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Why Should EU Bail Out Greece? Bailout Or No Bailout – That’s The Question, submitted by Econotwist
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Good summary of the rock and hard place.
Lately I've been wondering why the ECB just doesn't inflate away everybody's debt? I mean, its not like there are any European nations with surpluses that would lose their value... they are all in (too much) debt. Japan survives with the yen at 100-to-a-dollar (plus or minus), why not the Euro too?
because the ECB has a mandate to price stability.
Mandate, schmandate... The Fed's gotta mandate to protect the value of the dollar... lotta good the "mandate" did!
The Federal Reserve does not have a mandate to protect the value of the dollar.
They have a dual mandate to pursue maximum employment and stable prices. They also have three other main duties including ensuring the safety and soundness of the banking system, containing systemic risk, and operating the national bank payment system.
See page 10 here
http://www.federalreserve.gov/pf/pdf/pf_1.pdf
And how's that going for them?
That systemic thing is working real well. The soundness of the banking system goes as far as the individuals who run the banks and allowing those that aren't banks, like Goldman Sucks wasn't a bank, to become one when they feel like it.
The FED's mandate is a fucking joke on the rest of the world.
why the ECB just doesn't inflate away everybody's debt?
they remember the Weimar Republic and do not want a repeat.
My question then is this: When does the Weimar Republic become the lesser of two evils?
When Hitler becomes the lesser of three.
wow talk about missing the elephant in the room.
there's a larger contagion problem if Greece defaults. the northern european banks that hold a lot of greek paper would have their capital eaten into. deustche bank is leveraged 50:1 and if forced to take a haircut would be leveraged even more putting germanies financial state of affairs in a more tenuous position. but really it's all northern european banks that have greek paper. a bailout isn't about greece it's about the stability of financial inst. within euro boarders that are sitting greek garbage (and PIIS garbage too).
Good point; in that case there would be a bailout anyway as the German government might well be required to assist DB.
Still, once you set the precedent there is less incentive for the weaker Euro nations to invoke discipline. I wonder if there is a class mindset at work here between the "haves and the have less?" A sort of socialism by default. That seems to be awfully popular these days as we throw around words like "moral hazard" in the US. Seems to me the same thing applies in the EU.
On the other side, if they allow Greece to default it will force some changes in other EU nations. They will either have to prop up institutions holding Greek debt (very unpopular these days) or begin to regulate bank capital and quality more carefully and honestly.
Did you hear that GS? YOU might be required to engage in a practice with which you are entirely unfamiliar. Honest (read: FULL FUCKING DISCLOSURE) business practices.
Which is why the fed allowed access to its discount window by SocGen and others while backstopping the swaps arena via AIG. The fed will take what the ECB cannot or will not. The focus of European policy makers will shift from the risks posed by Greek paper to the risks posed by all of the swaps that are associated with Greek paper and as you note, the institutions exposed to these swaps on an interconnected basis. In essence, it will be cheaper to pawn off all of the systemic risk issues to the American central bank and the currency it controls.
It appears as though more countries than China find themselves caught in a dollar trap.
My money is on the U.S. bailing out Greece. Via Naked Capitalism:
"London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency."
http://www.eurosavant.com/2010/02/21/cds-just-another-evanescent-bubble/
If AIG was CDS-seller for Greece, what are the chance they did the same with Spain, Portugal, and Italy?
Yup. You and I will end up bailing out Greece and other STUPID countries because we the people own AIG.
http://www.dailykos.com/storyonly/2010/2/21/839159/-The-Ultimate-Travest...
Good God.
Something is really weird here in the grand scheme.
Is the FED trying to buy the entire world's debt?
Can the FED hold actual hard assets (precious metals, base metals, real estate)?
"We the People" would freak the fark out if it was announced we were paying to bailout Greece (even though twice the IMF estimated 25b would be a comparative pittance) because AIG wrote CDS to cover Greek debt.
I can't help but think in the end the whole thing comes apart from an inability to properly price things (IOW, WTF are "things" worth relative to other "things" w/o an accurate and efficient marketplace?!) and a lack of confidence in any reasonable amount of fairness (people get sick of how rigged the game is, stop playing and go back to barter).
See you at the swap meet!
