Subject: »PIIGS - economics problems

so say it with a pomp...finally this bad joke so called Eurozone is taking its deserved hell end

7,239% now ...

italian 10y bond around 7 % now, even after Berlusconi retires...
According to some analysts, we are beyond point of no return.
Say goodbye to Euro ....

the problem is Berlusconi did not retire yet!
He want to delay his retirement until he make the laws asked by EU, with oppositions votes..
(and put into those laws a lot af personal benefits for himself)

remember the safe haven BELIZE

In Belize only off shore companies are safe :P

Intesa reported it had 63 billion euro of Italian government bonds on its books. Assuming the average maturity is 2 years, that would be an unrealized loss of 6 billion Euro now that the 2 year bond is yielding 7% and trading at 91.5% of par. At these prices banks don’t want to sell as it erodes their capital, so they are now in bailout begging mode. If banks as a whole own a trillion of Italian government bonds (of the 1.6 trillion), they have unmarked losses approaching 100 billion, most of that in the past 3 days. The ECB, which probably owns longer dated Italian bonds, is probably sitting on a mark to market loss on Italian bonds of 10 billion? That is separate from their Greek losses. And that is just on outright exposure, not all their « collateralized » funding agreements with weak and destitute banks.

http://www.zerohedge.com/news/bright-side

and the more funny ( take a sit , it is impressive )...
Bank loans also some money and they emit bonds... When they emit a 2y bond of 1 billion euro, they get 1 billion euro immediatly and they pay interest during 2 years, and then they have to pay back. OK fine.

Bond of this bank are tradable, and when bank is in trouble, the value of the bond is dropping, because more and more people think that this bond may be not refunded at the end. And here is the miracle : let's say that the value market of the bond has dropped to 800m ( 20 % less ), the bank is able to virtually say that she gains 200 millions dollars. How ? because she get 1 billion and now she need only 800 millions to buy his own bond, so it's a virtual 200 millions dollar gains... Virtual because she doesnt have necessarily the 800m dollars but in term of legal accounting, this is valid to present it as a benefit.

In the last days, all the french banks published some financial results, and they all integer this ( legal ) manipulation in their financial books, so they published that they gain some money, which was not the case without this manipulation.

The more you lose, the more you win !

PS : it's not restricted to french banks, all banks are doing the same to hide bad results and be able to pay big bonus. When bank say that everything is fine, it's pure lie.... Cf Dexia passing easily stress test.

PS2 : today, italian bond are valuable at only 90 % of their initial value. It means that if a bank has loaned 1 billion to Italy, if this bank want to sell this bond in the market, she will lose 100 million dollars.
(edited)

I don't understand what is so funny about this. It's all perfectly normal and expected. What is missing in your story is the bond interest part. Bond's interest puts a price on the initial relation between creditor's desired profit and estimated default risk at bond's issue. A drop in bond's market price is merely a revalorisation of that price, meaning that new creditors willing to buy this debt, value default risk much more than the initial creditor.

Also, the bank being able to buy its issued bond back at a lower price is merely bank's compensation for the losses incurred by its debtors defaults. A bank is merely a mediator here and so if their debtors stumble, the bank as a debtor stumbles and so the creditors that bought bank's bonds also stumble. In the end, it's a matter of creditor's trust in the bank whether they will sell the bank's bond at a lower price at a certain point. By selling the bond, creditor is merely deciding to realise its current market loss because he is afraid of the possibility of loss eventually being even higher, i.e. creditor is afraid of bank's eventual default.

Economy is a chain and what you are talking about is just a domino effect of its interrelated elements. Nothing funny nor strange about it. Saying "the more you lose, the more you win" here is not true. What bank is earning by buying back its bond at a lower price is just a partial rebound of its inital loss caused by its debtor's increased risk of default. The bank partially hedged this risk by selling debt further. Remember, there is always an interest involved in borrowing meaning that the risk of default is priced at the time of bond's sale. Both parties are free to comply with that price or not.
(edited)

It's logic itself. You only need 800m to pay back a bond of 1 billion. That's a 200 million profit that should only be put into the accounting when that profit is realized (principle of prudence).

you are totally right : when that profit is realized. Issue is that today the accounting is done even if it not yet performed.
In the same time, there are many banks that owns Italian bonds :

Intesa €60.2 BN
UniCredit €49.1 BN,
Banca Monte €32.5 BN
BNP Paribas €28.0 BN
Dexia €15.8 BN
Banco Popolare €11.8 BN
Commerzbank €11.7 BN
Credit Agricole €10.8 BN
UBI €10.5 BN
HSBC €9.9 BN
Barclays €9.4 BN
SocGen €8.8 BN
Deutsche Bank €7.7 BN

Actual market value are only 90 % of their initial value.
It means for example that Intesa bonds market value is today only 54 BN => this is 6 BN loss.
Intesa cant survive that unless hiding this depreciation.

As long as they don't sell the bonds, they must not hide the depreciation, as the depreciation is not realized yet (and if they keep the bonds and Italy doesn't go broke, the depreciation will never be realized).
(edited)

Sure they can prey. In the same time they are not going to loan money anymore to Italy, as their primary objectiv today is to move back from this market with the lowest possible damage. And by doing this, it increase drastically the risk of Italy to go broke. This is a vicious circle.

FESF will not be able to help there, Italy is too big to be saved.

Italy is too big to be saved.

and too big to fail.. without victims
faliling of Italy will mean great problems for entire world economy (remember we have a 1900 billion public debt)

I think it would be better for us to not to repay those money, but probably it will kill Europe and start a new WW.
But, in the opposite case of trying to pay (forever) those debit interests, things will be different???

I think WW is only a matter of time.
At this point, better to save ourself the more we can!

I think it would be better for us to not to repay those money
why, is it your debt or not ? Same thinking like Greeks have ? Debts are good till the time somebody want to pay it back ????

why, is it your debt or not

not mine!
anyway, think what you want.. I don't want to start again this question!