Bruce Krasting's picture

I’ve been amazed at the ineptitude of the European leaders. Not just the political ones. The actions and statements by the ECB have been counterproductive. The ECB has directly contributed to the instability. The Banque de France and Bundesbank have added very little. The Finance Ministries have been worse. Where's the leadership? Are these people all idiots?

Actually, I don’t think they are. If that were the case, then how could you explain the bumbling? One possible answer is that it’s deliberate. That sounds conspiratorial. I think there is some evidence of that.

In my opinion the explosion that occurred over the past fortnight in Italian bonds could have been avoided. All it would have taken to contain the fear factor was for the ECB to have stepped into the market in a forceful manner and suck up the supply of bonds. When they failed to defend the market it led to widening spreads, which in turn lead to more sellers and finally margin increases and a crisis.

The market knew that there were milestones in spread levels that would automatically bring more selling. The ECB was also well aware of this. (Don't believe these folks are dumb, they're not) But they ignored it and day-by-day the pressure grew. After 6.75% was broached, it led to a quick collapse. It ended with Berlusconi resigning. The panic in the bond market ended the next day.

It’s been suggested in a number of publications that the ECB had a hand in the Italian blow out. As of yet there has been no comments from the government(s) involved nor the ECB.



The following is a close up of a chart created by Zero Hedge. This segment looks at November 8 through 11. The green circles are the timing of ECB interventions (note market reactions).



Notice that there was no intervention on November 8th. As a consequence, Italian 10-year bond yields went soaring past 7%. The consequence? That night Berlusconi was forced to throw in the towel. The next day the ECB initiated aggressive intervention. The lack of intervention on the 8th followed by the steady buying on the 9th, 10th and 11th was not an accident. It was a policy decision.



The following headline had it both right and wrong. The bond market did do Berlusconi in. But it was the ECB, behind the scenes, that engineered it so that it would happen.



To believe in the conspiracy concept, (the one where central banks determine the fate of political leaders) you have to ask/answer the critical question of:


Why in hell would “they” do that?


I was going through some German periodicals. I saw this ad for a brandy distiller. In English it reads:

Everything should go well for all!

Yes, things should be even better!

Everyone should be able to work without worrying. All should be able to afford to travel, to fill their homes with beautiful things and to fulfill the heart's desires, both large and small.

That is what Germany wants! For itself and for all of the countries in Europe. Together, we will work to secure and raise the standard of living!


The ad is from 1940. The last line reads:


That is what Germany is fighting for. And only a German victory will realize the goal of a European economic community.

It does make you think. Are they manipulators or just bumblers?



H/T: Russ Halley

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mendolover's picture

Of course it's a conspiracy!  Just like in the WH.  He may be crazy, but he ain't stupid!

zero intelligence's picture

Sold $1793 bought $1702 = $91 move = 5.1% move = "I traded a 5.1% move" = who cares.

Boston Matrix's picture

i think this image might sum up what has happened:


that red, white n green confetti is what used to be the italian flag :o(

GMadScientist's picture

Bunga got uppity...and was put in his place like the punk bitch he is.

TSA gropee's picture

He got what DSK got, just through different means. Walk the walk or get the boot.

Ted K's picture

No bartender, I said Bourbon

falak pema's picture

The Kyle Bass interview on BBC 'hard talk' program is very revealing. 25 minutes to understand how the Vulture HF mentality works; "May the devil take the hindmost. I'll make sure I'm not the hindmost, 'cos with the FED/ECB/BoJ money printing and mantra of Keynesian breeding of debt on debt, we are sure they will make the boat sink. So I'll get off the merrry-go-round in time and not be the devil's hindmost victim."

And how does he see his future after the pending Apocalypse that he feels is inexorable?

"Then I'll shack up in my Texas fort and load up on stashed bars of gold and lots of guns to keep the mobs out." 

So BK says the same thing but more politely. The governments have no idea how to stop the massive bank run. According to Kyle Bass there are 200 T of debt floating around and not enough assets or GDP growth to shore it up. SOunds dead right. 

