"I WILL DEMAND..."

In reference to concrete moves on the Euro debt situation is what The Leader was talking about this morning in his press conference or camapign speech...call it what you will.  Another of my more frequent political comments:  who the Hell does The Leader think he is in speaking to the Europeans like that unless somebody elected him King of Europe which somehow I have missed?  The Suit is one thing but the President of the United States?  I suspose I should feel exonerated as I caught hell when I wrote that the administration was going to use Europe as a scapegoat for their economic failures but I do not.  Forgive me again but this is simply disgraceful and unworthy of this country and its leadership. "Nuff said.

Meanwhile, over in Euroland a few other fearless predictions of your intrepid blogger have become fact. The ECB today announced that it was prepared to make available whatever is needed to keep the financial system liquid including 13 month loans to individual banks and substantial amounts through the purchase of "covered bonds" from the banking system.  What are covered bonds?  Well, these are bonds that have as security specified assets on the books of the issuer which sounds just great except I suspect that those "assets" are going to be suspiciously resembling soverign bonds from places like...well...Greece which kinda defeats the purpose of the thing unless the bond purchases are non-recourse which I simply can't believe as that would mean the ECB would become the creditor.  And why 13 month deposits?  Well, you can look that one up yourself but as I remember any thing over a year is treated as term funding under the Basel Rules and that effects capital ratio calculations in ways that I simply don't remember.  The point is the ECB has pulled out all the stops and that's not a bad thing.

It was a funny thing, however, because it what will probably be his last meeting with reporters before retirement M. Trichet emphasized once again how proud he was of the actions of the ECB in keeping inflation in check for the past 10 years and that repeating that performance over the next 10 years would be the single most important role for the bank.  With gazillions of Euros pouring out of the place to keep the banks afloat that might become a tad difficult given that the latest inflation numbers are higher that expected and above the band that te ECB has set.  Does this mean that the hopes of a European rate cut are dashed?  Apparently no member of the press asked that question proving that the press is as inept over there as they are over here.

Not to be outdone, the Bank of England announced what appears to be the British version of Quantitative Easing with plans to purchase up to 75 billion pounds from banks over the course of the next few months.  We have not mentioned the British banks lately but rest assured they, too, are the proud owners of a pill of rubbish from the south of Europe although I suspect--and it has been suggested to me--that they have been far more aggressive in taking provisions than their Euro counterparts.  In response to all of this free money flying around the world, global stock markets recorded triple digit gains; now what would the markets do if there was something real and material that just happened to pop up?  The latest goings-on were easily predictable (by me) and I think they have lessened the risk of another liquidity crisis which, don't get me wrong, is not a bad thing at all.  With this now behind us (?) perhaps some attention can be paid to the simple, little task of curing the fiscal ills of three or four soverign nations.. Allons Enfants!

And in that regard, yesterday the Dutch gave their approval to an increase in the bail-out facility leaving Slovenia as the only major (sic) member of the zone not to have given the idea a thumbs up.  A few days ago I believe I said Austria instead of the Netherlands and for that error I apologize.  Proves I'm human and can get things wrong.  Came as a real shock, let me tell ya.

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!

BREAKING NEWS!

This morning, the German foreign minister, Wolfgang Schanble, took himself hostage in a locked room in  the ministry in Berlin and threatened to execute himself if the Greeks did not adhear to their promises and clean up their act...

...No not really, but it was close.  I thought yesterday that there was nothing much else to say but for Herr Schanble to threaten the Greeks with a cut-off of bail-out funding unless they accept and adhear to the conditions mandated by the Euro states comes pretty close.  We are rapidly approaching the point where it is the Greeks who are doing the rest of that lot a favor by trying to get their fiscal act together and oh, by the by, borrowing more money that they can't possibly pay back to bail out the banks--some of whom are close to Herr Schanble--and keep Euroland together for as long as possible. I don't know whether we have reached the level of farce or tragedy; Shakespeare I'm not.  Perhaps it's somewhere in between.