If AIG was CDS-seller for Greece, what are the chance they did the same with Spain, Portugal, and Italy?
The real concerns rest with those nations higher up the food chain who have also engaged in these practices and the others who have profited from promoting these practices as a means of providing "stability". Don't forget that AIG = USA officially now that we hold an 80% position.
Bailout or No bailout is NOT the question at all !
That permanent push of the mass-media to reward the financially irresponsible with my Tax-Euros is totally disgusting. The Greece (and their lenders) are entiteled to fully enjoy the pain of their irresponsibility. That is also needed to teach the PIIS a lesson, we don't want to bail them out either.
The other day I (and probably a lot of my fellow Germans) called the office my Bundestags Abgeordneter (Representative) and told them polite, but in no uncertain terms that if my Tax-Euros are in any way endangered (and I am the judge here) I will never elect anyone of his Party anymore. As simple as that ! There will be NO bail-out.
Letting Greece go broke is a very small price to teach the PIIS to get their financial act together.
There will be No bailout, regardless of what the media propagate. The Parties of the German Government know perfectly well what happens to them if they bail-out Greece !
Cheers Werner
Remember Werner, if Europeans were serious about their monetary union then there would have been serious and stringent enforcement mechanisms in place. By failing to implement and enforce Germany and by extension the remainder of the union "asked for it". Personally, I loved the D-Mark and would love to reacquaint myself with it and what it once represented.
Hell yeah.
If I trust any people to understand the importance of sound currency it's the Germans.
Nothing like experience as a teacher.
...Which sort of makes me wonder WTF they were thinking when they adopted the Euro in the first place, but I guess that could be considered third-generation induced amnesia.
Kohl and many others held a deep sense of what their nation had done, as was true with France to a lesser degree (the erosive effects of time in play there) and I suspect that they had hoped that trough a monetary and hoped for political union that the fate that had previously befallen France, Germany and by extension the whole of Europe could be "properly addressed". In this, structures that fail to have the rule of law held in absolute primacy over the affairs of individuals and the systems that they serve or that are designed to serve them I think are doomed to failure. This failure has most likely cost this first experiment at creating a peaceful Pan-European unity its innocence. I suspect that this failure is being matched by our own failure with our ongoing experiments with a constitutional republic and what amounts to a constitutional monarchy and our collective failure to honor and rigorously enforce the rule of law upon the whole of our society.
Innocence creates my hell - Layne
Miles, You are exactly right. However I do not see a recurrence of the D-Mark. A Euro which is (long term) 95% as stable is also ok. We need not overdo it. In light of history, the "unification" of Europe really is a blessing and I sense no desire in Germany to reverse that course.
As for the PIIGS, I still think we can enforce the needed financial discipline and save Spain and Italy and thus the Euro and the EU-Integration. But the time to enforce disciplin is now ! And we are lucky that that malaise broke open with Greece, not with Spain. I know that the speculators will now run against Spain. Let them catch a bloody nose, they will not succeed.
Alas, another thing the EU needs to do in order to enforce "financial disciplin" is to support China and Russia to rid the Dollar of its reserve currency status. The currency of a nation which drove its and the worlds financial system to the brink of desaster CAN NOT be the worlds reserve currency. The world deserves better.
(You still like Germany ? )
Grüsse aus Deutschland
Werner.
The dollar US was able to drive the world to ruin simply because it was easier for the world to subordinate itself than to lead itself. It was unfortunate in the extreme that Europe after the great mistake V 2.0 believed that it lacked the standing or capacity to do what it needed to do for itself, by itself. This holds true for the citizens of America as well. Which pathway will Germany and the rest of Europe choose to pursue? A world of what amounts to 95% stability today for ruin tomorrow, or will a reassessment take place when it is finally appreciated that responsible self governing societies have no easy solutions or silver bullets. Will tough governing decisions continue to be abdicated for what is packaged and sold as easy and enhancing solutions that are provided by those who trade national and regional stability for fun & profit? I suspect that we will all learn the answer much sooner than is now generally appreciated.
