Monthly Archives: November 2010

The Brilliance Of A Bailout

The European Central Bank tried to force Ireland into an EU/IMF bailout, according to Irish Justice Minister Dermot Ahern. Today the ECB is forced to buy Irish bonds in the market to prevent the recently bailed out country’s economy from total collapse. And at the same time the ECB is increasing the bailout pressure on Portugal. Excuse me, but I can’t see the logic.

“The government was cleaned out in the negotiations.”

Michael Noonan


While the 111 billion dollar rescue package to Ireland was supposed to calm the financial markets, the exact opposite has happened. The volatility and the cost of insuring national debt by Credit-default Swaps is just getting higher and higher. Yesterday we saw the biggest slide in Spanish government bonds since the euro’s debut in 1999. Today the ECB is intervening in the market to keep Irish bonds from going down the tubes.

According to two anonymous sources, the ECB have bought a “small amount” of short time Irish government bonds Tuesday morning, Bloomberg reports.

The yield on Irish 2-year bonds are up by 0,14%, as of 1 PM (CET) today.

The cost of insuring Portugal against default rose 11.5 basis points to a record 551 today, according to CMA prices, and the ECB is now putting pressure on the Portuguese government to apply for a bailout, according to the Irish minister Dermot Ahern.

“Clearly there were people from outside this country who were trying to bounce us in as a sovereign state, into making an application, throwing in the towel before we had even considered it as a government,” Ahern says in an interview with the Irish state broadcaster RTE today. Adding: “And if you notice, they are doing the same with Portugal now.”

Asked about who was pressuring Ireland, he says: “Quite obviously people from within the ECB.”

Ireland’s crisis has forced the ECB to buy government bonds and pump money into its banking system.

Irish domestic lenders increased their reliance on ECB funding by 3.3 percent in October and the central bank today purchased more Irish bonds, according to two people familiar with the transaction, Bloomberg reports.

The bailout has sparked a wave of domestic criticism accusing Prime Minister Brian Cowen of giving up the country’s sovereignty for punitive terms.

More than 50,000 people took to the streets of Dublin on November 27, the day before the government agreed an average interest rate of 5.8 percent for the loans from the EU and IMF.

“The government was cleaned out in the negotiations,” says Michael Noonan, finance spokesman for Fine Gael, the largest opposition party.

“The interest rate of 5.8 percent is far too high and verges on the unaffordable.”

The Irish Bailout - Illustrated

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The risk for Europe is that Spain’s economy is twice as big as that of Greece, Ireland and Portugal combined, meaning the euro region’s 750 billion-euro bailout fund may not be big enough if the country resorts to aid. Spain’s 10-year government bonds slid yesterday by the most since the euro’s debut.

The extra yield investors demand to hold the securities instead of benchmark German bunds widened to euro-era records.

(See also: Belgium Joins The PIIGS: And Then They Were Six)

“The big elephant in the room is not Portugal but, of course, it’s Spain,” Nouriel Roubini, the New York University professor, said at a conference in Prague yesterday. “There is not enough official money to bail out Spain if trouble occurs.”

The European Central Bank may have to step up purchases of Spanish government bonds and backstop its banking system if the country runs into financing difficulties, Citigroup’s chief economist, Willem Buiter, wrote  in a note to investors yesterday. “Once Spain needs assistance, the support of the ECB will be critical,” Buiter said.

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10-year sovereign spreads (against 10 year German bunds)

Previous Day Close Yesterday’s Close This morning
France 0.459 0.521 0.535
Italy 1.753 1.993 1.998
Spain 2.538 2.787 2.746
Portugal 4.484 4.564 4.477
Greece 9.299 9.329 9.79
Ireland 6.866 6.966 6.956
Belgium 1.013 1.214 1.192

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Belgium Joins The PIIGS: And Then They Were Six

Those hoping for a euphoric reaction to the weekend bailout of Ireland must have been disappointed today. Even Italy, which many had started to regard as no longer a PIIG, matched its record wide. Contagion fears have certainly not been assuaged; if anything, they have become more heightened.

“And the rate at which Belgium is widening means that we may have to find a new derogatory acronym.”

Gavan Nolan


The Markit iTraxx SovX Western Europe index surged to another record wide and the two Iberian sovereigns broke the record levels that they hit last week.

Ireland’s funding needs for the next two years seem to have been settled by the bailout, albeit at a less than generous average rate of 5.8%.

And the fact that bank senior bondholders won’t be sharing the burden before 2013 has been welcomed by the markets, if not by the Irish people.

But the political risk remains ahead of the December 7 budget, Gavan Nolan at Markit Credit Research points out.

“The consensus seems to be that the coalition government will manage to get it through, but there is no guarantee that the incoming government early next year will not want to renegotiate the terms of the bailout.”

The rescue of Ireland by the EU/IMF was more or less priced into Irish spreads, so the widening was concentrated in the other peripherals (bar Greece).

“Speculation that Portugal is next in line has intensified and has now spilled over into sovereigns – such as Belgium – that were perceived as relatively safe a few months ago,” Nolan Writes.

Core euro zone countries have also widened significantly.

Banks lost the gains they made this morning, the sovereign debt concerns outweighing the relief from the lack of “burden sharing” for Irish bank senior bondholders.