The canary in the coal mine in Bass's reasoning is that he thinks like a one eyed Cyclop. He forgets that the US financials, whose ZIRP and PDs that leverage up his crazy, self serving bets, hastening on the self fulfilling philosophy of world wide financial Armageddon, have HUGE hidden debts off balance sheets and in derivative dark pools. So his statement... "I only hit those obviously week sovereigns like Greece, Euro land PIGS and JApan. As US banks are BETTER RECAPITALIZED..." sounds weak and more like a sick joke than financial hard nosed accounting.

It misses the obvious : The US PDs, who fund with cheap FED money these suicidal bets, hoping as well not to be "hindmost" when the devil comes to get them, are kidding themselves; they are even more exposed than Germany is, and consequently, all US HFs with them; crazy scorpions who bite the river bargeman carrying them across waters of the turbulent rivery expanse. Not admitting that when a scorpion bites his piggy backed work horse, he drowns with it. But how can you reason a scorpion? It's in his nature to sting!

Self fulfilling philosophy of a mad financial world.

Why chase the dead straws of ECB play floating in the air when the tempest of financial tsunami is on the way!

Unless BK has another solution up his sleeve!

Brandy on the rocks and financial world on the axeman's block.

KB on hard talk :

( courtesy aleph0, from previous post)

GeoffreyT's picture

Gold is now as near enough to $1700 as makes no odds.

Folks might recall that I am short from $1793 (the same day as TD was topticking with his "Bye Bye $1700 Gold" post) with first target $1750 and second ttarget $1700.


Now, nobody wants to be long... so I am. Long $1702 now. First target $1725, second target $1750.


I'll be early on this - they will try to tickle stops below $1700 shortly. But I like the tension.


The "buy the DAX opening swoon" scalp only yielded 40 pts at its best, so half was off at 25pts and the rest stopped out with no gain. Same with the DJ30 scalp from 11787. Boo hoo.

sherryw's picture

On my screen gold is 1678!

Silver Bully's picture

Take a lesson from Hugh Hendry and don't be famously early. PM options expiration isn't until tommorrow, remember. More importantly, gold and silver are *likely* (but not 100% guarunteed) to test the 34 week moving average. Gold could spike down all the way to $1600 and silver near $24 before all is said and done. It could do that TODAY, or it could hold on and try it sometime this week. If it doesn't (whew!) we missed the bullet, but the PM market will still likely be soft for the rest of 2011.

Mind the falling knives and prepare to buy the CORRECT dip.

GMadScientist's picture

I'm long from less than $1k. Stop dancing and patting yourself on the back and STFU.



Clowns on Acid's picture

They will print...rather than face the eco -societal adjustment necssary to maintain Western Standards. Which means confrontation. Big Media is not ready for that from a P&L point of view.

Print first.....then it is free for all until Western Standards are the US.

Bansters-in-my- feces's picture

So....Remind me again why the ECB should have stepped up and "sucked" up the supply of Italian bonds.

Is that not called monetization ?

Bruce Krasting's picture

Because they said they would?

The ECB has been handed the role of providing stability in the markets. They do that when it suits them. In the case of Italy they failed to buy before Berlusconi bailed out. But as soon as he did, they stepped back in. What better evidence do you want?

When the ECB does this they actually don't "monetize" the purchase. In fact the sterilize it by issuing debt on a dollar for dollar basis.

To monetize, they would have to copy the Fed and do QE. That may happen.

hyperbole2000's picture

Why?  Because he backtracked on the austerity program he signed off on. Specifically he took his foot off the union's throat regarding the mandatory retirement age.  Not saying it was right or wrong merely the reason why they pulled  the trigger. They likely incompetently wanted to shake a rattle for half a day but overlooked the trigger on the gun mistaken for a rattle.

Dingleberry's picture

Who is worse.....the City of London bankers and their cronies, or Germans???  Seems pretty clear to me.......good riddance to the fucking Queen. Since most of you readers of this blog probably know all about AIG and London and their history of scams, I'm sure you won't shed any tears if the Brits collapse.  The Brits (like everyone else) could choose to do the right and honest thing, but that would be against their nature. Funny how the German were the only major country in Europe that did not get caught up in the real estate bubble. I wonder why.......

sabra1's picture

historically, so called british royalty, are descended from Vlad the Impaler (dracula) and then down german lines. boy, Transylvania must border england somewhere!

