Counterparties: Banning shorts in Europe

By Peter Rudegeair
July 23, 2012

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A ban on short selling didn’t reverse a drop in stocks when the SEC imposed one covering 19 financial companies in July 2008, including, ahem, Lehman Brothers. Spain and Italy believe they can achieve more success — the countries have reinstated a ban on short selling the shares of their financial institutions.

Spain’s claim that the sell-off in bank stocks is overdone is made difficult by its continued negotiation of a $1.2 billion bailout of its financial banking system. That bailout looks increasingly necessary: The Bank of Spain reported that the economy contracted by 0.4% in the second quarter. And the fiscal health of the provinces continue to weaken. On Friday, the overly indebted region of Valenica sought financial aid from the central government in Madrid, and the tiny region of Murcia looks like it will do so as well. Those payments are getting increasingly expensive for the central government to fund. Yields on Spain’s 10-year bonds hit 7.52% today, a euro-era high.

Italy is in a relatively better position (emphasis on “relatively”). Sicily’s situation is causing alarm in Rome, as policymakers announced they would send the island $484 million in aid to stave off a liquidity crunch. Sicily, which some call “the Greece of Italy,” faces the same problems of bloated public payrolls and overly generous public pension contracts, as the country as a whole:

Today, Sicily’s regional government has 1,800 employees – more than the British Cabinet Office – and the island employs 26,000 auxiliary forest rangers; in the vast forestlands of British Columbia, there are fewer than 1,500.

Out of a population of five million people in Sicily, the state directly or indirectly employs more than 100,000 of them and pays pensions to many more. It changed its pension system eight years after the rest of Italy. (One retired politician recently won a case to keep an annual pension of 480,000 euros, about $584,000.)

And then there’s Greece itself. The WSJ reports that European officials have doubts about the new government’s commitment to austerity – and have compiled a laundry list of more than 200 delays to cuts to prove their point. The Germans are growing increasingly inured to Greece’s cries for help: While Prime Minister Antonis Samaras was telling Bill Clinton that Greece was in “our version of the Great Depression,” German Vice-Chancellor Philipp Roesler told an interviewer that a Greek exit from the euro zone “has long ago lost its terror”. – Peter Rudegeair

On to today’s links:

Epistles
Wall St: Experts (including our own!) say eminent domain mortgage seizures are unconstitutional – SIFMA

New Normal
Economists predict US poverty to reach its highest levels since the 1960s – AP

Tax Arcana
Corporate tax breaks, why bother? They’re more trouble than they’re worth – WSJ

China
China’s glamour vs. service infrastructure problem – FT Alphaville

Bold Moves
Banks intrigued by idea of profitable, non-abusive ways to serve the poor – American Banker

‘Liebor’
Libor scandal is moving closer to becoming officially criminal – Reuters
Bob Diamond asked to resign from decreasingly prestigious jobs – Waterville Morning Sentinel

Less is More
Bank of America has 1,536 fewer ATMs than it had six months ago – American Banker

Terrifying
11,000 new business books are published each year – Businessweek

Distinctions
The main job of venture capital’s trade group: contradicting reports that Mitt Romney was a venture capitalist – Reuters

Good Questions
What is Yahoo? – NYT

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