A SWIFT Denial - How In Europe, Even Admission Of A "Plan B" Is Equivalent To Failure

While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire... quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "...officials there feared that releasing the information could fuel further doubts and instability in the euro zone".

These events surrounding the Euro will go down in history as the turning point upon which people worldwide lost their faith in the institutions of government.

Here in the US our government institutions should be advising all US companies to covert all financial assets to dollars, and should FORBID US banks for holding, or trading in, Euros.

When the Euro fails, and it is CERTAIN TO DO SO, the financial damage worldwide will make 2008 look like a flea bite.

My main concern isn't the coming collapse. It's that I'm certain that the left will demagogue the events and paint it as a failure of Capitalism. If recent events tell us anything it's that the left’s crackpot arguments will carry the day and the “solution” will be unbridled misery, poverty, and lack of liberty that socialism always brings.

We (the right) would do well to join together and fight their attempt to create “utopia”. Their so-called utopia is more dangerous than any financial collapse ever could be.

There are a number of Eurozone related stories on Zero Hedge (my favorite site after FreeRepublic).

Dodgeball Eurozone-Style: EuroBanks Flee to ECB Overnight Facility and US Treasuries Draw All-Time High Bid-to-Cover of 9.07 on 4-week T-Bills

http://confoundedinterest.wordpress.com/2011/12/27/dodgeball-eurozone-style-eurobanks-flee-to-ecb-overnight-facility-and-us-treasuries-draw-all-time-high-bid-to-cover-of-9-07/

And

The Euro Crisis and The Great Unwind – Why Monetary Policy Can’t Fix Europe’s Woes

http://confoundedinterest.wordpress.com/2011/12/26/the-euro-crisis-and-the-great-unwind-why-monetary-policy-cant-fix-europess-woes/

You know the Euro is TOAST when Eurozone banks are willing to pay a 75basis point penalty, up front, to park their cash in dollars paying ZERO interest rather than hold Euros paying 3-5%.

I'm not sure what the EU hopes to accomplish but their shell game is coming to a quick close.

This thing could spiral to dust in a mere 48hrs.

I'm well aware of what their utopia is. The United States of Cuba or The United States of North Korea would be ideal in their minds. Their willingness to lie has been demonstrated time and again. Look at what Obama says vs what he actually does, for example.

My point is that we truly have an enemy within. Their goal is to remake America into something decidedly un-American. In a more reasonable time they'd be tried for treason.

nah, while Leftists are always inclined to blame their biggest failures on freedom and capitalism, the Euro crisis is not a banking crisis and history will see it that way.

It is a political crisis.

The formation of the EU and the Eurozone have lead to this moment in history.

Financial Crisis’ were one of many symptoms that something bigger was coming ‘round the pike.

The major issue is whether the EU members can rapidly decide on a New Treaty that ultimately supplants the sovereignty of each member state in favor of an all powerful ECB.

Byt the way, no one has bothered to tell Draghi, Merkel and Sarkozy that their demands run contrary to the EU constitution.

lol

just wanted to add:

the formation of a collectivized economy and uniform behavioral standard of business under a shared fiat currency is recipe for disaster.

the core problem of the Euroozone is not Dexia needing a bail-out or Spanish banks crumbling.

It is the machination of the EU itself when confronted with an inability to meet debt issues that resulted from economies with an incongruous social welfare system.

They can’t pay the gubmint checks!

The economies of Greece, Italy, Portugal and Spain are based on tourism and export.

The Euro makes tourism unnattractive during an economic slump. Why buy now? What is the incentive?

As a result, the public sector debt has been piling up.

The private sector didn’t demand pension guarantees, free medicine, free tuition etc...

When Berlusconi resigned, the leftists jumped for joy and warmly welcomed a Goldman Alum - Monti!

schadenfreude!

"They can’t pay the gubmint checks"

Correct.

The Sovereigns themselves are not solvent and the political system of Social Democracy cannot, by it's very nature, take the steps both known and required to solve this problem.

