FOAT Used To Speculate Against France

Comments Off on FOAT Used To Speculate Against France

On april 16th a new futures-bond market called FOAT is to be created. Much speculation exists about it as the timing of the launch is suspicious, i.e. just before the new presidential election and the fact that it can be leveraged 20 fold to potentially bet against the French economy.

Rue89 carried the following suspicion:

The most alarmist talk of a “financial attack”. Wednesday, the Left Front candidate Jean-Luc Melenchon denounced “a new coup finance against our country”, the day before, another candidate, Jacques Cheminade warnedagainst an “offensive is underway throughout the world “against France.

What they worry all of a sudden? The launch of the Eurex (one of the largest derivatives markets), a new futures contract on French government bonds. Announced March 21, this contract will be launched April 16 and will allow buy or sell bonds equivalent to Treasury (OAT) of France at a price fixed in advance for an effective regulation at a later date. Eurex code of this contract: Foat.

Jacques Cheminade considers that the arrival of such an instrument on the eve of the presidential election is no accident: it will allow to speculate with “leverage than twenty times” (“twenty times you can make your put “) and threatens to destabilize the next president.

But The Slog took the theme further and ran with an interesting theory based upon the global elite not being too happy if Francois Hollande wins the presidential election instead of their man Sarkozy. The FOAT (run by Morgan Stanley) could be used in that case to bet against the french economy. Ultimately a unity government would be needed with Lagarde riding to the rescue as the technocrat in charge. Time will tell but lets see how The Slog teases this one out. Read full article to get a proper view, I am just adding the part I found most interesting.

What Morgan Stanley hopes to create after April 16th is the perfect hedge for itself: squillions of money betting on French collapse playing off similar squillions exposed to that collapse. So those French politicians publicly suspicious of the danger to France are right on the money: this is classic Wall Street double-dealing at its worst…the sort of client conflict that made Goldman Sachs infamous.

This feels to me like the biggest and best-evidenced motive I’ve yet seen in this affair. But remember: everything today is a weapon with which to carry out l’attentat. Picture the scenario:

Hollande wins the election…still the most likely result, despite Sarko’s choreographed execution of a Toulouse Islamist the week before last. He immediately starts unpicking Merkel’s FiskalUnion, slowing down its progress, and denouncing the Troika strategy of ClubMed austerity as obviously flawed.

This is a potential disaster for American debt, for American business, and for Barack Obama’s re-election ‘certainty’. So there is no shortage of motive here: “we can’t let Hollande keep the crown”.

But suppose, the second Francois le Terrible is elected, the brand new FOAT futures market takes the news badly….with Fed help. As in, starts betting heavily on Hollande making a mess of things and leading Europe into further chaos. Nice work for Morgan Stanley, and bad news for Le Parti Socialiste.

The wave ripples outwards, and a couple of French banks get desperate. French bond yields treble. France is turning into a ClubMed….zut alors, quelle horreur et Dieu en ciel! It is a catastrophe. Sauve qui peut! What can we do?

Well….why not appoint Christine Lagarde as Minister of Economic Finances: the acceptable French face of the IMF? OK, she’s in America’s pocket – but the upside is, she’s never worked at Goldman Sachs. What a relief: it is a government of National Unity – just like in Greece. We are saved. It is a miracle.

That’s the theory, now lets see some of the circumstantial evidence.

Sound far-fetched? Perhaps. But let’s apply a few classic Maigret detection techniques:

The accused Troika has form: Greek Goldman implant in Athens, abandoned referendum, delayed elections; Italian Goldman implant in Rome; Italian Goldman implant in the ECB; Geithner mouthing off about bazookas and foaming at the mouth in Poland; openly admitted attack on the Iranian Rial.

The Troika – really, Germany + America – has motive: eurobanking contagion would sink the USA, and the last thing Americans want is a Frog Commie screwing up all those excellent critical path analysis fantasies handed out by the IMF.

Sarkozy has form and motive: remaining enigmas in the obliteration of DSK as an opponent, his role with the Fed  in getting Lagarde the job as his replacement, the guy’s track-record as a wannabe moneterist supporting globalist pre-eminence: all of these suggest that Nico may well be something of a con…in both the English and French senses of the word.

The surveillance data: the problems facing Morgan Stanley after September 2011, a visit from Blankfein to the Elysee in November, the FOATs announcement in March, its launch just as we get to the election, the creation of a Get out of Jail Free card for MS.

Far, far crazier things than this have turned out to be true. For the moment, the geopolitical element remains in the realm of informed speculation….although to the questions – would they and could they? – the answer is a resounding “Yes”.

Looks like we could be hearing a lot more from France after the presidential election. Interesting theory nonetheless.


European Banks Leveraged More Than Lehman

Comments Off on European Banks Leveraged More Than Lehman

When Lehman collapsed its leverage had grown from 12 to 1 in 2004 to 44 to 1 when it collapsed. Now in europe we are seeing banks with leverages higher than that. Mark Grant takes a look at the LTRO and state of some of the leverage banks are now at.

