Via Peter Tchir of TF Market Advisors,
I would like to start a mine, mine, mine, buy em, take em, mine, mine, mine, lift the offer, mine, mine, and get me some more desk at a bank
If I understand the concept correctly, I could buy sovereign debt and be "promised" that it will never default. And if I'm a bank, I can fund that position at the ECB for almost free. Why didn't they think of this before?
They were really doing much better when people weren't speaking. The reality is that they cannot guarantee that private investors won't have losses. They can come up with enough capital and programs that demonstrates a sovereign will never default, but they haven't done that, and in fact are further than ever.
So the FT is now saying that they may allow EFSF to continue to run after the ESM goes into effect with a fresh 500 billion. Where do they plan on getting the first 440 billion, let alone the next 500 billion? Who is going to raise that money? Germany? France? I mentioned earlier that we had to pay attention to the statement that France could get two notches. Is that another 150 billion for France? Can the rating agencies let that go? Doesn't anyone in power there see that France's willingness to throw money at the problem is making them part of the problem? Someone at the rating agency, who got screamed at yesterday just threw his hands up in disgust, and said that these guys just don't get it!
Who is coming up with these ideas? It makes no sense to me. They need IMF, ECB, or Fed money. Make believe stories about doubling something that is nonexistant isn't going to cut it. Two times zero is still zero. I think this is a very bad idea. They don't have the cash, and guarantees won't cut it, and this may push France down to AA+ regardless of any treaty agreement. Then EFSF is AA+. ESM would have cash if the countries can raise it.
I really thought they were making progress, that they had a script that could work. Now I think they have once again proven they don't understand credit, they don't understand credit market concerns, and that they are back to grasping at straws.
I didn't like the idea of IMF, ECB, and Fed money, but thought it was the direction they were heading and that it had a chance to drive the market higher. This idea and the promise really just seems dumb to me.