Thursday, February 16, 2012


Admittedly, the guy has been spot on but when you get an email as I did just 45 minutes ago celebrating his accuracy with the single word, "HA," it becomes annoying.  Mario Draghi, after suggesting for the past week that he wasn't involved, quietly announced a few hours ago that indeed, the ECB would swap Greek bonds held in portfolio which had been purchased at a discount for new bonds in the same other words giving the Greeks the benefit of the discount.  It was as Massimo predicted.  Details to follow.

That announcement took a bit of the sting out of Ambros Eveans-Prichard's piece in the Telegraph today (as noted by Carter) that the Germans, Dutch and the Finns want Greece out of the EU which caused raised eyebrows all over Europe. Ambros is the financial editor of the Telegraph and knows his way around.  Added to his column the fact that as reported earlier in the day the German foreign minister, Herr Schauble, was heard proclaiming that Greece should postpone its elections until April so that every candidate would have to proclaim on the bail out, convinced a bunch of people that Ambrose was on to something.  I'm not.  What is going on right now is one of the biggest cover-your-ass exercises on the part over just about every politician in Western Europe in trying to avoid how they allowed a 30 billion Euro problem with a country that didn't count grow into this monster that threatens the entire EU.  They haven't yet THOUGHT about what happens if (when?) the Greeks bolt.  Herr Schauble was of course speaking logically.  He is unfortunately as dumb as a rock in the area of international diplomacy which is of course his job.

The Greeks, whilst announcing that they had found another pile of millions to cut out of their budget (mostly military spending) in response to the Troika's demands told Schauble to, in effect, commit an unnatural and impossible act...with some good reason I might add.  And so, we stumble on towards Monday when I suspect another constituancy will be heard from and another postponement will occur.  Eventually, we will stumble into the default that no one wants and for which no one is prepared, OR, we may just find out who is the most scardie-'fraid system-wise with the CDOs out there and starts screming bloody murder.  To be truthful, that's the wild card that I simply don't understand and about which I have not nearly enough information and on which I would certainly appreciate some guidance.   There has been some chatter that one of the worried parties is The Suit but from all I can determine our banks are pretty relaxed about this in an individual sense although there is a growing concern that a messy default may not be a good thing...even by Jamie Dimon who, I am told, got his first passport last week.  Meanwhile, bond yields are creeping up again and would of course would be much more elevated without the ECB.

I've been trying to work out in my mind what the fall-out will be when what I believe to be the inevitable occurs, frankly without success.  I've asked a number of folks for whom I have a great deal of respect and the general consensus is that too much time is being spent on worrying about individual institutions.  System integration and fund flows are where the emphasis should be placed by way of containment.   In short, the continuing of the liquidity of the system is primary.  Funny how we always come back to that and yet it is barely mentioned in the lead-up to the crisis and this situation is no exception.  And yet, I can't help thinking that maybe even that is overdone and if the EU loses Greece, who cares?  Other than the enormous amount of egg that would have to be wiped off political visages, is there a lasting, negative consequence?  I'm still thinking.  I hope Massimo doesn't come up with a theory.  I'd hate to have to tell him at some point he was right on this one.

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