Anyway, today was the day for the central bankers.  Again this morning, Jean Claude Trichet discovered that maybe inflation wasn't such a big threat after all and decided to hold rate at present levels rather than succumbing to his natural reaction to most things by raising them again.  The markets cheered and the punters bought happily.  And then, Zut Allors, Bernanke dit rien!  The markets crashed.  I always wondered about the theory of Rational Markets because half the people I knew in the markets were not rational and some others were outright idiots.  Seems as though things haven't changed, and to close this day out we have The Leader with his jobs chat just prior to the openig game of the National Football League.  Now opening for Frank Sinantra in Vegas some years back was considered to be the best gig in the buisness for a non top-tier entertainer but for the NFL?  I'm going to watch because I really want to see if this guy can get through, ARE YOU READY FOR SOME FOOTBALL? without it being on a teleprompter.  I'm told the line in Vegas is 8 1/2--5 1/2 against.  Give the points.

QUITE A DAY

Stumbled out of bed to make sure I caught the jobs number and there it was--up over 100,000 with unemployment down to 9.1%  Joy all over thought I and sure enough the market uponed sharply higher with one fool of a talking head musing that the crisis was over and there should be clear sailing ahead. Wasn't much later that someone must have whispered "Euroland" and everything went to hell in a hand basket with Italy the disaster of the day, calls for Trichet to resign (Jim Kramer is too dumb to realize that he retires in a month) and then he did himself one better by proclaiming that what Europe needs is The Suit because "he forced the banks to raise capital."  Actually, it was Paulson but Kramer counts The Suit among his circle of friends so that's where that came from.  For astute, in-debth analysis of all things international I would turn to the neighbor's yellow Lab first.  Then Massimo called.

"Where the hell have you been!"

"Roma."

"I can see that from the city code." (I have a fancy phone).

"So then why you ask."

"Because I've been trying to ring you for a week to find out what's going on over there."

"Carlo, I told you not to worry.  We be fine.  We just have to get this asino Berlusconi to--how you say--focus on what to do AND what to say."

"Did you?"

'Sure."

"How?"

"Eh,  lika you say in that stupido movie, 'we maka him an offer he no can refuse.' Of course, your friend Trichet, he help a bit.  He tell him he no buy any Italian paper unless he do what he tell him to do.  And the Tedeschi...shesa no fun either.  You know, he realize he might needa some help with thisa legal thing, so..."

"Enough, Massimo.  I don't want to hear any more.  So what happens now?"

"He maka speech.  Listen Charlie, listen.  I go now to dinner but remember, when  Massimo tells you it'sa be ok, its'a ok.  Ma Monday... we see.  Ciao, Charlie."

And damn, if he didn't make a speech right out of the central bankers' and the IMF play book.  Massive government reforms, elimination of as many regulations as possible, implimentation of agreed-upon financial steps by end-2012 not 2013 and--ready for this--a balanced budget amendment to the Italian constitution!  IMF?  Hell, this could have been written in the Tea Party Caucus!  Our stock market turned around on a dime and eventually closed up 60 on the DOW.  Massimo got that part right.

But remember, what he also said.  Let's wait for Monday because after all it is Italy and things have a way of changing overnight much less over a weekend.  The lights will be burning brightly not only in Rome but in Frankfurt as well and we await market reaction as this thing gets fleshed out.  Most remarkable, the Prime Minister even called the parliment back from vacation to begin implementing his promises next week.  In August?  Unheard of.  They really did get to this guy.  As I said, a most remarkable day and to end it, we picked our first home-grown tomato of the season.  What kind?  Why, uno pomodoro della San Marzano.  You had to ask on this remarkable day?

See you next week

SEE EUROPE YET, JAMIE?

Remember when Jamie Dimon said Europe is for the Europeans or something like that?  Wonder how that trade is working out for the World's Greatest Banker.  Dreadful public statement this morning from the head of the Commission and Jean Claude Trichet (who should know better) started the whole thing off.  If you don't have something positive to say, just shut up but these guys haven't learned that yet.  Further, Frau Merkel had better start being consistant in her policy statements to her European colleagues and her voters: either she's prepared to tell both that Germany, for the foreseeable future is going to own Europe or she isn't.  She has very little time left because this thing is headed south without a clear and unambiguous statement of support.  Once again, it's all about confidence and at this stage there is no confidence in European political leadership.

Unfortunately, not much is better over here although with all the talk of the past few weeks concerning the default of the United States, the flow of money into Treasuries today at every maturity was stunning with the short bills actually producing a negative return for a brief period.  The Bank of New York actually told major depositors that they were going to start charging for deposits.  Can you imagine?  A bank that doesn't want money?  Sounds positively Swiss to me.  Of course the stock market, following the lead of Europe absolutely tanked with the DOW down over 500 at the close.  Tomorrow's job number has every chance of being awful again so God knows in what that will result.  There is real talk of a double dip, the chance for QE III was put at 75% by one talking head economist today and the realization is finally sinking in that the administration has no strategy, no plan and no clue other than The Leader's re-election.

The one bright note was the increasing jabber about The Suit wanting out (wouldn't you?) but that was immediately followed by the suggestion that Jon Corzine, forner head of Goldie and Destroyer of New Jersey wants the job and if not him then the afor-mentioned Jamie Diamon (I doubt it) or Jeff Emmelt of GE, known among the holders of the stock as Jeff Melt-Down.  Erskine Bowles name has popped and I know of a few people whose opinions I respect that have said that the guy is terrific--if so, I ask, why would he want to be part of this administration?

Look, there's really not much I can add to this truly awful situation that you haven't already figured out.  There is no confidence out here in the fly-over zone and I suspect that's the same where you live.  I'm going to wait for the number tomorrow and see what that brings and then see if anyone has a sense of how and to where we move forward.  Remember, it's August.  I don't like August.

SPEECHLESS

Well, I never saw it coming.  I was always an admirer of Jean Claude Trichet but I never thought he could pull this on off in the manner which he did.  I was wrong.  M. Trichet solved the problem of Greek dinances by eliminating Greek finances.  The European Union and the taxpayers of Europe now own Greece.  They are also about to own everything else.

The deal is pretty much as described yesterday: a strech-out of early maturing debt either on a short term basis  or on a longer basis with a risk transfer to effectively the whole of Europe and with a give-back of 20% (which from the banks' standpoint may have been provisioned).  Interest rates would be artificially reduced which would no doubt result in market prices of less than par on the shorter term obligations but not resulting in a write-down because of the "hold to maturity" accounting treatment which has the effect of delaying any loss.  Not to be overlooked is the continuing treatment under Basel III (at least until 2018) of zero weighting for capital purposes due to the soverign nature of the debt.  Added to all this is a pledge of some 100 billion Euros from the EU and the IMF to get Greece rolling again.

It's all crap of course because the last thing Greece needs is more debt to add to it's present level of 140% of GDP even at 3.5% a years.  Greece if broke and this isn't going to fix anything.  It is a bail-out pure and simple first for the banks and second for the politicians who have once again shown that they will do anything with the monies of their taxpayers to save the Union and the currency.  Maybe that's not such a bad thing and I admit it is a judgement that only the Euros can make but it seems a bit odd to me that all of talk of "contagion" and "moral hazzard" that we have been hearing as of late is now out the window as this agreement is the greatest invitation to these two self-proclaimed horrors that I can imagine.  With the knowledge that you will be bailed out, with the guarantee of a positive carry, with no capital charge in place for at least 7 years (hint: that's never going to change) if I were  Euro Politician I would borrow like a crazy man and if I were a Euro banker I'd lend every Euro-penny I could shovel out the door.  But wait, it gets better.

The really important thing about this arrangement that has gotten a bit lost in the shuffle is the  treatment of the European Financial Stability Fund or the EFSF or, just to be honest, the bail-out fund.  This has been around for over a year now but yesterday's agreement has greatly expanded the use to which this fund may be put and increased it's "Assets" above the already pledged 440 billion Euros to a far greater number which--apologies--I have not been able to confirm.  This is a bail-out fund for anything that moves, governments, banks, the local butcher--the works.  It can aid governments, recapitalize financial institutions, be used to purchase soverign debt in the secondary market...whatever.  It is a LIQUIDITY facility that ol' Charlie has been telling you about for years, and of course with all the money in Euroland behind it, it can be very effective...with one big IF.

