This page has been archived and commenting is disabled.

The Truth Behind Europe's (€1.7 Trillion) "Triangle Of Terror"

Tyler Durden's picture


It's time to forget about Europe's headlines for 15 minutes and refresh what is really going on in Europe, and why European leaders are scrambling day to day to come up with a solution to what is ultimately an intractable problem. Technically, the problem, as explained below, is manifested in three distinct symptoms, which exist in a self-referencing feedback loop that amplifies good input signals when times are good (and incremental debt is ample) and vice versa, or become a toxic spiral where one problem is amplified in the other two, when the system is caught in a deflationary spiral, until the entire system is threatened by collapse. The three "problems" are summarized best in a chart by Morgan Stanley's Huw Van Steenis (see below) in what we have dubbed the "Triangle of Terror" - these are i) Bank Solvency, ii) Sovereign Stress, and iii) Bank Funding Stress. At the end of September, Europe found itself in a perfect storm, in which concerns about all three hit peak levels. Since then, fears have subsided somewhat, following ECB intervention and rumors of bank recaps, not to mention an attempt to control sovereign "solvency" via a naked CDS ban, yet the festering question of overall Sovereign Stress remains. And what is worse, in a replica of a game of financial "communicating vessels", any time there is an improvement in one or two, it is the third that gets beaten down. This explains why while banks have seen a boost in confidence expressed by rising stock prices, now that Europe is addressing Bank Solvency and Bank Funding Stress via actions of the ECB and the EFSF (the fact that the EFSF is even needed, when the Fed could address both issues at the same time, shows how woefully incapable the ECB is to deal alone with Europe's problems), sovereign spreads have exploded, and OAT-Bund spreads hit all time wides overnight.

All that said, the core problem at the very heart of European instability, is nothing more than, you guessed it, excess debt, €1.7 trillion worth of it to be precise: this is how much debt has to be rolled over the next 3 years, and also explains the magical €2 trillion number needed for the EFSF as only something that big can i) backstop the debt roll and ii) insure the needed bank recap, which in reality needs more like €400 billion but that is the topic of a different post. And without the abovementioned support pillars of bank solvency, funding and sovereign stress being address and fixed, in a credible manner and at the same time, this debt will not be able to roll, and effectively lead to systemic European insolvency. And that, in a nutshell, is what the issues facing Europe are. Everything else is headlines, smoke and mirrors.

First, presenting the "Triangle of Terror." As Van Steenis opines, "Intensity of Policy Response to Address the 3 Interconnected Issues – Stress in Sovereign Funding, Bank Funding, and Bank Solvency – Has Stepped Up, But Much Still to Be Done"

Here is how Europe's has address the Bank Recap problem for the time being, and which banks will see major dilution as a result of incremental capital infusion:

In addition, the ECB has done all it could to address the Bank Funding issues: "To Address the Stress in Bank Funding, ECB Has Undertaken 6 Initiatives in Recent Months. We Think More Needs to Be Done to Support Term Funding." However, as we report every day, this has so far failed - liquidity conditions in Europe are once again as bad as they were in mid September and deteriorating rapidly.

Yet the most disturbing chart is the following, showing how much debt Europe has to roll in the next 3 year: "Policy Makers and Investors Have Consistently Underestimated the Bank Funding Roll as a Transmission Mechanism of Sovereign Fears Into the Banks and Real Economy – €1.7 Trillion of Term Debt to Roll"

As a reminder, this is debt that has to be roll. This does not include the trillions in incremental debt that has to be issued at both the corporate and the sovereign level to preserve "growth", because as every Fed president knows, one can only have growth in the modern ponzi, Keynesian system, when one has incremental debt. In other words, forget growth for the sake of this analysis. Europe has its hands more than full with simply preserving its current status quo in the face of an ongoing deleveraging tsunami. Which is why any indication that it will fail in addressing all three of the core issues at the same time in a way that the market deems credible (we can't underling this enough), namely Europe bank solvency, and funding, and sovereign stress, will result in another major risk off move, now that the market is convinced that all three can be resolved simply with words, hope and a telegraphed desire to fix problems. They can't.

This explains why so much rests on Europe, and why as we explained previously when we actually did the math, Europe will, whether it is at Summit 1, 2, 3 or 123, disappoint massively as what is going on is nothing more or less than a simple regression to the mean. And, as hard as they try, Central Banks while being very powerful entities, can not overturn the simplest rules of nature.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 10/21/2011 - 12:36 | 1797458 jarboejl
jarboejl's picture

Hey I drew that first graph (something close to it anyway) on my whiteboard and showed it to my friend who's a Financial Advisor.  He didn't get it...

Fri, 10/21/2011 - 13:02 | 1797552 spiral_eyes
spiral_eyes's picture

The real problem is an interconnected system based on debt-derived currency where a small amount of deflation, a few bank failures, or a small sovereign failure can all lead to collapse.

