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The Eurozone Financial Crisis: Feeding the Dragon
Winston Churchill defined appeasement as “feeding the dragon hoping he will eat you last.” As the eurozone banking crisis has morphed into a sovereign debt crisis, it is worth reconsidering the wisdom of appeasing the bond market in an attempt to stave off the possibility of default. As the Financial Times stated in an editorial published towards the end of last year: “Each time the eurozone rediscovers its resolve and finds a policy to damp the sovereign debt crisis it makes the situation worse.” ( ‘Europe’s financial plague rages on’, Nov 26 ).
European governments have placed their own solvency and sovereignty at risk by protecting bank creditors. Why they have done so is a question that will surely puzzle future historians. It is widely accepted that underwriting of bank credit risk for 'too big to fail' banks induces moral hazard and will incentivize reckless risk taking in the future, thus placing the financial system at greater risk. One must therefore assume the underwriting of creditor risk is necessary to prevent an immediate meltdown. It is difficult to see how so.
A restructured bank, in which debt holder claims have been reduced, should have no more difficulty in raising fresh capital than a restructured General Motors. If depositors are protected, the restructuring will cause no monetary contraction and no forced liquidation of loans. The restructured bank could raise fresh capital, write down non-performing loans and resume lending. By contrast, the debt overhang currently on banks balance sheets, resulting from protection of creditors, restricts the capacity to raise new capital and will curtail lending - and economic growth - for many years into the future. In light of this, the current proposal to protect existing bondholders and place future investors at risk is perverse. It should be exactly the other way round.
Moreover, once suffering taxpayers get the idea that they have been drafted to make bank investors whole, they may rebuke any such deal and force their governments to reneg.
In any event, the bond markets are not appeased, in spite of Europe’s’ mortgaging of its credibility and its treasure.
From Dan Aronoff, The Sceptical Market Observer
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This calls for an IMMEDIATE soundtrack to celebrate!
http://www.youtube.com/watch?v=AcwYEGdKto8&feature=player_detailpage
doesn't get any better folks.
I'm looking for the upheaval in the U. S.
The conditions are ripening.
Feral Capitalism Hits the Streetstoo many welfare suckers for that to happen
not enough disgruntled union thugs for that happen
perhaps the illegals will do the work that Americans dont want to do
The illegals are all going back to Mexico man. Better job opportunities you see. They're leaving the gringos to it.
Zorba the greek. Instead of government bailing out all bank creditors to stop a CDS contagion, the govenment could, at far less cost, simply make a market in CDS claims and then pursue collection from the bank in an orderly bankruptcy. I have no idea why this idea has not been considered, but I wrote about it 2 years ago in a blog psot at Sceptical Market Observer
http://scepticalmarketobserver.blogspot.com/2009/11/radically-simple-approach-to-resolving.html
Maybe Max Keiser's "financial terrorists" thesis has some degree of validity. The banksters realize that the CDS market is uncapitalized insurance that causes systemic risk to the entire world financial system. Maybe these 'financial weapons of mass destruction' are a way of terrorizing governments into defending and protecting bankster interests at all costs.
Fire the Banksters!
This is exactly my opinion. The CDS are hollow because there is no collateral behind these "non-worth papers. Its just traded between the investment banks and they are making the market - nobody else.
The CDS are only a tool to make pressure on the weaker parts of the EU or other hostile economies. The final goal is to kill the Euro so that there is no solid alternative existing for the ever deterioating US Dollar.
Spot On. 'Exorbitant privilege' at its most callous. NWO + FED+ WS strategy, to print away as reserve currency, (our money yor problem) and then raid the parlour of the weaker nations, now the core EU zone, through hit and run derivative plays. Beranke fueling the pirates with ZIRP for two years...USD carry trade and currency war galore!
http://www.presstv.ir/detail/194269.html
To save the Euro, both Chancellor Angela Merkel and President Nicolas Sarkozy want the Eurozone to have a fixed president, renewable every 2.5 years, who will supervise economies of all member states.But both French and German economies have their own set of problems. For France, the headaches come from inside.
French banks have collected huge toxic debts in Greece… and France's budget deficit stands at over 6 percent, much higher than the stipulated EU target of 3 percent.
That has led to fears that the economy could lose its AAA ranking by Western rating agencies.
But, but, but, not according to Fitch!!!!
