L'ETAT C'EST MOI

No, this isn't about Looie 14.  I am referring to what the head of French banking might say if one could be found.  For years there has been very little to choose between the banking sector in France and the government of France.  All of the leaders come from the same class; all of the leaders went to the same school; all of the leaders come from the same party more or less.  The French banking system was...and is, tho to a lesser extent...an arm of the state and does the state's bidding.  Want some proof?  Well, Mme. Lagrande, former head of the Tresor and therefore head of the banking system, became head of the IMF and before one could say "Zut Allores," called for a vast increase in tier one capital on the part of all Euro Banks which is not a bad thing for the head of the IMF to propose.  Of course it would have been better said when she was running things but that's another story.  She was immediately told to shut up and did.  That is why Jim Kramer is an idiot when it comes to all things international for proclaiming how wonderful was Mme. Lagrande.  He was advised to shut up and he did.  Anyway, we now find ourselves in the interesting position of a swirling controversy regarding the funding capabilities of the French banking system which, by definition, brings the credit standing of France into play as well.  

Greece is supposedly the problem and the French news guys immediately debunked the story claiming that the exposure to Greece on the part of French banks was less than 50 billion Euros.  So what's the problem?  Well, as the guy on the pre-game says, "Not so fast my friend."  That is the cross-border exposure.  The Frence banks are the largest contingent of foreign banks inside Greece.  What do those banks/subsidiaries have on their books?  I haven't a clue.  So is there a problem?  Yep.  Could it be a REAL problem?  Yep.  Will it be a REAL problem?  I don't think so or at least I hope not because the French state will pull out all stops to cover it's banking system.  As to it's funding?  Well, in regard to dollars, that's what swap lines between central banks are for boys and girls. As long as their liquidity in Euros is maintained, it will be a rough ride but probably turn out ok.  Remember, banks die on the liability side of their balance sheets; the viability of Greece's credit can be delt with over time.  At the end of the day it might be necessary for a bank to disappear ala Credit Lyonnais (or Debit Lyonnais as it was known in the trade) in 2008.  C'est dommage, but these things happen.  Let's see if I'm right.

Yesterday, Little Paulie Krugman was at it again in the Times, in a stupid and ad homonim attack on the ECB and Jean Claude Trichet.  Now JCT needs no help from me to defend himself against attacks from Little Paulie but a few words must be written in any case.

Little Paulie didn't like JCT responding to a question with the thought that the ECB had behaved "impeccably" as a guardian of price stability claiming that the ECB's action was the reason that the Euro was in danger of collapse.  You see, Little Paulie thinks that the ECB should be buying up the debt of all of Euroland because in his mind there is a "run" on the nations themselves for some reason that he just doesn't understand. Let's see if we can put Little paulie straight.

To begin, unlike the Federal Reserve, the ECB has a single mandate: price stability.  They are not in the business of fixing economies...that is the business of the politicians or as the late Freddie Prinze used to say, "Is not my Yob."  But of course, Little Paulie, like his "progressive" friends could care less for the niceties of laws or regulations.  Being the brightest among us they have carte blanch to interfere where ever needed.  Further it is never, NEVER the fault of the debtor; personal responsibility is never a consideration be it individual or statist in nature.  This is only for moralizers.  The fact that Greece had lied through its teeth as to the state of its finances is of no concern.  Spain?  Spain was doing just fine...forget about the fact that their savings banking system is bust because of speculative real estate lending.  Buy Spanish debt with German money!  And while you're at it buy Italy too!

And so Little Paulie must distort and reshape both the facts of today and the facts of the past.  The reason why he must do this is that, dear Lord, he was wrong.  He is smart enough to recognize that what he is looking at both here and in Euroland is the end of the welfare state that he so dearly loves, the end of the soft socialism that lesser mortals had told him would end when it could not be supported by other people's money.  He was wrong and do you know what life is like for Little Paulie when he has to admit to himself that he was wrong?  Unbearable.  And for we lesser mortals?  Sheer, unbridled joy!