I must admit, I never in my wildest dreams thought the Euros could pull something like this off...something so stupid, that is. In one swell foop, they have put the balance sheets of two countries behind the entire EU...well, three countries if one counts the good ol' US of A...and in return from where I sit they have received sweet fanny adam. Now don't get me wrong, The Dow closing up 400 or so is not a bad thing and I hope all who were short over the weekend (being logical and stupid) are people who I don't like, but at the end of the day to go back to my WW II analogy somewhere there had to be somebody screaming, "Save your ammo, save your ammo," but in the end all the ammo got shot and the bad guys are still out there.
Methinks The Leader and The Suit are thrilled about this. Both are big action guys, Bold step guys as The Leader is fond of saying. It also removes for the time being the rather awkward comparison of the trend in this country's fiscal movement which is looking more and more like the worst of Europe. But let us stick to an analysis of what has just occurred.
The EU has ponied up around E700 billion and the IMF around E200 billion. In Europe's case the vast amount of the funds made available at the end of the day come from Germany and France which in the former case may be a touch dicy as Lady Angela lost her by-election in the most populated state which means control of the upper house is kaput and approval of this bail-out somewhat in doubt. France is, well, France and the IMF has just committed all of their available funds to EUROPE for cryin' out loud which means that if, say, Bongo-Bongo gets in a bit of a financial bother they may have a long wait. Of course Uncle has about 18% of anything that goes out the IMF door so we're on the hook but we knew that ahead of time. Now out of money, how long will it be before the Fund comes around to it's members with it's hand out and isn't that going to be fun to watch in the Congress of the United States!
In return, the Euros got exactly bupkus...any chance at real conditionality among member states is long-gone except for a hand over the heart and a promise to be better people. We REALLY mean it this time. What in the hell makes these people think that issues of sovereign debt are akin to every other financial crisis and can simply be dealt with by throwing money at the problem. The cause of what has occurred in Greece and in Portugal, Italy and to a lesser extent in Spain is not a financial problem but a problem of fiscal mismanagement aided and abetted by yield whores who equated the countries' sovereign debt to the Bund and saw an opportunity to gain 25 basis points on the same perceived risk. What this does is to enshrine contagion across the Union and bail out (in the immediacy) the holders of Greek debt without so much as a stubbed toe. Yeah, there are some widows and orphans involved but the big winners in all of this are the European banks who walk away scott free. You might remember I told you the Euros would take care of their banks but I never thought that our taxpayer bucks would be in play for this sort of outrageous bail-out.
Of course it aint over til it's over, once again quoting the Yogi-man, but with an ounce of intelligence they could have dealt with this in a manner that achieved stability and long-term goals. Suppose--just suppose--if the Euros had, in the case of Greece suggested that they were prepared to issue a guarantee of a certain portion of Greek debt based, perhaps on the short end of the curve. In exchange for a modest fee, all obligations of Greece in the 2 to, say, 7 year maturity range would now become obligations of the EU or the ECB with a yield reflecting the enhanced risk, say, that 25 basis points you whores were looking for, but with now an extended maturity to, say, 15 years. Oh, and if you are a bank holder, the paper you agreed to exchange would be eligible as tier one capital. No obligation on your part of course...except that is if you choose NOT to go along...well, you are on your on and by the way, you are going to have to cover the paper with a substantial slug of new capital. If done on an auction basis, what percentage do you think would not be tendered? How close to zero can you get?
Had they done that or something like it, every option would have been preserved and more importantly the structure of the free market would have been preserved. They have just ended that. Take away the opportunity for people to lose money and the concept of a market is lost. Isn't that what we have been trying to get at in Chris the Crook's bill in Washington or did I miss something? Greece and the banks go home scot free...and with my money. I'll be damned.
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