It is the biggest moral hazzard that has ever been created since the Creator dropped the snake in the Garden of Eden...or was it Eve...and don't you just know that certain among that gang of 18 know it.  It will remain a hazzard unless bad habits are not allowed to die slowly but killed quickly and that can occur only through greater political or monetary union or both.  It seems to me that the issue has been fairly joined and now the debate begins.  It's resolution?  Beats the hell out of me but it will be fun watching.  The Greek situation must survive the political process, and it may well decide the future of Euroland, but before I get too profound, here's something that's been knocking around inside my head:  when is a credit event not a credit event?   I called a guy by the name of Mad Max who does credit insurance.

"Madman, is this Greek thing a credit event?"

"Damn right it is."

"Max they're going to say it's not."

"They better not."

"Max, Trichet has won everything else, he's going to win this."

"Then he's got big troubles with me."

Max has been very long insurance on Greek debt.  Wonder what the other Maxs out there are thinking.



Harry Reid sent the Senate home for the weekend after he shot down the latest Repub proposal.  What a leader.

See you next week...it's still hot

SUCH A DEAL

Well, the sun came out for Greece today.  I'm not sure as to all the details but what the Euros apparently agreed to was a package of over 100 Billion Euros with the private sector contributing approximately 1/3 of the amount in the form of extended maturities of existing debt, swaps of debt for thirty  year obligations and the sbility of Greece to but back it's debt at a discount.  On top of all of that there will be Euroland guarantees on top of the new private debt thereby insuring that the European taxpayer will bear the full burden of this momentus deal.

When one says "private sector," the immediate thought is banks and other financial institutions which is fine if that is where the debt resides because as we have repeatedly discussed governments can always beat up on banks to "do the right thing.".  It's a bit more sticky, however, if the holders are really  private like hedge fund or vulture funds.  If that is the case one is immediately faced with the Obama General Motors solution; tear up existing law and threaten the holders to go along.  Worked here--could work there.  If you are really clever, you can try to determine at whaat price those holders obtained the debt and then permit the Greeks in any buy-back to guarantee a profit,  Problem there is these boys are not going to be happy getting just  85 for something they own at 83, but hey, it's burden sharing isn't it?  Should be fun to see what happens.

Of course throughout this exercise there was probably never a thought given to any realistic assumption of the Greeks being able to manage their finances so that even this deal will work out in the end.  Not the issue.  To the greatest extent possible they saved the banks (always the goal) and will probably strong-arm the rating agencies into not declaring this to be a default allowing M. Trichet to toddle off into the sunset with his Gaelic pride and sense of rightousness intact.  Bravo, guys, always knew you had it in you.  And now with this triumph behind them they can begin to worry about Portugal and Spain, assuming that a couple of governments don't fall before they can really get to the down and dirty. I don't know whether this thing has to be ratified by the individual legislatures which might be a tad awkward in a place like Germany, and I'm hardly an expert in European politics.  A good buddy has just told be Frau Merkel is certainly toast at this point; I'm not in a position to agree or disagree but once the full extent of the national burdens a understood, a lot can change.  I don't think it's over, as the Yogi-man said, 'til it's over.  I must admit, however, I'm surprised they got this much accomplished in this time frame.  Oh well...

Meanwhile, on this side of the pond things are beginning to look grim.  The Gang of Six's outline has, as expected, a lor of holes in it and questions attached.  The Leader reiterated that he's willing to take a short-term extention but added he wants higher taxes.  Non-starter.  The House proposal is going no where.  Discussion has begun on a short-term extention coupled with spending cuts and the requirement that the marking-up of a new tax code and specific deficite reduction measures begin immediately.  The Leader doesn't like that.  No point in speculating, we just might as well wait to see what happens, and that's exactly what I'm going to do.


