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MF Global: Lehman all over again? First victim of the European debt crisis? Or something even worse?
You may have heard by now that MF Global, a somewhat obscure Wall Street investment firm run by former Goldman Sacher and former New Jersey Governor Jon Corzine, imploded on Monday, declaring bankruptcy after failing to find someone to buy it. MF Global might also have illegally diverted money from client accounts to its own trading operations.
The firm is now being looked at as either (1) a sort of junior Lehman Brothers — which makes sense, as Corzine was trying to move MF Global into a spot in the much-reduced-by-the-financial-crisis firmament of investment banks — or (2) the first victim of the European debt crisis.
At MarketWatch, Brett Arends goes a bit farther, pointing out that MF Global's abrupt meltdown will directly affect average investors, because those investors' mutual funds and pension funds were mixed up with Corzine's wannbe Goldman and its risky bet on European sovereign debt.
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People walk by a National Bank of Greece in Athens on October 27, 2011. Greece reacted with measured relief on Thursday after European leaders sealed a deal to contain the eurozone debt crisis that slashes the country's huge debt by nearly a third. LOUISA GOULIAMAKI/AFP/Getty Images
Has Europe finally solved its debt-crisis problem? Well, that depends on who you talk to. Yesterday, hot on the heels of the announcement that European financial leaders had labored into the wee hours to finally get their act together to rescue Greece and save the Euro, I heard an economist say she was pleased that Europe had finally agreed on a plan...to agree on a plan!
Yeah, not exactly a ringing endorsement of Europe's ability to right its listing ship of states.
Meanwhile, around the blogspshere, various voices weighed in. At Reuters, Felix Salmon took a deep dive into the matter of credit default swaps (CDS) on Greek debt (although it wasn't nearly as deep as some). You're not going to want to wade into this debate unless you're prepared to induce a pounding financial headache, but the topline summary is fairly simple.
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Did little Slovakia just exercise its muscle and kill the Euro bailout package?
The Slovaks have spoken! A nation with a population roughly the size the San Francisco area and a GDP of $86 billion has failed to ratify the eurozone's plan for it to contribute $10 billion — about 12 percent of that GDP — to the currency union's bailout plans. This is the latest chapter in a debt-crisis melodrama that's forcing Greece into default and threatening Italy, Spain, and the banks of German, France, and possibly the United States.
Slovakia was the only eurozone country that voted nay. This is from the New York Times:
If nothing else, the unwieldy process underscored how the entire $590 billion euro stability fund, approved by the 16 other members of the euro currency zone, could be held hostage to the domestic politics of one tiny country, in this case Slovakia. It showed as well how a measure intended to increase confidence in the euro zone could instead emerge as a telling example of the shortcomings of a system that relies on an unwieldy group of nations to make and execute difficult decisions.
This is a most vivid evidence I've seen of why everyone is so freaked out about Europe and its debt crisis. As you can see from the chart, 10-year bond yields for European countries marched along in neat lockstep for a decade after the introduction of the Euro. Exactly what you would want from a currency union, if your goal was to present the impression of uniform debt costs acorss member nations. But then, in 2008-2009, it all goes kerflooey. It looks like somebody spilled the colorful spaghetti. Greece isn't even on the chart, probably because you would need another whole chart on top of this one to display a yield in excess of 20 percent for September.