You first have to look at the LTRO and its effects on Spain and Italy through what its banks have borrowed.

We have just been presented with one very red flag signaling the seriousness of the issues in both Italy and Spain. Spain just announced that its banks borrowed $415 billion from the LTRO funding while net borrowing stood at almost $300 billion and accounted for 63% of the net borrowing at the ECB. For Italy the number is $354 billion in LTRO borrowing and they are not that far behind Spain in needing aid. The actual debt to GDP ratio, which I detailed on March 29, is 133.8% for Spain, not the official 79% number, and is getting worse as their economy shrinks and as the country guarantees ever more bank debt to be used as collateral. It is not much better in Italy as the combined national debt and their share of the debts at the ECB and the EU peg Italy’s actual debt to GDP ratio right at 200% and while Italy’s ability to self-fund is appreciably better than Spain; their funding needs are becoming appreciably larger as the country sinks into recession.

As regards to leverage Grant has identified that Deutsche Bank is 62 times leveraged blowing Lehman’s figures out of the waters.

Of the twenty-five largest banks in the world there is only one that does not need to raise additional capital to de-lever to a 20x leverage and a 5% of Tangible Capital Ratio and that is Citigroup which has a current leverage of just 13 times and I also point out that Wells Fargo with a 14 times leverage needs a minor amount of capital to accomplish these goals. At the far other end of this scale is Deutsche Bank which is levered 62 times and would need a massive amount of new capital and tremendous shrinkage to accomplish these goals. The assets of DB are also equivalent to the entire GDP of Germany so that the bank could devour the country if Deutsche Bank were to hit the wall. Then the most leverage can be found at Credit Agricole at 66 times which would also swamp France, given its size, if asset values continue to decline or if Spain or Italy need to be bailed out and the contagion worsens.

source:, ZeroHedge

So why hasn’t Europe crashed already?

1 Comment

On the theeconomiccollapseblog website is an article on 27 statistics about the European Economic crisis that are too crazy to believe but at the end is the part I find most interesting. It poses the question as to why Europe hasn’t crashed yet. For 3 or 4 years Europe has dodged the bullet and the crisis has gotten deeper but eventually the piper has to be paid. Below the question is answered.

So why hasn’t Europe crashed already?

Well, the powers that be are pulling out all their tricks.

For example, the European Central Bank decided to start loaning gigantic mountains of money to European banks.  That accomplished two things….

1) It kept those European banks from collapsing.

2) European banks used that money to buy up sovereign bonds and that kept interest rates down.

Unfortunately, all of this game playing has also put the European Central Bank in a very vulnerable position.

The balance sheet of the European Central Bank has expanded by more than 1 trillion dollars over the past nine months.  The balance sheet of the European Central Bank is now larger than the entire GDP of Germany and the ECB is now leveraged 36 to 1.

So just how far can you stretch the rubberband before it snaps?

Perhaps we are about to find out.

The European financial system is leveraged like crazy right now.  Even banking systems in countries that you think of as “stable” are leveraged to extremes.

For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt.

When Lehman Brothers finally collapsed, it was only leveraged 30 to 1.

You can’t solve a debt crisis with more debt.  But the European Central Bank has been able to use more debt to kick the can down the road a few more months.

At some point the sovereign debt bubble is going to burst.

All financial bubbles eventually burst.

What goes up must come down.

Right now, the major industrialized nations of the world are approximately 55 trillion dollars in debt.

It has been a fun ride, but this fraudulent pyramid of risk, debt and leverage is going to come crashing down at some point.

It is only a matter of time.

Already, there are a whole bunch of signs that some very serious economic trouble is on the horizon.

Hopefully we still have a few more months until it hits.

But in this day and age nothing is guaranteed.

What does seem abundantly clear is that the current global financial system is inevitably going to fail.

When it does, what “solutions” will our leaders try to impose upon us?

That is something to think about.

Chineese Supertankers To Help Iran Transport Oil


China has agreed to provide supertankers to Iran to counter the EU oil embargo. 12 supertankers will delivered next month as many foreign companies have refused to carry Iranian oil. Iran seems to have found many ways around the embargo which is clearly going to hit the EU and US far more than Iran.

US Corporations Get To Keep Employee’s State Taxes

1 Comment

An interesting story exposed by RussiaToday whereby in 16 states, corporations get to keep all or some of the state taxes from their employees, thus depriving states of much-needed revenue. Apparently this is a deal that many states welcome in an attempt to attract much-needed jobs. Meanwhile, corporations do very well out of the deal. Moving headquarters across state lines is another great tax dodge scam for corporations.

All done in the name of job creation ;-), yeah right!

Companies paying no income tax between 2008 to 2010.

Iceland Forgives Majority of Mortgage Debt After Citizens Demand It


Iceland in many ways has shown us the way forward in how to handle the banking crisis. Not only have they told the bankers to handle their own debts but now the government under demand from the Icelandic people has brought in forgiveness of the majority of mortgage debt and has gone another step forward and is bringing  reckless bankers to court.

%d bloggers like this: