Thursday, June 6, 2013


I was going to write a bit more about New York experiences but what went on in Euroland today was just too delicious to ignore.  Talk about pissing contests!  It started with the IMF admitting that they may have gotten it a bit wrong when it came to Greece but the really bad actor in the drama was the Troika who, they claimed, sacrificed Greece in favor of the German and French banks who were loaded up on Greek paper.  Representatives of the Troika shot back that the view of the IMF was simply stupid.  Commentators around Europe chimed in that both were to blame and while all this was going on , a prominent German politician and former finance minister suggested that the time of the Euro was least for the southern tier countries including, of all countries, FRANCE! Quell Horror.

Now to readers of this blog none of this has come as a surprise because as I told you 2 years ago, "It's all about the banks," and forcing Greece to borrow even more money which they had absolutely no chance to repay was just buying time to fix the banks...a noble strategy but the damn fools had no idea how to go about it and still haven't fixed them yet, especially the French.  Now let's be honest, nothing much has changed.  It the four years following the debt crisis of 1982, the Latin countries were sacrificed to save the banking system of the world for that period really presented a systemic crisis, but not to the extent that Greece has suffered.   I think there is enough blame to go around but what is truly insane is that there has been no effort to deal with the single most important cause of the European disaster which is of course the treatment of sovereign debt as risk assets weighted so that from a capital standpoint they carry no risk at all.  This same treatment is enshrined in the dreadful Basel III draft which not only encourages but practically demands that banks lend to sovereigns and in so doing destroy their balance sheets when suddenly there comes a Greece and the realization that you can never make enough in interest to cover the loss in principal when the day or reckoning arrives.  And so the banks lie and are aided and abetted by their host governments who, dependent on these institutions for financing, are prepared to trash any one and any thing to stay on the gravy train.  Sorry about that my Hellenic friends but some one has to pay for all this and you are it.  You really didn't expect honest treatment from the mob up north did you?

While all of this was going on, up pops Mario Draghi announcing that there would be no more talk of QEing from him.  Now to be honest, the ECB never really got into it in the manner of the Fed, the Bank of England or Japan, but he made it very clear that governments should not look to his institution to pump up liquidity as a way to stimulate growth.  Sr. Draghi has long talked in broad terms of structural change in Euroland but today he emphasized the point.  In support, and as opposed to the views of the outgoing governor Mervyn King, the board of the Bank of England announced that it was not in favor of continued pump priming as well, a remarkable rebuke to the man widely admired across numerous time zones.  The result of all of this is to put politicians on the spot for future improvements in economic conditions which they do not like one bit.  Whether this attitude holds will be interesting to see as the pressures will be enormous.  I can't wait to see what Little Paulie has to say about all this once he returns from vacation.

And Over Here, tomorrow's jobs number is being touted as the most important one in a long time.  Without so saying, more than a few out there are praying for a real howler which in their mind would mean that the Fed wouldn't dare to begin easing AWAY from its expansionary policy.  Imagine, hoping against hope that more Americans stay out of work.  How sick is that, but as Max put it it's Loonie Tunes out there.  8:30 tomorrow morning and commentary for the rest of the day.  I had planned nothing so I guess I will have the time to get furious at each and every talking head that shows up.  What a wonderful life.

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