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Euro Bailout Cracks Emerge; Greece "Just Says No"
When reporting on the announcement of the math-free deus ex machina bail out that was announced last night, which nobody still has any grasp over, but it had a "trillion" in there somewhere so that alone sent the market scurrying, we suggested that it would take about 24-48 hours for reality to start settling in. It may have been considerably less. As the Telegraph reports, "A trillion euro bail-out to save the EU’s single currency is in danger of unraveling after Germany’s central bank warned that the rescue measure was too dependent on the high-risk deals that caused the economic crisis." So what did the Bundesbank do to send tremors that threaten to fracture the brittle nanometer ice-plated facade under which the most tempestuous riptide in European history is contained? Well, first it appears to have used a calculator, something nobody else in the European Council seems to be capable of. Second, it realized that heaping leverage upon leverage to fix a problem, something even a five year old (non-Ivy league trained) would tell you is lunacy, may not be the best approach to fix the problems at hand. "The concerns were led by Germany’s powerful central bank, which expressed fears that a plan to leverage a €440 billion eurozone rescue fund to amass a “fire power” of €1 trillion, or £880 billion, resembled the risky finance methods that triggered the crisis in 2008. Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot. He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds." Does that mean that the "ironclad firewall" is neither "ironclad" nor walls off any fire? Especially since neither the object (Germany) of the bailout nor the subject (Greece) appear to have any desire to go along with the deus ex?
As it turns out, apparently not even Merkel's promises that the EFSF would never have to be used, just the mere threat of its existence would collapse spreads everywhere, an assumption so idiotic not even Hank Paulson tried it more than three times, was able to set Weidmann's mind at ease. So what happens when, as it is bound to happen, and as we have been pounding the table on since the ill-fated July 21st bailout, realize that very soon (yes, French banks have been on downgrade review since September 14, and earlier today Sarkozy just announced French 2012 GDP growth would be a negligible 1%, something the rating agencies will be delighted to hear), following the French downgrade it will be all up to them? Another 500 pip surge EURUSD surge on short covering? We doubt it: following today's move there are no more shorts left in the Euro. Which means that the next push lower will have no natural buyers, and any Bazooka announcement will have to be much bigger, and thus far less believable.
From Telegraph:
Bill Gross, the founder of Pimco, the world’s largest bond fund, said the eurozone rescue would be a temporary fix for markets and that the fund could pose a high-risk for investors.
“No bazooka but should stabilize markets for now,” he messaged on the Twitter site yesterday. “Watch out if the plan is a giant SIV (structured investment vehicle) with levered risk.”
The plan to increase the European Financial and Stability Facility to €1 trillion on paper was attacked by economists as not enough to “stave off” worsening debt problems in Italy and Spain.
In a survey of economists, 26 of 48 thought the firepower was not enough. A plan for a €2 trillion fund was shelved after German and French opposition.
Doubts also emerged over the lack of detail on a proposal to let Greece help pay its rapidly mounting debt burden by negotiating a voluntary “haircut” that would allow it to write off about half of its debts.
But perhaps what is the worst news of the day is that Greece, the country which this whole shebang is supposed to make better, threw up violently all over the "rescue":
Greek opposition parties to the Left and Right united to condemn the eurozone deal amid mounting social conflict.
Antonis Samaras, the conservative opposition leader, said: “We are not closer to the solution but are faced with nine years of collapse and poverty.”
Dimitris Papadimoulis, a Left-wing MP, said new EU powers in the agreement to
impose austerity measures on Greece had a conflict of interest. “Those who
monitor us do not have our interests in mind,” he said. “Their priority is
that we pay back our loans.”
So... Now what? The Greek strikes will return until GDP grows? In the wacky, waving, inflatable arm flailing math word of Europe this is, unfortunately, precisely the only math that works.
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I'm still at a loss as to how simply ignoring that a credit event has occurred is better than acknowledging that it happened. If you risk contagion from triggering an event, don't you also risk some sort of contagion by making it clear that an event will never trigger and that, therefore, all the contingencies in place are meaningless and have no value? How does that get marked to market?
It is easy to understand that this non-default default is better than an acknowledged credit event if you are the bank that wrote the CDS.
You will of course note that MS shares traded up 17% today.
The way the Euro was set up lets all member countries print bonds - but any one member default is a default on their shared currency.
