On GRExit, SPAilout, And Draghi's White Knight

Tyler Durden's picture

Via Mark E. Grant, author of Out of the Box,

“There was a free lunch just once. It was when Eve gave the apple to Adam and we all know how that turned out.”
                         -The Wizard
As I stare out at the Maginot Line I will endeavor to predict the upcoming events in Europe for the balance of the year. I called Greece, Ireland and Portugal correctly so I have some standing here and while we all are only as good as our last call; I have my own small pin on which to dance. I think first and foremost that Greece falls by the wayside. I think as a matter of political reality, given the German polls, that Berlin will refuse to adequately fund Greece and that they will be forced back to the Drachma as a matter of Ms. Merkel’s desire for re-election. When this happens it will be a quite messy affair with some $1.3 trillion going into default which will also require the re-capitalization of the ECB and there will be a $90 billion hit in derivative contracts which may well affect certain banks past the point of what is currently recognized. The Greek banks, bankrupt now, will train off into the abyss and will be replaced by other European institutions. The honest truth is that the Greek debts have become so large and so impossible to pay that unless there is absolute debt forgiveness, which I think is politically impossible in Germany and a number of other European countries; the country must roll over as a matter of fiscal reality.
“What I'm not saying is that all government spending is bad. It's not - far, far from it, but there is no free lunch, as a former colleague of mine used to say. There is no public tooth fairy. Father Christmas does not work on the Treasury staff this year. You can never bail someone out of trouble without putting someone else into trouble.”
                      -Arthur Laffer

In March, the last figures that are available, the Spanish banks lost $66 billion of capital as the citizens of Spain moved their money to safer havens. What the LTRO gave the populace took away and the situation is unsustainable. Spain will soon be forced into a full-fledged bailout in my opinion which will require money for the regions and for the banks. My best surmise is about $350-400 billion that will be required and while it may come in tranches; that will be the total. This will then shift the focus to Italy in the short run and then onto France and Germany and just how much can be afforded in this rush into financial imprudence dictated by trying to maintain a Union that can no longer stand under its own weight or national interests. The debts in Europe are no longer trivial and someone has to pay in the end. Free money, even printed money, is never really free and always has consequences which would be the downgrades of Germany and France in the short term and all of the increased costs of funding that would come with it.
“There is no such thing as a free lunch.”
                       -Milton Friedman
I think what amazes me the most is that so many people have the honest opinion that Sir Draghi is going to come charging out from the round table, from the gilded gates of the ECB and save Europe. That White Knight is subject to the whims of Germany and the rest and all of the talk of independence and the separation of Church and State is just that; talk. I fear these people are hitching their wagon to some shooting star that won’t shoot. Blitzen, Donner and the other reindeer are still out in the pasture fattening up for their Christmas ride and are not available to bring presents this early in the year. The holiday season will be upon us in due course but Santa is not Italian and Fettuccini Mario will not be served. I am afraid, long before December, that disappointment will be the main course and that the gruel will be apportioned.
In this world there are mice and there are men. Men learned long ago to offer a free lunch in the mouse trap. One mouse after another has learned the consequences of eating it.

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buzzsaw99's picture

wall street bankers get a free lunch every freaking day bitchez

caconhma's picture

"The honest truth is that the Greek debts have become so large and so impossible to pay that unless there is absolute debt forgiveness"

Well, debt forgiveness will not do a shit since Greece will pile up a new debt with much more determination. Furthermore, the rest of EU will have humongous incentives to accelerate their runaway spending and thievery.



Bartanist's picture

They will only pile up debt if someone will lend them money.

Weisbrot's picture

yeah yeah yeah something like that was said the last 3-5 times too

The Wizard of Oz's picture


fonzannoon's picture

Mark Grant seems like the kind of guy that wants to sound interesting. By 5pm I bet he is hammered, yammering incoherently at the pictures on his wall before he falls down next to his recliner with his notepad and pen for "tomorrow's piece"

LetThemEatRand's picture

Sounds like a banker to me.   So whether you agree or disagree with his analysis, take it with a huge grain of "talking his book" salt.  Or maybe he's different. 

Mr. Grant is a graduate of Occidental College and has been on Wall Street for thirty-seven years in various senior management positions. He has run Capital Markets for four Investment Banks and been on the Board of Directors of four Investment Banks. Mr. Grant was also the President of a public company in the telecommunications field and on its Board of Directors for several years while he continued his work on Wall Street. He currently works at a publically traded Investment Bank and is a Managing Director of the firm. He runs the Corporate Syndicate Department and also the Structured Finance Department."

Manthong's picture

I thought it was pretty good.

You cannot argue with the veracity of the free lunch fallacy/fall from grace/mousetrap theme.

The thought stream works..  it’s just a shame that more folks do not understand it.

monopoly's picture

Sir Draghi and Sir Bernank. They will make sure the banks and bankers get enough. It is the rest of us that are screwed.

Caggge's picture

You can't give the Greeks free German sausage because they will just stick it in their arse.

