SANGUE PER SANGUE

TThere will be no meeting of the finance ministers tomorrow so I was half right.  There will be a meeting of the heads of state so that some completely useless but high-sounding communique can be issues because they have to say something as silly as that sounds. Given what occured over the weekend it might be interesting to watch the goings-on because it might turn into something like an Israeli parliament meeting and an actual fist-fight might break out.

I must admit, for the first time I'm beginning ro get worried not because the facts have become any different but because of the rhetoric which reache a feaver pitch on Sunday with Burlesconi being called out and insuted by Sarkozy and Angie and Frank telling the British P.M., David Cameron, "You have missed an excellent chance to shut up."

Politicians of all stripes have huge egos (The Leader being an exception as he is nothing but ego) and it is therefore not a particularly wise thing to do to tell one's peers to shut up or how to run his country but that is exactly what happened.  The fact that most of this came from the little popinjay Sarkozy made it even worse as there is wide agreement that he is the dumbest guy (or girl) in the room.  In addition, the fact the Mme. Sarkozy is a hell of a lot better looking than Burlesconi's once-17 year old girl friend even made things worse if I know Italians.  The meeting disolved into a shouting match and obviously things have yet to calm down, hence, no concrete action on Wednesday.

I tell this tale not because in the long run this incident will be the deciding point but because the well is now poisoned on a personal level and that makes agreement even harder.  In addition, while a British P.M. is used to being insulted in public as are his political colleagues, they take badly to this occuring at the hands of a fro...er...Frenchman, they react badly.  Mr Cameron had to resist and turn back a very strong demand from members of his own party to call for a referendum on Britian's continued membership in the EU which would surely result in a demand that Britian depart.  Whilst not a killer, that would be a devestating blow to the Union.

Sarkozy's actions are clearly the result of the shades being raised on the state of his country's credit and in particular on the state of the French banking system which is now being exposed as having done nothing to get it's house in order for the past three years.  Keeping in mind that the present head of the IMF, Mme. Lagrande, was the former French finance minister and in that role responsible for the condition of the banking system, the IMF is now seriously compromised.  Today, The Suit, who in the recent past had always made warm, fuzzy noises about helping out particularly through the good offices of the IMF, started walking back that cat now that things were getting ugly.  Sarkozy is desperate in the sense that he is way behind in the early polls and must protect French assets in the game if he has any chance at all of holding on to the Presendency.  Obviously the leaked number of 108 billion Euros of new capital believed to be needed is based upon only what the remaining Euros will pony up  in any sort of recapitalization plan which will not go very far, meaning France will have to come up with a lot more on its own for its own banks, which means bye, bye their triple-A rating which means...oh why bother.  The fact is NOBODY knows what's needed because there has been no agreement on a figure of debt relief for Greece, and Italy has to be delt with first which translates into Burlesconi and his party (coalition?) must do what Merkel and Sarkozy want him to do.

That the Euros have cocked this up so badly almost defies belief.  Greece is rapidly becoming an afterthought and more and more of this drama's happy ending has been placed upon the badly maligned  Burlosconi to do the right thing according to the maligners.  Will he?  We shall see.  Oh, by the by, for the non-Italian speakers out there:  Sangue per Sangue?  That means blood for blood.  Italians are very serious about certain things.

L'ETAT C'EST MOI

No, this isn't about Looie 14.  I am referring to what the head of French banking might say if one could be found.  For years there has been very little to choose between the banking sector in France and the government of France.  All of the leaders come from the same class; all of the leaders went to the same school; all of the leaders come from the same party more or less.  The French banking system was...and is, tho to a lesser extent...an arm of the state and does the state's bidding.  Want some proof?  Well, Mme. Lagrande, former head of the Tresor and therefore head of the banking system, became head of the IMF and before one could say "Zut Allores," called for a vast increase in tier one capital on the part of all Euro Banks which is not a bad thing for the head of the IMF to propose.  Of course it would have been better said when she was running things but that's another story.  She was immediately told to shut up and did.  That is why Jim Kramer is an idiot when it comes to all things international for proclaiming how wonderful was Mme. Lagrande.  He was advised to shut up and he did.  Anyway, we now find ourselves in the interesting position of a swirling controversy regarding the funding capabilities of the French banking system which, by definition, brings the credit standing of France into play as well.  