Ich liebe Deutschland und das deutsche Engagement für das Lernen von ihrem eigenen nationalen Reifungsprozess und Wege zu finden, für alle zu verbessern! Ich liebe echte demokratische Institutionen und Gesellschaften unterliegen und durch die Herrschaft des Rechts für alle mit der Bitte an keiner moderiert! Können Sie tragen die Idee der Liebe Amerikaner tatsächlich unabhängig von unseren Sünden, die sich aus unserer nationalen Reifeprozess? Tschuss - Layne
What are we waiting for? The time is late. Dietrich Bonhoeffer - The World Ecumenical Conference, Fano Denmark - August 1934
http://www.youtube.com/watch?v=nas-DYEywX4
You go, Werner!! And anyway, it doesn't matter, because Americans are going to wind up bailing out Greece with tax dollars.
Greece is like the black sheep in the family that can't take care of itself. I'd let Greece loose, out of the EU. If there is not enough money to bail all these countries out, then why should Greece get a hand? Will it make the situation better for the other PIGS?
www.analystanalyzer.com
Let the people who made the bad bets take the hit. Let the whole thing fall.
And yes, all of us have bad bets sitting out there in the system somewhere...let's just take our medicine and get through this thing.
DEFAULT, BITCHES!
Agreed. The cure would be worse than the disease, both overseas and here. We shall see, like it or not.
That would take balls, and politicians and banksters don't have even close to a full set to share among their pathetic selves. They would rather extend, pretend, and let it blow apart when they are on their own private island in the Pacific somewhere.
I have come to a place where I have to agree with you. I used to wonder why more people weren't on to just how bad the situation is. I am okay smart, but not a wicked genius. Why don't more people get this? A 72 year old colleague of mine who's son was a stockbroker, knows the score too. He gave it to me blunt and simple the other day: "You don't need smarts to get this, you need courage, the courage to look, the courage to face it head on."
Wow. There it is.
We are having a crisis of courage in this country, and perhaps world wide.
You don't need smarts to get this, you need courage, the courage to look, the courage to face it head on."
+ a bizzilion
"The courage to face it head on"? Remember that gargantuan wave scene in "The Perfect Storm"? It was near the end.
Deficit as a % of GDP Iceland 15.7 Greece 12.7 Britain 12.6 Ireland 12.2 United States 11.2 Spain 9.6 France 8.2 Japan 7.4 Portugal 6.7 Canada 4.8 Australia 4 Germany 3.2* Figures from OCED forecast in November 2009.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7269629...
You are limiting your numbers to the current snapshot of public finances. This snap fails to account for OBS public exposures and all "private" exposures. If you are going to face then face completely.
On or off balance sheet, the debt wave kinda looks like this:
http://www.youtube.com/watch?v=8lYTIYvKTNg
Try catching this one....
DEFAULT BITCHES!
Steve, in his recent book "Bomb Power" by Garry Willis now being pumped by the FT, see: http://www.ft.com/cms/s/2/66d1786e-199b-11df-af3e-00144feab49a.html the concepts surrounding te creation and promulgation of the national security state are getting some discussion. The bottom line is that even with all of the brains surrounding the creation and advancement of financial services innovation there have been even more applied to these other structures given that financial services is simply one aspect of the NSS.
Now, the folks that inhabit the money spaces may believe that they have effective control of the NSS through the effective control of the nerve centers of the NSS. However this is a false premise. If "the banksters" decided to pump, dump and flee to their islands they would be leaving behind all of the toys of the NSS and those who know how to operate and deploy them. Folks forget that the the ranks of the NSS are drawn form the society in which it operates. And I can assure you that the ranks are populated by much more than angry farmers with machetes and pitchforks. Given these operative conditions I submit that there would not be a place on this planet or its immediate surroundings where these folks could hide from the deadly reach of the most abhorrent means ever devised by mankind. By fleeing and leaving wreckage behind they would be providing all of the motivation needed for the deployment and focus of this force.
In this I suggest a look see at the comment immediately proceeding this one from MsCreant for illumination.
Miles,
I so want you to be right. Not for it to happen, but these folks need to be scared of someone. Nothing else seems to phase them. They need some serious phasing.
I value how you bring your crim justice/military sensibility to these discussions. It is a subtext undergirding everything that I take for granted.
My husband, being ex-military (he spied on the Russians, wearing head phones, over in Germany for seven years), likes to follow John Robb and some others for this angle.