Albertarocks's picture

Vlad had a lot of trouble with Muslims back in the day.  He, just like most of his predecessors and successors, had as a primary goal to keep Wallachia as independent as possible. Vlad had the Turkish envoys killed on the pretext that they had refused to raise their "hats" to him, by nailing their turbans to their heads.  How rude is that?  Oh well, I suppose it was a practice that got his point across.  Impaler indeed.

malek's picture

So now Germany is not just rejecting to do perpetual bailouts (and thereby not "saving" the system), but even on purpose causing the mess in the first place?

Nice conspiracy theory.
But then why is nobody openly proposing Germany to leave the Euro single-handedly, to avoid a full "German victory" and takeover of the Eurozone?

TSA gropee's picture

German industrialists went underground after WWII. The de-Nazification of Germany by the allies didn't last much more than two years before they relinquished that duty to the Germans to do themselves. It was one of those WTF were you guys thinking moments. Needless to say all the officers, brownshirts and Nazi youth blended back into society. Fast forward to today and we see a virtual war being waged upon the EU/Zone members through economic blackmail. No legislation makes it through in the EU as law until it goes through the German high courts. What Germany couldn't do militarily 70 years ago they are accomplishing today through a well orchestrated plan of economic destruction.  

srsly-wtf's picture

Germans are just doing what is in their best interest, as are all countries.  They are just better at it than everyone else!  However, an economic victory and Euro collapse really gains them nothing.  Won't they go down with the ship too?

Bartanist's picture

Most likely because then Germany would be perceived as not being a team player and the instrument of the collapse instead of "a galant compatriot who simply did not have enough ... however with the new and improved single government it all would have worked". (which appears to be the goal).

surrational's picture

A picture is worth a thousand words, fits well here.

Stax Edwards's picture

Great article BK, always enjoy your posts (whether I agree with your premise or not).  You are a real asset to the hedge thanks for your insight.

In this case I do strongly agree with your premise.  Germany obviously needs the Euro to keep their export business humming.  However, Germany does not like providing for their profligate neighbors.  The peripheral countries, as things currently exist, certainly will not accept mandates from Berlin.  Conversely, they must accept whatever is imposed by 'market forces', or bow out and take matters into their own hands ala Iceland.  Therefore Germany must allow 'market forces' to wreak havoc such that the periphery comes to them and begs for it.  This gives Germany more leverage to impose their will as the choices dwindle down to austerity or default.  Sarkozy is well aware and supportive of this angle as well.  You are GD right they know what they are doing!

I believe a parallel can be drawn between this situation and what you commonly see between a parent and child, the child may in the end get what they actually need but this will happen on mommy or daddies terms and a lesson will be taught.  Germany has finally achieved its goal of teaching its Euro brethren the truth about that 'free lunch' they have come to know and love.  Good stuff, too bad world markets are held hostage to this BS.

Another way of thinking about it is that Germany knows how to keep their 'pimp hand strong' (haha, had to do it, this is ZH for gods sakes).  G'night gents.

Snidley Whipsnae's picture

Stax E ... "In this case I do strongly agree with your premise. Germany obviously needs the Euro to keep their export business humming."


Germany was a strong exporter with a very strong Deutschemark and Japan was a strong exporter with a very strong Yen... For the most part because of their incredible productivity and worker/management relations.

Germany claimed that the reason for the Euro Currency was in hopes of preventing future wars on the continent. This German claim may be partially or wholly true.

The West, including England, has not wanted a 'Unified World Island' since Mackinder put forth his principal thesis in 1919, although the West had been influenced by Mackinders thinking since 1904:

"Who rules East Europe commands the Heartland;
who rules the Heartland commands the World-Island;
who rules the World-Island controls the world."


RebelYell's picture

BK, solid post.  The Germans sat around for weeks wondering how bad it could get until someone thought of how good it could be.  People never change.

BigDuke6's picture


The Germans are enforcing discipline and they are good at it.

'Ve hav vays of making you virk past 55 without a fat pension'

PS -  Is Brandy the sister of Danny?

Corn1945's picture

There is too much unpayable debt combined with lousy demographics. Decades of overspending have caught up with the Europeans. 

