Archive - Oct 23, 2011

Let's just say even if you were an Olympic skier, you would not want to ski on that slope...

That Europe is, and for a long time has been nothing more than one spring club loaded, and destructive Jack in the Box, just waiting to be unleashed upon the world when the conditions are most dire, is by now nothing new to regular readers: it was roughly two years ago when we presented for the first time the case of how European bank debt is not only orders of magnitude greater than American debt, but that the equity tranches is a tiny sliver in a world where one bank's assets are another bank's liabilities, and any modest write down of debt would result in a cascading domino effect which wipes out billions and possibly trillions in "book value." It is also yesterday, that we refreshed on why a Greek forced write down of up to 60% would promptly spread like wildfire and lead to every troubled European sovereign to demand the same conditions as Greece, pushing French banks (and their US proxies, we all know who they are), to the edge of the abyss because while one Greek write down of 50% may be viable, the same treatment afforded to Italy (which will become inevitable) will simply topple French banks. And putting it all together is this chart redux of who owes what to whom via the NYT. It is nothing new, and it speaks for itself.

It is painfully clear now, that in spite of months of talk, headlines, and propaganda, very few people in the EU worked on any details.  I thought, at the very least, they were working with traders, lawyers, and structurers and somehow were just getting the wrong answers.  But now, it looks like asides from the IMF, no one else was figuring out anything, they were just saying what they thought the market wanted them to say. The IMF and other countries finally realize real losses need to be taken and recognized on Greek debt.  For once, they can step back, break away from their existing thinking – the IIF’s PSI proposal – and do something that will actually work.

and her little Brat-wurst...