Check mail... :-) I would note what empowering the combined sword and shield without the rule of law has wrought upon Russia, China, The EU and those nations and peoples that find themselves in those particular orbits. In our experience the two have been nominally divided via the separation between the institutions of defense & justice. These "Chinese firewalls" have been torn asunder leading to my position. It is worth noting that this condition is relatively new to us Americans in that the myth of the nation specifically counters this situation. I suspect this is one reason so many of our fellow citizens are turning to Prozac and Xanax... Failure to adapt to an environment based upon experience within the ranks of the various professions where we have been herded to learn specialization.... while clinging to our myths. In these instances the world will once more look to us to lead, but for entirely different reasons this time round. Remember, in the 1960's people took acid to make the world weird. Now the world is weird and people take Prozac and Xanax to make it normal. peace
Innocence creates my hell - Layne
Islands are a crappy place to hide
Here's the 12 most corrupt countries in the world. I expect they will have to relocate to one of these exotic locales:
Somalia
Sudan
Tajikistan
Angola
Cote d'Ivoire
Equatorial Guinea
Nigeria
Haiti
Myanmar
Turkmenistan
Bangladesh
Got the list from http://www.diggersrealm.com/mt/archives/001668.html
The Bush family has quite a spread in Uruguay, I hear.
Paraguay, no? A year or so ago I read about the purported Bush family purchase of a big spread in the eastern Chaco of Paraguay. What set off the paranoid loony-birds (esp. in Argentina) is that part of Paraguay sits on top of a large part of perhaps the world's largest underground aquifer. Meaning a great place to be self-sufficient in a remote place in the world.
But, in recent months I have looked for, but not found, any more info on this purchase. Maybe they didn't do, maybe it's a hoax, who knows.
When has it ever been like that? Do the VPs and MDs who made the decisions on invest in x toxic asset receive smaller bonuses? Do taxpayers get a tax-break from bailing out our beloved institutions?
Be a realist and understand you control nothing and have no say in what happens in the corporate world. If youre inside, youre golden. If youre outside, all you can do is bitch.
And thus your screen name. I understand you better now. I hear you, I am not foolish enough to think that writing DEFAULT BITCHES on a blog will change shit. However, by accepting as real and unchangeable the dichotomy that you point out to us (outside/inside) we enable it.
We enable them to create the reality that appears so oburate to us by believing it into existence. That is how they get away with it, we let them.
The only control I have in the corporate world is where I chose to put my money. I know you know all this. Just needed to say it any way. The only other control is the Stack solution.
P.S. Iceland votes March 6, on whether to default or not. They just might do it. Does that not set a precedent if it were to happen?
http://uk.reuters.com/article/idUKTRE6071KM20100109?pageNumber=3&virtual...
Controll can be taken.
Look how powerless GW Bush is. He tried to rewrite history and declare victory when there was none. Billions of people hate him. He's a dork trying to ingratiate himself back into the planet with "Do you miss me?" bllboards.
Stop believing being controlled and it stops happening. And if they hurt you to maintain control. Give as good as you get.
Bravo! Bravo! Without failure the system does not work! How on earth could any system work with zero failure? There is no system in nature that violates that clause (that we know of yet). I purchased GM 30k shares when they were 1.50$, knowing I could make a small profit if the Goobberment gave GM nothing or if they gave them enough to fix there debt however temporary that was. What happened the Goobers gave GM just enough to fail quickly. Bad gamble on my part? I got out with a 20% loss, not the end of the world but, that hurt and it allowed me to move on.
Trying to engineer 0% failure always results in 100% failure.
It's similar to destroying a villiage in order to save it.
It takes a bomb to raise a village.
It takes a village to make the bomb the raises the village.
It takes a recursive algorythm to create the program that creates the bomb that raises the village.
I'm waiting for the time when the global central bankers are so weakened the market could effectively blow them up thru their gold/silver price suppression schemes. When fiat confidence evaporates & investors want real, hard, tangible assets to hold. Give it time as the clock is running down on the CB's as their problems are becoming exponentially larger each passing day. Greece today, PIIS tomorrow, Dubai again, et al infinitum...
And Iceland. See my post to ZeroPower above.
