In the European Union (EU), the European Central Bank (ECB) is the institution that administers the monetary policy of the eurozone member states, giving it great power as a world central bank. Headquartered in Frankfurt, Germany, the ECB was established in 1998 by the Treaty of Amsterdam. As one of its primary tasks, the ECB controls and issues the currency of the EU; the euro. Mario Draghi is the current President of the ECB.
Bellwether parcel delivery company FedEx Corporation (NYSE/FDX) recently announced it was cutting jobs due to the slowing demand from Europe and Asia. However, the stalling from Europe is not confined to a single sector, but spreads out across the board, and this poses stock market risk. Economies around the world, from the U.S. to Europe and China, are impacted.
This dire situation is not going away soon, and in my view, it will take years—perhaps decades in the case of Greece—to resolve, adding to the stock market risk. The irony is that traders appear to be underestimating the potential impact from Europe and the stock market risk.
In reality, the market is betting on a resolution and calm returning to the eurozone. Spain will likely require a full bailout when it makes a formal request. European Central Bank (ECB) president Mario Draghi said the central bank would help Spain once it formally requests a bailout. Spain has already received about $130 billion to avert a financial crisis in its fragile banking system. In my opinion, the ECB wants to see Spain put together a tough austerity program in exchange for a bailout, but Spain is trying to avoid this.
The yield on the 10-year Spanish bond fell to a seven-week low of 6.2% on Monday after trading over the critical 7.0% level. Optimism towards a Spanish bailout is helping to support and is reduce the high stock market risk for traders.
The yield had been on a steady upside move since trading around 5.0% in late February. The reality is that the high yields are unsustainable and add to the … Read More
In the now-famous case, Bloomberg News sued the Federal Reserve for documents that Bloomberg felt should have been made public. The fact that Bloomberg had to fight the Federal Reserve for years is disappointing when the public has a right to know the information that was withheld.
The suit centered on the government’s bailouts of the financial sector. These bailouts conducted through the Federal Reserve consisted of taxpayers’ money. Since the public was bailing out the banks, how is it possible that the Federal Reserve can choose not to disclose to the public how this money was spent? This is insane and undemocratic.
When Bloomberg finally won the case, it was years after the bailouts from the Federal Reserve had prevented the big banks from going under. The documents then released showed the Federal Reserve also issued money to banks in Europe and to large corporations here in the U.S. that were not financial institutions. Many other shocking details revealed highlighted the extent to which the financial sector and the Federal Reserve conducted suspicious business in secrecy and behind closed doors.
Today, Bloomberg is pursuing its ongoing suit against the European Central Bank (ECB) for not disclosing documents that may uncover Greece’s scandals. Greece reportedly illegally used derivatives to hide their debt, which then precipitated the debt crisis and mirrors what occurred in the U.S.
The ECB is arguing that these documents cannot be released because they could worsen the crisis by creating negative perceptions about Greece. This argument is ludicrous. As Bloomberg rightly points out, transparency is the key to properly-functioning markets.
So why are toxic mortgage-backed securities still … Read More