AUD's picture

Have you been spending too much time at pornhub.com?

tu-ne-cede-malis's picture

Merkelwurst with a side of Schaublekraut

Caggge's picture

A Greek and an Irishman were sitting in a Starbuck's cafe one day discussing who had the superior culture.
Over triple lattes the Greek guy says, 'Well, we Greeks built the Parthenon,' arching his eyebrows.
The Irishman then replies, 'Well... it was the Irish that discovered the Summer and Winter Solstices.'
The Greek retorts, 'We Greeks gave birth to advanced mathematics.'
The Irishman, nodding in agreement, says, 'Irish were the ones who built the first timepieces and calendars.'
And it goes on until the Greek comes up with what he thinks will end the discussion. With a flourish of finality he says, 'The Greeks were the ones who invented sex!'
The Irishman replies, 'Indeed, that is true, but it was we Irish who first tried it with a woman.

Gordon Freeman's picture

Mark Grant also needs to learn the one about the boy who cried wolf, the broken record, etc.

No matter how appealing his recurrent narrative sounds, it is simply not borne out by the facts.

Peter Pan's picture

"Let them eat food stamps."

We all know what will follow.

SDS Trader's picture

Could the author have possibly mixed more metaphors in the final paragraph?  Possible.  But improbable.

I'm with fonzannoon - Grant wants to sound far more interesting than he really is.  Let's all give ourselves a break and put Grant back in the box, please.

Inthemix96's picture

How interesting would it be to pick up tomorows paper and read the headline,

"12 banksters shot dead by unhappy, ripped off, fraudulently removed of their money, miss-sold, rightly pissed off customer"?

Now that is a story I could delve right into.  And I would give the crossword a miss.

DeadFred's picture

The fact that you won't be reading that articles shows that there'll be a bit more time until the fat lady starts her aria.

Inthemix96's picture

We can all dream fred.


FeralSerf's picture

If and when the fat lady starts her aria, you won't be reading about it in The Morning News.  One cannot ever let The Sheep think they've ever won even a small skirmish.  They might get the idea they could win the war.  We know what happened the last time they thought that in 1789.

PatientZero's picture

Golden Dawn and Drachma, bitches.

vertexa's picture
ISRAEL STOCK MARKET FALLING SHARPLY ON IRAN ATTACK RUMORS Israel & Tehran Prepping for Attack. Netanyahu granted New Powers to make ‘Fateful’ Decisions! US will Cover Israel’s Back.
PatientZero's picture

Israel stock market falling? OY VEY! THIS IS A COMPLETE HOLOCAUST! MUH SHEKELS!!!

warchopper's picture

That's what the military does. Prepare for war. Whether it's ours, Iran's, China's, or even  Canada's military. There are always plans for war.

Cthonic's picture

 "In March, the last figures that are available, the Spanish banks lost $66 billion of capital as the citizens of Spain moved their money to safer havens."

Really? Perhaps they lost that amount in deposits.  Whatever the capital amounts are recorded on the books of these entities, they are entirely fictional at this point.

Inthemix96's picture

And on another note, over here in the UK a "white knight", is a brand of tumble drier.

Fills you with hope eh?

disabledvet's picture

Yep. Only question is what are the consequences for
The inevitable slowdown in the German economy as a consequence of the disruption of actual trade flows.

asteroids's picture

Greece is a "lab rat" that the rest of Europe is experimenting with. They are keeping it alive and watching the result of their experiments extrapolating to Spain and Italy. Once they figure out that'll never work, then they'll experiment on killing Greece off, and extrapolating to Spain and Italy and the rest.

Elmer Fudd's picture

Since when did the people's polls affect what a politician will do?

Dareconomics's picture

Eventually, you have to pay for your free lunch, but when. Dysfunctional systems can go on a lot longer than people think. Take for example the treatment of slavery in the United States. Our founders could not get around this issue, so they crafted the three-fifths compromise. Then, throughout the 19th century there were more compromises. Essentially, the system was to maintain the status quo. Every time a free state was admitted into the US, a slave state was also admitted. This ensured that the more populous North could not abolish slavery by itself. These compromises gave the politicians job security until 1865.As a nation, we were able to kick the can down the road for almost 80 years.

Europe does not have 80 years, but they certainly have some time. Just like our Congress crafted the Missouri Compromise to keep the status quo going, so does the Eurozone come up wih its own temporary solutions. Currently, most of the money provided by the ECB hasn't increased lending to consumers and small businesses, but it increased lending to the sovereigns. The Sarkozy trade is alive and well. This scheme can continue as long as there are no consequences, like inflation. Fortunately for Europe, Switzerland is busy supporting the Euro to keep its own currency from stregthening further. The Swiss are able to continue these foolhardy Euro purchases because all of the rich Europeans keep adding deposits to its banking system.

Hence, we are in some sort of equilibrium. Once intervention starts, it continues until the system irretreivably breaks down. When and how this happens is anyone's guess. 

I envision a scenario like this...