I must admit I took some heat for my comments about The Suit yesterday but while bloody, I am unbowed.  He doesn't know what he's talking about but at the same time he has the unmitigated gall to lecture the world has to the joys of Dodd/Frank and it's improvement to the system when it was he, who for five years headed the most important regulatory body around, the N.Y. Fed, and apparently was clueless as to the risks that swirled around him.  I mean, DUH!  And now he finds religion when it is apparent to anybody with half a brain that as a result of this hair brained piece of legislation there is probably more risk in the system through institutions that will be designated TBTF ( go for it bro' I gocha back!) and certainly no less?   From the two clowns that brought you Fanny Mae and Freddie Mac: a piece of legislation whose rules, after one year are still to be written because nobody knows how to write them and $250 billion in losses and still counting.  Damn, we're just like Europe.  At least those guys can do it over a decent lunch.

AS THE WORLD TURNS

That was the name of a very popular soap opera over here in the colonies (it may be still around for all I know).  I swear to goodness, whats going on out here and over there is like a soap opera except for the fact that NONE of the actors are in any way likable.

As I (nearly) predicted, I don't think there will be a negotiated rise in the debt limit in the United States.  The people on both sides genuinely despise one another and with The Leader at least it's all about politics.  One can say that the Repubs are stuck on this "no new taxes" mantra but it is a fact that the Senate has not passed a budget in over two years and The Leader, in violation of U.S. law has not proposed a budget within the specified time fram unless one is made to believe that the joke voted down 97-0 by the Senate a few months back puts him in compliance.  I've written about what should have happened too many times and to do so again would simply bore you to tears so let us look at one of the side shows outside of the activity occuring in the Big Tent, to wit, the rating agencies.

Has there ever been a more self-serving, phony, sanctimonious ignorant bunch of buggers that these guys?   In a confluence of the United States meeting Europe, this mob actually thinks they have something to offer.  Having been absent for the last five years  and having done almost as much damage to the financial condition of the western world as the Congress of the United States, the Banks and the loan brokers, these clowns actually feel it is their duty...DUTY...to tell us that Greece is broke and that if the U.S. defaults there may be a problem.  Realizing that the howls of protest over their past performance has put their monopoly and future at risk, they have taken to elucidating the obvious with breathtaking, ear-shattering screaming that accomplishes nothing.  If anything good is to come out of this mess it should be the elimination of these people from any role other than that of a mere commentator, removing forever the power they hold over investors who are, in some cases, limited in their investments to that which they bless in a certain manner.  It would be better for all if investors really did their own credit reviews and forcing the S & Ps of this world to compete  as an information provider in an open market place.  When their "skill" was needed they opted instead to protect their business model;  their time is past.  They have earned their elimination.

Meantime, while the political sparring continues, on the other side of the pond the realization is dawning that the game is up concerning Greece and that folks better start trying to figure out some face saving mechanism to keep the banks afloat while Greece graciously defaults on its debt.  It is because of times like this that we have guys like Charles Delara to explain to us when a default is not really a default, a skill which he probably learned while attempting to convince his wife that she was just a little bit pregnant.   Come on, Chuck, she didn't believe you then and nobody is going to believe you now.  The only hang-up in this thing is M. Trichet who is still babbling on about the eligibility of Greek paper when everybody and his brother knows that eligibility is what someone decides it to be and that there are no hard and fast rules at this level unless one chooses to be a French bureaucrat all one's life.  I gave you guys a couple of ideas on how do do it and some thoughts as to how not to.  Get rolling.

The Euros are at a crossroad.  They can come clean with one another and their voters and explain that there is simply no alternative to a bank bail out while at the same time rationalizing their systems which may mean the dissolution of a caja or a landesbank or two.  If I be they, I would do it real soon--cetainly before the results of the latest "stress test" are made public--when I suspect the entire world is going to find out what a bucket of crap was the first one of last year.  At the same time I would make it quite clear that downgrades of the type that occured to Ireland yesterday are not at all appreciated during these delicate moments and unless the rating agencies want to have about six European commissions swarming all over them, they perhaps should SHUT UP.  An admirable thing about the Euros is that they can do something like that pretty much on a whim.  Admirable, unless of course it's done to you.