Thanks MsCreant; I was not aware of the vote. Wouldn't it be a kick if the Icelanders decide to default? Another thing to put on the list & radar screen of failures.
Yeah, we think it is bad in Detroit, but Iceland has been in a lot of pain. People over there are not eating, not turning on light switches, in order to pay for this crap. We are talking losing weight, starvation time. I follow a couple Iceland blogs, it looks pretty bad for some of those folks. My guess is things are going so badly that Icelanders are figuring out "How much worse could default be than doing what we are doing now to pay back this crap that bankers created?"
I hope they say "fuck you" to the bankers. It is in their self interest at this point IMHO.
I agree; I'd rather die of starvation/deprivation then become an indentured servant to any world bank that leads to a North Korean state of affairs over time. It is very sad to hear of the plight of the Icelanders after their seduction by the banksters. It is a lesson to us all to stand & pushback against the banks. Funny, no news of this in the gov't controlled MSM. Your article came from the UK.
It won't happen, but I am beginning to lean towards allowing default as a better policy choice. It might mean a few other nations will default, but it will also mean the stronger nations are going to have to examine their internal banking practices (capital & reserves "quality") more honestly. Further bailouts of banks will be very unpopular and so we could have a few banks fail. Maybe a few big ones.
They are really between a rock and a hard place. Bailout Greece and you set the stage for bailouts of Ireland, Spain, Portugal and Italy. (Keep in mind that these bailouts only prolong the inevitable.) However, if they allow these defaults to occur it will force the day of reckoning for the TBTFs sooner rather than later, but will also mean we can fast forward (or at least the chances are greater) to a healthier global economy.
After putting so much money into propping up the TBTFs I think it is unlikely that default will be allowed to happen. Instead, after Greece, there will be successive bailouts of the weaker EU nations over the next 12-18 months. That will weaken the EURO and strengthen the dollar.
Somewhere in all of this the Chinese are going to have to buy treasuries. They will have no economic choice. Selling treasuries earlier this month was stupid and probably cost them billions.
Of course, the other alternative is always war.
Devalue the euro. That would seem to be the only option palatable to the entire union. China would be receptive also. As we would see the DXY go vertical, allowing the Chinese to devalue, de-lever against an inflated USD. Overly simplistic and fraught with problems to be sure, but I see no other way out for the EU.
Sarkozy won't be running to Greece's aid anytime soon:
PARIS (Reuters) - French President Nicolas Sarkozy's approval ratings have sunk to near record lows, a poll showed on Sunday, amid frustration over political mistakes and rising unemployment one month before regional elections.
A poll by Ifop for the weekend newspaper Journal du Dimanche showed approval of Sarkozy at 36 percent, down 2 points from a month earlier and close to an all-time low of 35 percent in May 2008, a year after he took office.
http://www.nytimes.com/reuters/2010/02/21/world/international-us-sarkozy...
The longer Greece is talked about, the less important Greece seems. Let the banks collapse. Let people who work at the banks find real jobs (health sciences), food stamps, or prison food.
Greece needs a local credit union only to rebuild a la New Orleans post-Katrina. A friend griped about rebuilding the Saints stadium first. Football is the best way to re-finance private dollars. The people who gripe about taxes and government will turn around and unwittingly spend thousands upon thousands more private dollars on football, credit card transactions, jet tickets, crap paraphernalia, street vendors, yacht parking slots, hotel rooms, overpriced food, alcohol, gambling, prostitutes, taxis and cabs, massage parlors and spend cheerfully. A fool and his money is soon separated.
Then as private monies begin to flow in from sports and rock concerts and maybe from a rich actor or two, Greeks private citizens have to live within those private monies.
I just had a flashback to being seated next to a California whore at a party who looked fairly intelligent but digressed into happenstance nonsense as she continued to speak.
LSD.
Take a fuckload of it because it won't matter anway.
They could all make me happy with my short positions and do exactly what each of them wants; make us all happy.
1. Greece doesn't want to ask for a bailout
2. France says the IMF should stay out
3. German taxpayers don't want to pay for Greece
4. Greece workers don't want to pay higher taxes etc.
That's great; keep on board with all those plans please!
The only sticky wheel is the constant lies about Germany bailing out Greece that pop up more often than a spam popup on a porn site.