A system vulnerable to small parts of it collapsing will ultimately be destroyed by collapse.

Fri, 10/21/2011 - 13:04 | 1797563 jarboejl
jarboejl's picture


Fri, 10/21/2011 - 13:42 | 1797725 Ahmeexnal
Ahmeexnal's picture

Let them eat escargot!!

Fri, 10/21/2011 - 17:25 | 1798641 Apeman
Apeman's picture

Nein, bratwurst!!

Fri, 10/21/2011 - 12:36 | 1797460 jdelano
jdelano's picture

Thank you.  How can so many intelligent people choose to ignore this knowing that the short term gain of doing so will lead to long term...apocalypse?

Fri, 10/21/2011 - 12:49 | 1797493 Unprepared
Unprepared's picture

1.7 Trillion is a drop in the bucket in the global Overnight repo market. They would have no problem rolling it over.


Fri, 10/21/2011 - 13:31 | 1797670 LawsofPhysics
LawsofPhysics's picture

The same way the have for the last 100 years.  Hedge accordingly.

Fri, 10/21/2011 - 15:36 | 1798247 mac768
mac768's picture

the laws of physics are obviously overturned if one looks at the Euro making 200+ pips in less than 48 hours?

maybe they have used CERN to reverse the laws of Newton

Fri, 10/21/2011 - 12:36 | 1797463 Ahmeexnal
Ahmeexnal's picture

France about to demand Germany to pay up compensation for all past offences.

Fri, 10/21/2011 - 12:50 | 1797497 tiger7905
tiger7905's picture

Some great analysis from Stratfor on the European mess...

Fri, 10/21/2011 - 12:39 | 1797467 buzzsaw99
buzzsaw99's picture

As long as the billionaires prosper everything will be fine.

Fri, 10/21/2011 - 12:50 | 1797499 Quixotic_Not
Quixotic_Not's picture

True, and as long as the billionaires are protected by the USofA, nothing will change...

Fri, 10/21/2011 - 12:53 | 1797517 buzzsaw99
buzzsaw99's picture

the poor must become poorer, the rich must become richer. that is the order of things.

Fri, 10/21/2011 - 13:00 | 1797538 Quixotic_Not
Quixotic_Not's picture

As long as AMERICANS consent to it, you are correct...

Keep voting for the (D) & (R) Free Crap Empire™, keep helping the billionaires.

Fri, 10/21/2011 - 13:26 | 1797639 Withdrawn Sanction
Withdrawn Sanction's picture

"As long as AMERICANS consent to it..."

Correct. And correct, that the D vs R (or right vs left) is an illusion. Meet the new boss, same as the old boss.

Stop only encourages them. Withdraw your Sanction. They need your consent. Dont give it to them. Your voluntary consent salves a guilty conscience...and yes, some do feel guilt...properly so. Your consent also legitimates the outcome. Dont give it to them.

What if they held an election and no one showed up? But but that'd leave the process open to the special pleaders, the charlatans, and the looters....yes, and? That's exactly different from the present situation how? For chrissake, stop voting.

Fri, 10/21/2011 - 13:41 | 1797718 LawsofPhysics
LawsofPhysics's picture

Likewise, stop paying taxes, close all bank accounts and change all fiat in physical money.  Let me know when everyone starts doing this.


In additional the Americans, you might want to add the Chinese to people being "forced" to consent, of course they come to America and consent anyway.

Fri, 10/21/2011 - 12:54 | 1797526 Alvaro de Esteban
Alvaro de Esteban's picture

And that is the reality.

I know some wealthy families in Spain & Italy that is documented that they were rich 2.000 years ago during the times of the Roman Empire, and no war, empire falling, plague, natural catastrophe, revolution or economic disater have changed that 

Fri, 10/21/2011 - 13:00 | 1797551 Unprepared
Unprepared's picture

Those SOB won't stop until sovereign risk = 99% of total risk and all asset beta's ~ 1.

Welcome to risk commoditization, bitcheeez

"You can't run, you can't hide

No surprise, close your eyes

Come with me"

Fri, 10/21/2011 - 12:44 | 1797476 Randall Cabot
Randall Cabot's picture

"There is nothing in this earnings season so far that supports a U.S. recession " said Michael Murphy, managing partner at hedge fund Rosecliff Capital. "Although the European headlines are making for a wild ride, lets remember the market is cyclical and this European financial crisis will pass. We are a lot closer to the end than we are to the beginning."


Fri, 10/21/2011 - 12:47 | 1797484 Quintus
Quintus's picture

I pity the fool who has money under management with these clowns.

Fri, 10/21/2011 - 14:29 | 1797925 AcidRastaHead
AcidRastaHead's picture

Is that you, Mr. T?

