Monday, October 3, 2011


I'm not sure about the Euros.  Things are not looking good at all. Today, what everyone suspected became an open fact: Greece cannot meet it's targets to which they had agreed not only for this year but for next year as well.  With the outlook bleak, the Euro crashed to 1.32 handle against the dollar with every indication that the fall will continue.  Ordinarily, this would be music to Fritz the Exporter's ears but with economic activity down practically everywhere (not unrelated to the European crisis), there is little joy in Germany as to this event.   I am sure Frau Merkel must be furious at the Slovaks and the Austrians for not having their acts together for after expending a ton of political capital to get her gang to agree to the stability the Greeks have just put up the best "good money after bad" argument possible and remember, ALL the Euros have to agree to the funding.  My bet the the Greeks would get the next installment is looking far more shaky in light of these events but I'm sticking with it if for no other reason that moe time is needed for the Euros to do the undoable.

The choice is becoming more and more clear: save the banks or save Greece because it is now obvious that both cannot be saved.  My bet is on the repeat the refrain it has ALWAYS been about the baanks.  I'm therefore getting REALLY disturbed as to what the market geniuses are doing to the values of the U.S. banking system in liking our system to the European crisis in such a direct manner.  If you agree with my view that the Euros will save their systems, we're fine, not rock-solid but fine.  Of course the Euro view has nothing to do with the sanctity of banking or the protection of the world's economic order.  Nothing so simple.  Politics, pure and simple.  For all practical purposes banking and the European political systems are one in the same as has been explained on these pages before.  And shortly, the games will begin.  But, as has also been explained, banking is a business based almost entirely on trust.  If it becomes that the views of the stock market jerks are gospel and we lose the overall faith in the system things can become ugly very quickly, and the bankers know it.  Why is there no bank lending?  Simple, the preservation of every penny of liquidity.  If our politicians and elected leaders would like to do something useful for a change they might want to quietly start reassuring folks that the situation is under control.  Unfortunately, the immediate reaction of this administration is to announce everything with a Hollywood backdrop which would have the exact opposite effect.  If The Leader or The Suit holds a press conference the assumption will be that the crisis is already with us.  While hardly a fan of Bob Rubin his finest hour was during the mess in 1995 (or was it 1996?)  simply walking down the steps of the Treasury to a small news conference.  Everything will be ok children; daddy's home.

And Greece?  There's life after a restructuring and a default.  They need debt relief and they need it desperately.  They had also better decide to do this whilst staying in the Euro zone because outside of it their future is bleak--assuming there is a Euro zone in which to stay inside.  And therein is the question.  Unless this happens very quickly there will not be one.  Today's announcement of the reality of Greece was downplayed in the press because we have assumed and rightfully so that this was always the case.  Not so for the Europeans who, while mad as hell at the Greeks, still held out hope that the situation might be resolved.  That hope is now gone.  Time to get real.

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