Enough with the "EU bailout" BS! It's the Germanic bailout; the only country that has it's shite together. And it's time for Germany to file those divorce papers.
ten years ago i loved the idea of the EU and the Euro. Now i cant wait for it to fall apart. Its undemocratic, unfair and a giant bureaucratic monster.
+1
Germans will go nuts if a penny goes out to the Greeks
Yet another fine historical precedent to be avoided at all costs.
@Econotwist: Thank you for the contribution. Next time, please also add chart sub titles in English, for those readers, who are less familiar with the Norwegian language.
In my mind there is NO doubt that EU must reject a bailout.
The ONLY viable foundation for the Euro and the European Community is the exercise of discipline and adherence to mutually agreed rules on the part of the member states. Deviation from this standpoint would make the Euro lose all credibility.
Any further succesfull engagement would require a full blown political and economic union, which has very little support among the peoples of Europe. So even if the politicians succeed in expanding the bureaucracy even more, this will not stand the test of time with the people of Europe, in my view.
The justification for the EU is peace and peace only. This is done by sovereign states working together in a number of areas, and that is fine.
If European banks are leveraged up over their ears and therefore risk a good smackdown, so be it. That will be the responsibility of the country in which the bank belongs, and will be pay back for irresponsible financial oversight. If the bank becomes insolvent in the process it will have to fail, and the collateral damage picked up by the state and the taxpayers of that state, that failed its oversight responsibility. If the taxpayers dislike this option, they can vote for different representation next time they get the chance, or get off their collective butts and try to do a better job themselves.
It cannot be the responsibility of the other countries to clean up internal mess. The article mentioned Solidarity. People in socialist countries like my own very often forget that true Solidarity actually is a two way street.
It is both the obligation to help out the one in real need of assistance, but it is also the obligation to conduct oneself in such a manner that continually minimizes the risk of ever ending up in a situation, where one must draw upon the assistance of others.
Iceland WILL vote for default. And the international bankers will have to eat the loss (for a change).
Germany/EU will not bailout Greece... or Spain, or Italy. These countries, too, will default and again the international bankers will be left holding the bag. Why do you think GS and others are ALREADY knee-deep in negotiations w/ the Greek govt.? The writing is on the wall.
The key player is the IMF. If the IMF steps in and supports Greece, Spain, et al., then the UStaxpayer is effectively on the hook and will involuntarily bail out the corporate (fiat) global economy.
This is probably happening now as we type/voice our disgust here today...
We, the US taxpayer, can't even bail ourselves out.
And with China and Japan dumping US debt.....
It is going to be real interesting to see just how
much US debt was dumped by China and Japan in
January and February
I think Edwards, Faber are correct,Sovereign defaults
are coming and coming big.
The US is in no position to be saving anyone, we are
bankrupt
Bob Brinker, on his national show "money talk"
is currently talking about the governments request
for comments on annuitizing our 401k's/iras
Bob correctly identifies this as nothing less than confiscation of wealth. Furthermore, Bob states that
the government will have to take him off the air before
he stops calling it confiscation
In 20 years of listening to this ultra conservative
moneytalk host, I have never heard him speak in such terms
That is how bad it is. I have no doubt our retirement
plans will be taken over, Argentina style.Its just a matter of time
PM's are the only safe haven I can think of, other
than paid off real estate, in which one has PM's
to pay the taxes...
I'll bet anyone a latte that the euro splits into a north/south zone/seperate currency by this time next year.
“Dancing With Elephants” (or; “Gambling On Icebergs”)
Many thanks for your comments, folks!
It’s been very interesting to follow the debate.
Unfortunately it seems to me that some of you may have read just the first few lines of the post.
Am I missing the elephant in the room? I don’t think so. If you read the last piece of the article, you’ll see that I’m making the same point as the Honourable Mr.Juice; Greece is just a tip of an iceberg, and a possible default within the euro zone is indeed a threat to the financial stability of the whole region - as well as political and social stability.
I make it pretty clear that problems with sovereign debt in Europe won’t go away with a Greek bailout, nor an Irish, British or a Spanish one, for that matter.
What is a bit surprising is that none of you has picked up on the fact that there is an alternative solution on the table.