Monetization will lead to hyperinflation as everyone dumps their bonds on the ECB and the PIIGS don't get their budgets in order because they know the ECB is buying. 

The monetization route leads to permanent money printing because political union is impossible. 

magpie's picture

Somehow i also have my doubts that fiscal union will lead to fiscal sanity.

GMadScientist's picture

Unless they have TWO currencies in the EZ!

High Euro for the core (okay just Germany and the Netherlands then) and Zooro for Zorba and the other swarthy types (sorry Eire).


Ahmeexnal's picture

Time to bring out the partisans again:

By none other than Peter Tompkins.

Hannibal's picture

Perhaps pepper spray will save us, for our own safety of course.

DeadFred's picture

I asked these questions at the time or at least when they started intervening again. Why stop then restart at much greater expense? Berlusconi's resignation just to get another Goldman boy into power seemed insufficient to explain the costs which were avoidable at least in the short run. I have two hypotheses about 'them' wanting a crisis. The Fed needs one in order to get cover to print. The Europeans need one to get cover for stripping away sovereignity from the EU member countries. Time will tell if either of these is confirmed but that is the nature of a hypothesis. 

TSA gropee's picture

I agree with Freddy that sovereignty is being stripped away from the lesser EU/zone powers. Yugoslavia was first and was split into two vassal states, but the method was messy. Today, we have the PIIGS corralled and lined up for economic sovereignty slaughter by a resurgent and nationalist Germany. A power hungry Vatican with a German pope, German economic hegemony, interesting times.

hangemhigh's picture

TO: Dead Fred

"Why stop then restart at much greater expense? "     "The Fed needs one in order to get cover to print. The Europeans need one to get cover for stripping away sovereignity from the EU member countries. "

DF....don't forget......there's a third leg to this stool sample......this fustercluck is also a trading tool that means gap up/gap down/short squeeze/whipsaw profits and bonuses for hedgies and prop desks.......

catch edge ghost's picture

Corner the sovereign debt. Cram (repatriate) what you can back into the respective sovereign's banks at a discount to them. Change the accounting rules. Restrict the market for those bonds. Give them all AAA ratings. Call them the reserves for fractional lending into the private sector. No tin foil hat required.

The hard part is controlling the sovereign's taxes and spending. Somehow you have find a way to appoint the leaders of nations.  If only there was a way.

Motley Fool's picture

You are not aware there is a war going on BK? ;)

The why of it is certainly interesting. :)

CIABS's picture

looks like BK is right.

they say "never attribute to malice what can be explained by stupidity or incompetence."  that's what "they" say.  don't believe them.

El Viejo's picture

The stupid build the ivory tower then the malicious step in to assume it. Just ask the Brown Shirts.

masterinchancery's picture

But the whole scheme will come to naught--too much debt everywhere. Check out the Kyle Bass segment.

Motorhead's picture

I'm not so sure that ad for the brandy is really from 1940.  The wording is not Reich-like to me.

robobbob's picture

forget the goose stepping and arm salute caricatures you've been mislead by. Oh sure, they were there for that type of crowd who likes marching up and down the parade field.

But how do you get normal people to buy into the complete reordering of civilization?

Arts, theater, music, movies (yes they even had TV), working conditions, healthcare, education, affordable housing, subsidized cars, and my favorite, government built beach resorts and cruise ships. sure they all had a swastika stamped on them, but apart from that, they look like walt disneys world of tomorrow.

a car for the masses

beach resort at Prora

state funded recreation for a stronger nation

Much of the propaganda was about the issuing in of the golden future, not just marching boots, just support your government and don't ask questions.

magpie's picture

Nah, it's real.

There were pamphlets exhorting to liberate certain people from their far too high living standards.

disabledvet's picture

I also agree Bruce is must read for this catastrophe. I disagree here of course because even if true there is no way to put the genie back in the bottle once they "uncork it." I think 800 years of history dies hard. Europe is at the mercy of historical forces related to money that no amount of intelligence can stop. Add "what looks good on paper" shows up as total ineptitude in practice and "this is what you get." in short "normative forms of behavior" meets "the lack of institutions with which to stand in their way." hasn't Chancellor Merkel said as much?