If memory serves me didn't the credit holders already take a 21% haircut some time ago ? 50% hair cut now on the leftover balance from a 21% haircut previous equals a 71% scalp and no CDS trigger.
So why don't they just keep doing a 21% haircut every week and it will never be classified as a default. ?
Problem solved !
Man this finance stuff is easy !
So... Now what? The Greek strikes will return until GDP grows? In the wacky, waving, inflatable arm flailing math word of Europe this is, unfortunately, precisely the only math that works.
Reminds me a lot of Lost in space
Danger Will Robinson Danger
I thought the news report went that Greece is "relieved" with the haircut.
Next rumor to start rally: China pledges support
Now back to ZH being the only reliable source
Have fun with MSLSD, and don't let the door hit you in the ass on the way out.
http://www.youtube.com/watch?v=UrOZllbNarw
http://www.youtube.com/watch?v=SJw8-ozdQ1M
http://www.shredderchallenge.com/
That is all. (Hint: the last link is for when the SHTF)
Remind me why the world needs Europe again. Cars, chocolate and watches?
Tourism excluded since most non-europeans can no longer afford vacations there.
Why are AMG " Mercedes" , XAU / Plated?
is that english you're speaking?
Fibz , Respectfully. The toyz ya drive are manufactured in Europe. Secondly, show a little " Respect". You never know "who" you might know! Have you looked at any charts? last hour?
It's not my job to educate you! Grow up and act like a Human Being!
I drive an American car. They're much higher quality now than in the past.
I suggest you re- state that comment.
I Agree with your quality issues. Why is ( F ) below that 15 handle?
Lighten -up Slewie. I'm on your side. Slewie , do you understand flows? Do you understand why sovereign debt is exchanged every day in specific markets?
The world is really simple Slewie. I'm on your side.
if it's not lunar, like the tides, maybe it is the werewolves of london? again?
If war breaks out and Turkey attacks Assyria from the rear, will Greece help?
Turkey is already at war with the Kurds, and Israel is already training / arming them. All on American soil.
Ahem.
I assume you realize how much most Greeks hate Turks.
But they like it up the rear.
Oh man, could you see Greeks and Turks in a POW camp porn flick. Be the Next big Thing at the SEC
"Greece..threw up violently all over the "rescue" Please ZH, warn us before hand. Almost blew up the thinking machine.
I just knew if I looked hard enough I would find a really good quote from somebody in Greece and I was right.
here it is-
“Greece has been the guinea pig of a startled Europe, an unprepared Europe,” said Mr. Daskalopoulos, the head of the business association. “Usually in an experiment, the guinea pig ends up dead.”
classic.
Prescient ... that is the plan.
Max Keiser gives us a few works on the "Greek bailout" and China too.
http://maxkeiser.com/2011/10/27/max-keiser-debt-slash-insane-collapse-gu...
Good link! We have to keep stepping back and remind ourselves that all of these solutions are adding more debt....to our debt problem. hmmmmm....what is the motive?
Excellent Max Keiser interview. He clarifies alot.
Thanks!
I have watched with dismay the destruction of the western world over the last few decades with dismay. It is painfully obvious to anyone with an ounce of grey matter in their head, but we are bombarded with insane propaganda 24/7....and that placates the masses.
This has reached the point where all I can say is F--K the moneylenders....all of them, and all the corrupt people that succumb to their cheap bribes.
Other than that I am pretty content with the system.
This plan is to little to late.
I sold a bunch of my sotcks today....up over 30% in two weeks just to good to pass up.....I had no idea which direction the wrench would come from but here is one big cog in the wheels of the Banker Bailout....wait until China figures out what "The Greater Fool Theory" is all about.
How exactly do you "leverage" $400 Bill up into $1.2 trillion?
Can someone please explain?
simple ....just do it
DAX monthly chart at blog shows recent bullish candle revealing aggressive short covering rally enclosed within big picture bearish pattern.
Bullish USD weekly/monthly and bearish SP500/DOW monthly
charts will eventually ensure a violent reversal of equity uptrend.
http://stockmarket618.wordpress.com
"Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot. He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds."
Silly man. It doesn't count if the administrations are different at that time.
http://www.youtube.com/watch?v=Y-Elr5K2Vuo