, the government used $425 billion to bailout banks, insurance companies and automakers, and provided $45 billion in housing program assistance.
The government now expects to lose $57.33 billion, including the full cost of the housing program, up from $36.7 billion. The new estimate means the government doesn't believe it will make an overall profit on its bailouts.
Republican presidential candidates, including former Massachusetts Gov. Mitt Romney, have seized on the auto bailout losses estimates, as evidence that the Bush and Obama administrations "wasted" money.
Matt Anderson, a spokesman for the Treasury Department, said, "Both TARP and the auto industry rescue are still on track to cost a fraction of what was originally expected during the dark days of the financial crisis."
In 2009, the government initially forecast it would lose $44 billion on its auto industry bailout. It revised it down to $30 billion, and later to as low as $13.9 billion earlier this year.The administration and President Barack Obama have argued that any losses on the auto bailout were worth the hundreds of thousands of jobs saved.
"The investment paid off. The hundreds of thousands of jobs that have been saved made it worth it," he said at an appearance last month at GM's Orion Assembly plant. "I want to especially thank the people of Detroit for proving that, despite all the work that lies ahead, this is a city where a great American industry is coming back to life and the industries of tomorrow are taking root, and a city where people are dreaming up ways to prove all the skeptics wrong and write the next proud chapter in the Motor City's history."
The new bailout forecast also represents an increase in the government's forecast in its losses from its $17.2 billion bailout of Detroit-based auto and mortgage lender Ally Financial Inc. The government holds a 74 percent stake in Ally, which has been forced to put its planned initial public offering on hold because of market conditions.
From The Detroit News: http://detnews.com/article/20111114/AUTO01/111140434/U.S.-boosts-estimate-of-auto-bailout-losses-to-$23.6B#ixzz1dyJ1fqBw
Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse. - in CNBC
Jim Rogers
"They don't want to hear what I have to say because I do challenge the status quo. The statue quo of both parties, and our foreign policy, and the policy of the Federal Reserve which serves a lot of powerful special interests, so maybe there is a concerted effort to make sure these views are circulated too widely," Paul said.
"The country, basically a lot of people still, as well as the politicians here, they're in denial. They don't realize we're technically bankrupt. We're insolvent. We can't pay the bills. The only thing that keeps us going is this illusion that our dollars will last forever and all we have to do is create new money, pay the bills and bail out Europe and everybody else. But that is coming to an end and that's what our financial crisis is telling us," Rep. Ron Paul (R-TX) said on FOX News today.