Greece is supposedly the problem and the French news guys immediately debunked the story claiming that the exposure to Greece on the part of French banks was less than 50 billion Euros.  So what's the problem?  Well, as the guy on the pre-game says, "Not so fast my friend."  That is the cross-border exposure.  The Frence banks are the largest contingent of foreign banks inside Greece.  What do those banks/subsidiaries have on their books?  I haven't a clue.  So is there a problem?  Yep.  Could it be a REAL problem?  Yep.  Will it be a REAL problem?  I don't think so or at least I hope not because the French state will pull out all stops to cover it's banking system.  As to it's funding?  Well, in regard to dollars, that's what swap lines between central banks are for boys and girls. As long as their liquidity in Euros is maintained, it will be a rough ride but probably turn out ok.  Remember, banks die on the liability side of their balance sheets; the viability of Greece's credit can be delt with over time.  At the end of the day it might be necessary for a bank to disappear ala Credit Lyonnais (or Debit Lyonnais as it was known in the trade) in 2008.  C'est dommage, but these things happen.  Let's see if I'm right.

Yesterday, Little Paulie Krugman was at it again in the Times, in a stupid and ad homonim attack on the ECB and Jean Claude Trichet.  Now JCT needs no help from me to defend himself against attacks from Little Paulie but a few words must be written in any case.

Little Paulie didn't like JCT responding to a question with the thought that the ECB had behaved "impeccably" as a guardian of price stability claiming that the ECB's action was the reason that the Euro was in danger of collapse.  You see, Little Paulie thinks that the ECB should be buying up the debt of all of Euroland because in his mind there is a "run" on the nations themselves for some reason that he just doesn't understand. Let's see if we can put Little paulie straight.

To begin, unlike the Federal Reserve, the ECB has a single mandate: price stability.  They are not in the business of fixing economies...that is the business of the politicians or as the late Freddie Prinze used to say, "Is not my Yob."  But of course, Little Paulie, like his "progressive" friends could care less for the niceties of laws or regulations.  Being the brightest among us they have carte blanch to interfere where ever needed.  Further it is never, NEVER the fault of the debtor; personal responsibility is never a consideration be it individual or statist in nature.  This is only for moralizers.  The fact that Greece had lied through its teeth as to the state of its finances is of no concern.  Spain?  Spain was doing just fine...forget about the fact that their savings banking system is bust because of speculative real estate lending.  Buy Spanish debt with German money!  And while you're at it buy Italy too!

And so Little Paulie must distort and reshape both the facts of today and the facts of the past.  The reason why he must do this is that, dear Lord, he was wrong.  He is smart enough to recognize that what he is looking at both here and in Euroland is the end of the welfare state that he so dearly loves, the end of the soft socialism that lesser mortals had told him would end when it could not be supported by other people's money.  He was wrong and do you know what life is like for Little Paulie when he has to admit to himself that he was wrong?  Unbearable.  And for we lesser mortals?  Sheer, unbridled joy!

A GOOD IDEA?

Well, we're back.  I think we should have stayed away.  If anything, the world looks worse than when we left it.  The good news is the resolution of the Euro situation could be closer than most people realize what with a very important legal ruling in Germany tomorrow which might put all plans on stop or permanent hold.  Frau Merkel's party lost the by-elections over the week-end which places her in a very scary place and while she remains steadfast in her committment to Europe (read, bailouts for Greece, Italy, etc with German money), if the German courts decide that the Euro-bailouts are illegal or that they must be approved in every single instance of German participation, Frau Merkel's heart may still be with Europe but her head might be bearing a sign of relief as this gets her off the hook.  What that would mean for Euroland is anybody's guess.

Meanwhile, the talk of "The United States of Europe" is all the rage among the conoscenti who live in Georgetown and on West End Avenue.  The argument seems to be that the union of European states centered about a common currency and a common monetary policy was flawed to begin with and therefore, let's just fix it with agreement on a common fiscal policy because that's the right, intelligent and the thing that makes the most sense sense to do.  After all, didn't we do that and the Euro are sooooo much more intelligent than we.  The NY Times was literally dripping with that advice over the weekend and into today.

I keep trying to remind these guys that across the pond we have a bunch who have been trying to kill each other for 1000 years but nobody listens.  The Italians may be approaching Parliament with their reforms and the Greeks may have a list of items to be privatized but it is more probable that all will come to naught.  It is the nature of the beast.   Mme. Largrande, now of the IMF warned last week that Euro banks are dangerously under-capitalized, having not been asked what the hell did she do to fix this condition in her previous job (answer, nothing), and bank shares went right into the toilet on both sides of the Atlantic.  Over night, she was told to first re-think the issue and then shut up which she did and the shares stabilized...at a far lower level, mind you.  Nothing really seems to change.  The Euro tanked, our 2-year was yielding under 2% this morning, The Leader keeps saying the same thing with a different modifier, and the Fed is engaging in some off-the-air re-run of Family Feud.
Then again, college football began with lightning and thunder across the Fly-Over Zone and the NFL kicks off this week.

Good to be back.