AIB and Bank of Ireland senior CDS, unsurprisingly, outperformed the rest of the sector, though liquidity remains poor on these names.

(Markit Liquidity Scores of 3 and 4 respectively).

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  • Markit iTraxx Europe 115bp (+5), Markit iTraxx Crossover 515.5bp (+21.5)
  • Markit iTraxx SovX Western Europe 198bp (+10.5)
  • Markit iTraxx Senior Financials 166bp (+1.5)
  • Sovereigns – Greece 960bp (-4), Spain 353p (+28), Portugal 545bp (+43), Italy 249bp (+34), Ireland 615bp (+15), Belgium 188bp (+29)

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WikiLeaks Under Massive Cyber Attack

WikiLeaks.org says its website is targeted by a massive computer attack. The attack started just hours before the  expected release of classified US documents. In spite of the attack, the files have been released, revealing among other things that the US government ordered surveillance of UN. leaders.
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“The US  military must electronically assault WikiLeaks and any telecommunications company offering its services to this organization.”
Former US State Department Adviser

CNN reports that a hacker named “the Jester,” who claims to have been involved with US Special Forces, is claiming responsibility for the attack on the Wikileaks site “for attempting to endanger the lives of our troops, ‘other assets’ and  foreign relations.”
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At 7:30 PM the Cablegate.Wikileaks.org web site is up, though the group says “the embassy cables will be released in stages over the next few months.”
In another poke at the US government, WikiLeaks is using Seattle-based Tableau Software, a visualization company that grew out of a Defense Department project, to host some of the files.
The New York Times, which claims it did not get the files directly from WikiLeaks but honored the embargo, has posted an interesting exchange between Assange and the US embassy in London. The Obama administration never asked the NYT not to publish.
And here’s one intriguing document highlighted by British newspaper, The Guardian: At least as of mid-2009,Israel believed it had until December 2010 to attack Iran’s suspected nuclear facilities!
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Details US surveillance
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According to the documents, Secretary of State Hillary Clinton last year ordered clandestine surveillance of United Nations leadership, including obtaining “security measures, passwords, personal encryption keys, and types of VPN versions used” and biometric information.

The July 2009 directive issued under Clinton’s name, which also asks for details about “information systems, networks, and technologies used by top officials and their support staffs,” sheds a  rare light on the shady world of government espionage.

That classified dispatch is part of a massive document dump, about 250,000 diplomatic cables, that began appearing on the Internet this morning.

WikiLeaks provided the files in advance to news organizations including Germany’s Der Spiegel and Spain’s El Pais and has said it would wait before releasing the cables on its own website.

Chinese Leaders Behind Google Attacks

Another disclosure from the files is that China’s Politburo ordered the electronic intrusions into Google’s computer network that became public in January, prompting the company to rethink its Chinese operations, according to what a Chinese contact told the US embassy.

China has denied the charges.

That intrusion was reportedly conducted by a combination of government hackers and private security experts, who reportedly also targeted US government computers, those of the Dalai Lama, and other American companies.

Some of the companies that previously been named as victims include Yahoo, Symantec, Northrop Grumman, and Dow Chemical, and Adobe Systems has confirmed a “sophisticated, coordinated attack” against its corporate network.

Leaked From The US

It seems like the economy is not the only thing leaking in the US.

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The files appear to have originated from the US Defense Department‘s SIPRNET, which is used for exchanging information up to the secret level and is jointly administered by the NSA, the Defense Intelligence Agency, and the Defense Information Systems Agency.

SPIRNET itself stands for Secret IP Router Network.

In July, Pfc. Bradley Manning was charged with obtaining “more than 150,000 diplomatic cables” in violation of the law and is suspected of being WikiLeaks’ source.

First Cyber Attack By US Government ?

The Washington Times and a former Bush administration official suggest that WikiLeaks.org is the first public target for an US government cyber attack.

In addition, a Republican senator have  proposed a law targeting WikiLeaks, and conservative commentators have called for WikiLeaks front man Julian Assange to be arrested.

Sweden has issued an international arrest warrant for Julian Assange – for the second time – after he was upheld by an appeals court on sexual assault charges.

Assange was later released due to lack of evidence, but now it seems like “the evidence” suddenly has turned up again…

The White House have issued the following statement:

“These cables could compromise private discussions with foreign governments and opposition leaders, and when the substance of private conversations is printed on the front pages of newspapers across the world, it can deeply impact not only US foreign policy interests, but those of our allies and friends around the world. To be clear–such disclosures put at risk our diplomats, intelligence professionals, and people around the world who come to the United States for assistance in promoting democracy and open government.”

Australia is investigating whether today’s release violated its laws. (Assange has an Australian passport.)

Labeled As Terrorists
Conservative commentators argues that Wikileaks.org should be shut down by any means necessary.

One Washington newspaper argued that WikiLeaks’ offshore Web site should be attacked and rendered “inoperable” by the US government.

An US State Department adviser, who served under President George W. Bush, writes in a column that the US  military must “electronically assault WikiLeaks and any telecommunications company offering its services to this organization.”

And some have already labeled WikiLeaks as a terrorist organisation.

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