Winston Churchill was the only guy screaming wolf in a sea of sheeple.
Today everyone - EVERYONE - is “feeding the dragon hoping he will eat you last.”
Who have we got? Eh?
"
Moreover, once suffering taxpayers get the idea that they have been drafted to make bank investors whole, they may rebuke any such deal and force their governments to reneg."I've said it many times, and I'll say it again:
Before there is a popular apetite for real changei n the US, that apetite must (and will) become hunger. I try not to imagine the suffering that goes along with this. It haunts me.
Many people are going to die, and soon, from the destruction that hath been wrought.
Sorry for the downer. Show evidence that I'm not right.
+
as long as the market remains volatile its all gravy
What amazes me most about the EU being on the verge of total collapse any day now, and leaders talking
only about future longterm solutions,is that the Euro is not tanking. At this point, does anyone think that the
situation in Europe is not going to deteriorate from here on out? How many more times will the ECB step in
and buy Spanish and Italian bonds?
Why should the Euro tank????
A Euro is a Euro and is in principle the former DM the trusted money of Germany. The Euro (former DM) is now the legal money in principle for the whole EU because the EU countries outside Euroland have their currency more or less pegged to the Euro with the exception of the UK. The Swiss Franc might be pegged to the Euro in the same way in case the extreme exchange rate (nearly par to the Euro) is continuing. In the EU only the British Pound is sick because of the QE policy and the underlying weaknes of the UK economy.
Of course you are right. Normally the Euro would tank. But this was in the times when the US were still making the currency markets. But now the power to manipulate the exchange rates is not any more in the hands of the US.
China is holding the Euro and Russia too. These two players need a stable EU since it is both their biggest client and supplier of technology. And they need the Euro to have an alternative in case the US Dollar is suddenly collapsing which is not completely impossible nowadays.
The US Dollar is dooomed. It is now in big fashion to borrow long term Dollar for cheap interest rates, change it immeditely into Euros, collect about the same interest (or even more) and just wait for the US Dollar to further devalue.
So look out for companies with huge long term US Dollar denominated debt while having stable revenue streams in Euros or other sound money.
Shhh...if no one mentions it, it might not happen.
The banks are throwing the sovereigns under the bus, that's for sure. What is going on is a clear demonstration that the banks own and run the developed nations, and are the real power behind a facade of self-government.
If there was a single, government protected oil company monopoly secretly cheating motorists by diluting gas at the pump 3% per year, every year, somebody would calll bullshit long before there was nothing but water being pumped.
If the battle for civilization comes down to the wimps versus the barbarians, the barbarians are going to win.
Thomas Sowell
If you are not prepared to use force to defend civilization, then be prepared to accept barbarism.
Thomas Sowell
.
Ah, ah. Another US made cheap propaganda.
Barbarians? Who? Where? If barbarians still exist, they are irrelevant.
The current situation is the continuation of US citizenism. Bankers are no less US citizens than the other US citizens. Claiming that barbarians are involved in the mix is claiming that US citizens are barbaric.
Well, they are civilized.
Bankers hold dual citizenship. One with the United States. The other with the KLEPTOCRACY.
And these KLEPTOCRATS don't give a shit about any other US citizens, especially the 46M on food stamps. Because you seem confused please let me clarify, that's not civilized, that's barbaric.
max...you might one day, but I suggest not immediately. A shimmy to the downside is imminent, trap the shorts and then this thing soars ((S&P500 to 1275-1300ish). Sometime after that bullshit rally you might see your 20% drop.
A shrewd short would not be trapped at that level. Trapping would be at a 1350 to 1400 s&p perhaps. Everyone is expecting some sort of lame bounce.
The problem with restructuring banks is: If the bank creditors are not made whole, it is considered a default
and that triggers the CDS's and due to the size of the CDS market, creates widespread contagion as did the
Lehman Default. Only this time, the problem would be much larger.
Love to see it happen. If they don't have the time to wait for Karma, it'll kindly call on them.
.
I get this feeling one morning I'll wake up to see a down 20% Dow premarket
But it will still close the day up on heavy volume the last half hour of trading...
Would that prevent a market open? Circuit breaker rules?
I don't know, anyone know?
http://www.cmegroup.com/trading/equity-index/files/PriceLimitFAQ.pdf
http://www.cmegroup.com/trading/equity-index/files/PriceLimitGuide.pdf