There were mass protests in Portugal this weekend. The country has been largely left outside of the international media recently, but the people in Lisbon still hurt. Austerity raises electricity and gas prices at the same time that jobs are lost en masse.
No-one in southern Europe bats a surprised eye at this anymore. It’s become a way of life. Both the new-found poverty and the rising protests. Or perhaps we should say: the rising spirit of protest. The first waves of it have passed this spring and summer, and have done nothing to stop the cuts.
Time for Protest 2.0. The more cuts there are, the more protests there will be. For now, the world is mesmerized by lofty notions of the Arab Spring, and how it was supposed to bring democracy to the backwaters of the planet.
1000’s of deaths later, there’s precious little democracy, and countries like Portugal are set for the next wave of banners in the streets (along with who knows how many others along the Mediterranean and beyond). In Greece, protests already derail the IMF’s assessment of the country’s debt.
And now there’s Wall Street. Greece sovereign debt is presently rumoured to be up for a 75% cut in troika talks. Greek banks hold little else. French banks hold a lot of Greek debt, even own some of its banks. And -enter Wall Street stage left- Morgan Stanley owns a lot of French banks’ assets and/or liabilities. Not least of all is in the shape of derivatives.
Hence, Morgan Stanley was down over 10% on Friday. If French banks go down because of their exposure to Greece, Morgan Stanley will go down too. And if Morgan Stanley goes, so does everyone on Wall Street who deals with it. Which is all of Wall Street.
It’s not like you can ringfence Greece, or its banks. There are way too many links between countries on the one side and their central and commercial banks on the other. And many more links between all other central and commercial banks on the planet. There’s no way just one major bank will go down the abyss. Whoever’s first will take down many others.
And so the vigilantes are licking their chops and waiting for Monday. Not as nervously, though, as all them market watchers all too eager to see the collapse. The vigilantes take too much pride and joy in picking them off one at a time. Pride and joy and profits.
Morgan Stanley is not a commercial bank. It dove 10.47%. Goldman Sachs isn’t either. It lost 5.33%. BofA and Citi lost less, even though they’re basket cases. It goes something like this: as per Aaron Lucchetti for the Wall Street Journal:
The concern with Morgan Stanley stems from its small size relative to other global financial firms and its reliance on debt markets, rather than customer deposits, to fund its business.
Yeah, the most threatened banks on Wall Street are now those that don’t have a direct grip on your cash. And/or are in bed with France’s financial system. Which sleeps with Greece, which sleeps with Bulgaria and Albania and Romania. Oh, and French banks are way over their necks into Italy. Just so you know.
Funny how we haven’t heard much about Wall Street banks and their risks lately, isn’t it. Well, not to worry, what’s happening to Morgan Stanley will make sure we’ll have them all back on our front pages soon.
In fact, Tim Geithner’s trip to Europe recently is all about that: get Europe to cover Wall Street’s losses and exposure to European banks. Europe’s answer: you cover the losses, why should we?!
It looks pretty sure that Germany won’t play along. And it’s hard to see from where I’m sitting how the intricacies are lined up exactly, but seeing as Morgan Stanley has $56 trillion in derivatives outstanding, much of which will of necessity be on European sovereign and bank debt, and knowing that JPMorgan and BofA have even larger derivatives portfolio’s, that 10.47% Morgan Stanley loss on Friday looks like a harbinger of things to come.
No more Markets Mr. Nice Guy for Wall Street; the banks will be knocking on all those Fed windows again soon. And it’ll be interesting to see how Geihtner and Obama react. Feel lucky, punks? Care to risk your re-election? Or do you have your Wall Street funding lined up as we speak?
Methinks it might perhaps possibly be time for electronic pitchforks. If only just to lift our feet out of the morally depleted quicksand we haven’t seemed able to get out of by any other means for all this time. For all we know it might feel liberating.