This is not an issue of bank solvency or irresponsible lending by the EU banks...unless you consider that holding sovereign bonds from Rome, denominated in Euros, was irresponsible.

The ONLY path out for the European Sovereigns who are still solvent is to abandon the Euro ASAP.

Otherwise, eventually the Fascists will take over after the Socialists have burned most of Europe to the ground.

This will not end pretty.

This blog has a cool name, and there are some seemingly interesting entries posted there, but I find it almost impossible to parse.

Like this gem: "...little did we realize just how destabilizing this fact to the system would be".

More clear in his musings Yoda is than this cat Tyler Durden.

Zerohedge is a weird blog. During trading hours it is mostly populated by active traders, some of whom are quite sophisticated.

The rest of the time it is infested with followers of Ron Paul who gleefully predict and hope for a total collapse of all economic systems. Apparently they like that idea as they think they will be equal to the evil rich when the evil rich lose their money. They are a truly pathetic and bitter crew of losers.

But they love the Constitution!
/s

48 hours? Zerohedge has been putting out that kind of timeline for a long time. I wouldn’t bet on it. The Eurozone is failing, but we may all be surprised at how long they can continue to limp along.

I have learned some useful things about how to hedge there, which has led to some profits. You have to carefully pick thorugh the ‘scare’ junk and Ron Paulian disaster hopers to find the jewels.

I wonder how many Tyler Durdens there are. Got to be at least 3-4. It is one of my favorite sites, due to a 21.6% return in my active-trade portfolio this year.

MF Global already illustrated the legal ability for investment bankers if in a desperate pinch borrow against customer money and have it tied up in limbo if they bet wrong and go bankrupt. Rumors have it that the Fed Reserve may have asked Corzine to do a favor, buy contracts on Greek and Italian bonds at a critical moment to prevent an EU collapse and the Fed Reserve/SEC will take care of MF Global/Corzine. Maybe they never expected Corzine to leverage at 40 to 1, or Corzine assumed the US gov does not mind he leveraged at 40 to 1. No one really knows who told who to do what when SEC/US Treasure/Fed Reserve were desperate as they watch the Greek and Italian bond yields rise. Problem is a new type of mentality may take hold in the US gov and investment bankers on customer accounts. If the EU implodes the customer will lose their money anyway thus the gov/banker is justified to take it to plug the losses. If the customer complains, take it to court and get a lawyer. It may take years and heavy cost to recoup the losses but at least the government and bankers averted a total collapse. If one is smart get as much of your money out of the investment banking system as possible. When desperate, gov and investment bankers will do what is necessary to survive.

"48 hours"

I was referring to the duration of cascading defaults, once they start.

Not that we have but 48hrs until TEOTWAWKI.

Let Italy, Spain or even France get deep into the debt trap...where they have to pay 10%+ for 5 year money...and then start your timer:)

That could happen as soon as this spring. The PIIGS need to turn over more than $1tril in short-term bonds next year...with the rest of the Eurozone needing an equal amount.

Germany will not guarantee all of that debt. The ECB cannot. France and the PIIGS cannot.

Any US Congress that authorizes the US Treasury to loan it to them will be hung on the Capitol Steps, probably the same day as their trials.

The OVERT action of the Fed, acting independently from the US Treasury...separating the creation of money, absent any obligation for future repayment, "loaning" this money to the ECB would break all faith in Fiat.

And, to top it off, these Sovereigns owe SO MUCH they are soon approaching where they cannot even make the interest payment, much less take on new principal.

Defaults. Sovereign and otherwise.

all this talk of two-speed Eurozone is poppycock.

If you add up the debt of the “good” Eu members, it ain’t pretty.

go back to 2005 when Italy considered going back to the lire...

That was the first Euro crisis period.

Nothing has changed since then.

Bonus:

anyone interested in the EU must read the Constitution of the EU (this is what liberals want our Constitution to resemble)

and the Lisbon Treaty

http://www.proyectos.cchs.csic.es/euroconstitution/Treaties/Treaty_Const.htm

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