We over here should also take note that whilst we speak of Euroland as a single entity, it remains very much a collection of diverse and independent states and of peoples.  Unlike Greece, the Italians moved smartly the other day in full compliance with their partners' request for an austere budget, and from all appearances the "risk on" trade for Italy remains.  Italy's capital market is large and deep and as mentioned the other day, the country has financed itself through its internal market very well.  As long as the non-bank investors--and they are the majority--remain in place, I think Italy makes it.  We'll keep watching.

EUROTHROAT CALLS

My main man called over the weekend. He resides in Brussels for his sins but gets paid a bundle from the Commission. It's a nice life and he's on the inside. I've Americanized the content to protect the guilty.

"Well, I've been calling you for two days. Where the hell have you been?"

"Charlie, Charlie, relax. This has been a tough week."

"I'm in tears. What happened?"

"Well, as you Americans like to say, it was a food-fight at dinner. The Germans were being German, the French were being superior, the English above the fray, the Spanish somewhat irate, the Greeks contrite and the Irish very Irish, spoiling for a fight."

"Yet reports have an agreement being reached."

"Oh Charlie, you know better than that. It was midnight, everyone was most tired and what was put out was a series of unconnected dots, left to be connected in two weeks time. The Greeks got a bit but not enough. Frau Merkel made encouraging noises as to what she was prepared to do IF...and it is a bigger if than one would think...all affected parties do would she wants."

"...And will they?"

"Well, that remains to be seen, but I must say the new Irish on the block simply dug in their heels."

"On the tax question?"

"Indeed, as you predicted, and of course we are now in the game...what do you call it...chicken? We want them to raise the corporate tax rate and they keep reminding us about their banks all of whom owe the continent a lot of money so why should they continue to bail the continental banks out? Is an interesting question, no?" We like our banks just as they are.

"Yes, and shall remain such. And the rest..."

"Ha! The Greeks get a little break but the Portugese yield is now 12% which of course cannot last but about that, no one is talking. But Trichet seems to be saying if you issue, we will buy. Sounds like your man although Trichet even said he may buy direct..."

"I can get it for you wholesale."

"What?"

"Never mind, an old American joke. So what happens in 10 days?"

"I don't know, but funny is it not. They are speaking, not with one voice but they actually said some things I did not expect so maybe they can find one voice in the time up to the next meeting."

"Prediction?"

"I think not. More talk, that's all. We speak as the European Union but we are seperate countries still. How you say, old habits die hard? We still don't really trust each other. It is not like a political disagreement, it is the national psyche syndrome. But the one thing they agree about is that you are no help. I tell you, you say Bernanke and people just shake their heads. No one can understand his positions and why he seems not to listen. This is bad, Charlie, it really is. It should not be so."

"I'm told a lot of people involved here feel the same way. Just don't blame us for your home grown problems. Listen, thanks for the update, I appreciate it."

"I know, Charlie, on this you are right. Spring is coming, Charlie, come visit. Brussels is good in the spring."

"Almost everywhere is good in the spring my friend, but Brussels is too expensive."

"Which is why they pay us so much, Charlie. Life is good."

A TALE OF TWO CITIES

I said this was going to be a long one today, but it is not.  It's going to be short and hopefully thought provoking.  The two cities are Washington and Frankfurt, the time is the present and the issue is not the fall of French Royalty but perhaps of the European Union.

Back in 2008 Hank Paulson and Ben Bernanke, old DUSTOFF himself said, in effect, the American Financial system will not fail.  Everybody believed them and the worldwide financial system did not fail.  Today, Jean Claude Trichet said Greece would not default and every trader in Europe looked up from their stickey buns and said, "Bugger off."  And therein is the difference.   European liquidity dried up, dealers went home, the U.S stock market tanked in a nanosecond--not as a direct reaction to be sure--and the world is looking decidedly dicer today than at any time since 2008.  The bailout of Greece will fail and the contagion will spread as the Europeans and their central bank have proven unable to deal with this crisis either in a timely or effective fashion.  Money may enter Greece and if it does it will go straight out the door to the banks that hold the debt who will run like hell to get as far away from Greece as possible; Greece will be cut off from future flows, the amount of financing will in any case prove to be inadequate and what was deemed impossible will occur: an EU country will default.  In the meantime, vultures are circling the obvious candidates and do not be surprised if the next headline involves the state of European banking  or one or two individual banks who are faced with real difficulty.