As the link to The Economist shows, one possibility that is now being discussed is the establishment of a new monetary fund, specially aimed at national debt problems.
How this new fund (if and when) can be organized is still quite a riddle, but it might be a way for both EU, ECB, IMF and Germany to avoid many of the problems discussed here.
Sadly, I have a feeling that this also might be a way for Europe to channel the debt back into the U.S. After all, the U.S. FED is the ultimate supplier of money in the world, and the only Central Bank that has the “freedom” to inflate and deflate on a larger scale as it wishes.
And ultimately; that’s where the money came from in the first place.
You’re all aware of how Wall Street banks created a multibillion dollar debt market between 2000 and 2005 by inventing new credit derivatives.
As I have said a few times before; Wall Street created the game, but the players were European.
Using cheap American dollar, the big banks of Europe sold enormous amount of loans and invested in high risk project in the emerging markets like the Mediterranean, Eastern Europe, including the Baltic, Asia and South America. Using these countries as a laboratory for structured products, off-balance investments and other SPE’s.
We’re talking about a market several times bigger than the U.S. subprime market.
At the same time the European banks changed their internal funding profiles from long term euro, yen and Swiss Franc, to short term dollar, (The famous Bear Stearns Model), and they didn’t start the deleveraging process until the first half of 2009.
Now they are in deep shit.
The people of Europe are just beginning to grasp what has happened, and the anger is rising.
If more countries are to vote on default, I’m afraid the result will be a roaring yes.
But no one can today predict what the final outcome of this will be.
“Ignorance is not the danger, the illusion of knowledge is.”
Thank you and good night!
econotwist
PS:
@Anonymous nr.239274: Thanks for the reminder. I’ll reproduce the graphs with English text next time :-)
MsCreant: I'm late to the string but I must thank you for "you don't need smarts to get this, you need courage". IMO that is the essential matter.
Given the role of the financial institutions in the emerging NSS we may all, sooner or later, be faced with the decision the Icelanders must make in March. And that decision will need to be made, as in the case of Iceland, with the Oligarchs pressuring you to "make it easy on yourself" and pay up - or else.
Further, "Europe channeling their debt back to the US" may just be part of the fundamental game plan for enabling New York and The City of London retaining and increasing their stranglehold on the world's financial system. But then again, I've been told that I might be "paranoid".
For those interested I highly recommend "The Shield of Achilles" by Philip Bobbitt. Among other things it is a detailed account of the rise of the nation state and how it relies on a misinformed and docile citizenry to act as a tax farm to be milked to support the military and financial Oligarchs who run the game.
Hell yes, let the US taxpayer bail out Greece and other European basket cases - just as long as it increases the power and influence of the Anglo American Oligarches.
Is tiny Iceland gonna stand up to these High Priests of the Imperium? And, more importantly,
Are We?
TO BAIL OR NOT TO BAIL
(Adapted from William Shakespeare's Hamlet)
(WilliamBanzai7)
To Bail, or not to Bail, that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous loss of fortune,
Or to take arms against a sea of financial trouble
And by opposing end them. To die—to sleep,
No more; and by a sleep to say we end
The heart-ache and the billions of market shocks
That investor hubris is heir to: 'tis a consummation
Devoutly to be wish'd. To die, to sleep;
To sleep, perchance to dream—ay, there's the rub:
For in that sleep of death what dreams may come,
When we have shuffled off this volatile market coil,
Must give us pause—there's the respect
That makes calamity of so long life.
For who would bear the whips and scorns of time,
The devious financier's wrong, the proud man's contumely,
The pangs of write offs, the law's delay,
The insolence of office, and the spurns
That patient merit of th'unworthy takes,
When he himself might his quietus make
With a bare quill? Who would Fiscal restraint bear,
To grunt and sweat under an ordinary life,
But that the dread of something after death,
The undiscovere'd insolvent land, from whose bourn
No traveller returns, puzzles the will,
And makes us rather bear those ills we have
Than fly to others that we know not of?
Thus conscience does make cowards of us all,
And thus the familiar hue of resolution trust
Is sicklied o'er with the pale cast of thought,
And enterprises of great pitch and moment
With this regard their currents turn awry
And lose the name of rational action.
Watch what the extremist Greek Nationalists get up to in the coming days and weeks...
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