Wednesday, December 7, 2011


What will come out of the meeting beginning tomorrow is broad concensus on...something.  I think the nay sayers in regard to the rejigging of the Convention will be asked to make nice and not have their true feelings expressed.  Will there be any definative steps taken?  Certainly not.  Will it sound good and willl there be talk of a launch early next year.  Yes, and there may well even be talk of the IMF becoming more active.  On that the ECB, at some point early next week, will conclude that sufficient efforts have been made to resume the QE effort in which they have ben tentatively engaged.  But there could be a spanner in the works as today S & P essentially said that broad, substantive agreement had to be reached by Friday otherwise the downgrades are a-comin'.  I don't know who's calling who's bluff but one can safely say that we have probably reached the end game as there is simply very little else imaginable to buy time.

Will it work?  Perhaps but I doubt it.  I think the Italians are serious it what they are trying to do but in the end it is an effort to reform the culture of an entire nation.  That takes time and there is none.  We will make it to the spring and Greece may very well be a gonner before March.  The Spanish are beginning to talk about a restructuring of their entire banking system which would be the right move but is it now too late in the game to find the financing to complete that effort?  The Italians can't do it and the French will refuse.  The entire Euro zone is looking at an enormous refinancing of both the public sector and the financial sector in the first half of 2012 and for the life of me I don't know if it can be done.  I'm a bit embarassed about this as well because as was pointed out to me by a friend today that the only way this could possible occur is through the good graces of the IMF, the ECB and probably the concept of a Eurobond with joint and several liability of the 17 in the zone.  Today I was asked if I had thought of the fact that anybody else involved would be subordinated to those three providers of funds and why the hell would anybody do that?  Sheepishly, I admitted that I hadn't, defending the oversight on the fact that I never believed the funds would be there in any case.  But that is not the kind of mistake that anyone trained as a lawyer should make.

I thought of something else today that I had better get straight.  Made a phone call to a friend who looks up stuff like this for a living and asked him what was the overall debt burden of the Euros ...sovereign, corporate, personal,,,the whole nine yards.  I was shocked.  The lowest--and these numbers are not official--was Germany with 190% of GDP.  No other country was under 200% although the Netherlands was not on the list.  Where does the growth come from?  It doesn't, not with that kind of burden, and then the question becomes how long before the social/political pressures dictate a change.  And ultimately, it is there that the answer lies.  Oddly, when I first spoke to My Really Smart Friend, Larry about this I thought he was too pessimistic.  Today I'm not at all sure that he is pessimistic enough.  I'll wait and see what comes out of the next two days of meetings but it's not looking good.  Live and learn I guess.

Jon Corzine goes before Congress tomorrow,  The odds on his exercising his right under the 5th. amendment have in the past few days shortened considerably as more and more information about this mess leaks out.  If he does--and I think he must--this puts the Administration in a hell of a bind and could turn into one of the biggest political stories of the year.  Big day tomorrow, over there and over here.

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