The ramifications?  All thoughts of the Euro as an alternative to the dollar will be, to understate it a bit, put on hold.  The realization that this is not a political union but a gaggle of politicians will come to the fore.  The chance of massive capital flight or repositioning of capital away from Europe is very real and the gap between Germany and the rest will widen to the point where it may be politically impossible to rationalize to the German people why the EU is good for them.  This is a very, very awkward time gang and one in which this country is not in a position to play any sort of leadership role even if this mob in D.C. had a clue.  One thing they should keep in mind, however: M. Trichet is powerless because he needs 16 politicians to agree with any of his pronouncements.  The more "oversight" by pols over a supposedly independent central bank, the more paralysis one creates in times when action is required and needless to say (or perhaps not) the entrance of politicians is concurrent with the exit of credibility.

Looks like a hung parliament in Blighty.  This is going to be a kick.


See you tomorrow

PEONIES

They're up. And I'm down,...on my knees that is. Herself has God-knows how many Peonies and she knows the name of every one. She's great with the grandkids too, but a bit shaky from time to time as to the dog and the kids which in the dog's case is ok because she's as deaf as a post and can't hear what she's being called. Get's me wrong half the time but I'm getting used to it. It's been a long time.

Anyway, we've been weeding, feeding and generally making peonies happy plants for two days, which in the run of things is a better couple of days than poor, old Jean-Claud Trichet has had with the Euros and the Greeks. The Euros ( read Merkel) cut a deal with the Greeks and the IMF to stabilize the situation while telling Jean-Claud to mind his own business. Well, now the Greeks have the IMF which from time to time politicians like to have because they can always say, "Don't blame us for all the depravations in your life style, the IMF made us do it!" This one should be interesting because the IMF never had an original thought in their entire history of Nation-saving but this time around they are going to have to work without the good old saw of, "Devalue your Currency!!!" No can do guys; the Greeks have the Euro so we're stuck with just suck it up, raise taxes, stop spending and hope there isn't a revolution. As for the European Central Bank? If I were M. Trichet I would start looking and speaking carefully to those banks within the Euro zone that hold Greek debt, because after round one has run its course there might be a need to do a little bank rescuing as the next (only?) thing in the IMF bag of tricks is rescheduling. No I haven't a clue really, but if history is any guide the marks on assets on the books of Euro banks, where similar to U.S. institutions are no where near as aggressive; add a bunch of Greek debt to the mix and we got us a developing situation. And now that we have solved Greece, onward to Spain, Portugal and La Bella Italia which in case you have missed it are real countries.

I'm beginning to think more of the unthinkable. We all keep hearing on both sides of the pond that the dissolution of the Union is impossible but the Germans are acting more and more like they don't think it really matters...to them at least. The Brits, of course or at least a goodly bunch of them never wanted to be part of it in the first place and will surely be even more against joining the Euro Zone. The French? Zut allors! If we cannot run it why bother? And so the next year or so is going to be a most interesting one to watch. This is what they say, makes markets.

The good news is that Google has apparently decided that this blog is not spam after all and I no longer have to decipher those funny written letters (I can't do it half the time) in order to get this things published. A warm thank you for those of you who contacted Google on my behalf. I'll try to continue to inform and entertain.

Back to the Peonies

IDLE THOUGHTS (AGAIN)

Kentucky won. Bummer.

Angela Merkel won which I guess that means Germany won. Does it mean Sarkozy lost? The broad based feeling is that is the case.

Greece kinda won; at least they have a shot at raising enough money to get them through without calling upon the full EU who I guess will be there although the announcement was confusing to say the least. More importantly, they will keep the IMF away from the door. For now

Trichet hasn't lost...so far.

The Union is still together, for the time being at least, but there is a subtle undercurrent to all of this which, frankly, I missed: WW II is over, we won but Germany doesn't feel they owe anybody anything anymore. The position they took in this event would have been unthinkable 10 years ago. What does this mean going forward? Certainly something to give us pause...at least over the weekend. A page turner in history to say the least. On to the Final Four.

Have a good weekend.