Fri, 10/21/2011 - 15:47 | 1798290 CharlieSDT
CharlieSDT's picture

I can't believe how retarded that CNBC article is.  "Nothing to see here, folks.  Earnings beat by a couple cents, never mind the collapse of the banking system of 1/3rd of the world, or the unemployment, housing crash, or trillion dollar college debt bubble here.  But my Fifth Third Bank stock will se us all through that."

Fri, 10/21/2011 - 12:55 | 1797528 jdelano
jdelano's picture

You saw that too?  I was tempted to bomb his email--"Michael, your sorry book is never coming back no matter how much time you spend desperately trying to pimp on CNBC, and when Europe unravels and the tsunami of redemptions start pouring in, I hope you end up on the street, shoulder to shoulder with the OWS hippies you are no doubt mocking and cursing at this very moment, as someone as criminally stupid as you definitely should not be among the top 1%."


I'm in a shitty mood today.  

Fri, 10/21/2011 - 13:06 | 1797570 Mark123
Mark123's picture

Like driving while looking in your rear-view mirror to see how well you are doing....


Got to keep in mind, he may have a teeny weenie conflict of interest in his assessment.  Gotta keep those commissions rolling in!


Fri, 10/21/2011 - 12:46 | 1797480 TooBearish
TooBearish's picture

THis is bullshite - fuzzy math - 2X3 = 5 dammit!

Fri, 10/21/2011 - 12:46 | 1797481 YesWeKahn
YesWeKahn's picture

This is completely solvable issue with the printing press. At some point, only inflation and how people deal with it matters. The politicians only care about being reelected, they could care less about inflation.

Fri, 10/21/2011 - 12:48 | 1797486 disabledvet
disabledvet's picture

The fundamental problem is who gets killed. That's all this is. That's why we look past the meetings. Failure is the option.

Fri, 10/21/2011 - 12:48 | 1797488 Triggernometry
Triggernometry's picture

Triangle? More like dodecahedron...

Fri, 10/21/2011 - 12:49 | 1797490 eBuddha
eBuddha's picture

in times of trouble, the Godfather would opine that it was 'time to go to the mattresses'

today, we should all be preparing to 'go to the wheelbarrows' - the Germans will know what i mean.


Fri, 10/21/2011 - 12:49 | 1797494 earnulf
earnulf's picture

One very slo-mo eurorail wreck happening.   This train left the track years ago and is still hurtling along towards the immovable object that is backstopping the crowds watching this in real time

Fri, 10/21/2011 - 12:50 | 1797495 Ray745
Ray745's picture

That chart about debt rolls looks completely wrong, according to Bloomberg, Italy has 297.635 billion EUR of maturities in 2012, where do they get 100 billion?

Fri, 10/21/2011 - 13:01 | 1797553 Tyler Durden
Tyler Durden's picture

Potentially just financial debt. Here is Buiter's summary of sovereign debt issuance by country by year. So yes, add the two series and you get a number over €4 trillion, which is about what Daiwa estimated some time ago.

Fri, 10/21/2011 - 12:51 | 1797504 tahoebumsmith
tahoebumsmith's picture

Will this weekend's meeting be just a bunch of Bankrupt Nations talking about how much more they can bankrupt themselves or just another bunch of Bankrupt Banks finding more ways to bury themselves deeper? Or are the meetings this weekend actually just another party celebrating the 3 Trillion dollars this global criminal syndicate has stolen from the serfs since the last celebration?

Fri, 10/21/2011 - 12:52 | 1797508 LookingWithAmazement
LookingWithAmazement's picture

They will fix it next Wednesday. Boring world we live in.

Fri, 10/21/2011 - 13:09 | 1797580 jdelano
jdelano's picture

On sunday they will say they will fix it wednesday.  On wednesday they will say they fixed it, with details to follow by G20.  

Fri, 10/21/2011 - 12:53 | 1797516 bnbdnb
bnbdnb's picture

I wish I was a EU banker, knowing I had the EFSF backing me up....I'd make the worst possible bets I could.

Fri, 10/21/2011 - 12:53 | 1797522 monopoly
monopoly's picture

It is time to get Physical all. Go for it. lol

Fri, 10/21/2011 - 12:54 | 1797527 Shizzmoney
Shizzmoney's picture

I look at those graphs, and think of only ONE word: "Clusterfuck"

Fri, 10/21/2011 - 12:58 | 1797540 Mark123
Mark123's picture

"This does not include the trillions in incremental debt that has to be issued at both the corporate and the sovereign level to preserve "growth", because as every Fed president knows, one can only have growth in the modern ponzi, Keynesian system, when one has incremental debt."

This is the big problem....the exponential debt-fueled growth feedback loop/prosperity forever formula is breaking down.  Only way out is to crash the current system and start again (hard work), hyperinflation (destroys the system anyways), or war (destroys the system too).


Pick your poison.

Fri, 10/21/2011 - 13:55 | 1797794 LawsofPhysics
LawsofPhysics's picture

Yep, pick your poison indeed.  No one bothered to explain an how an exponential equation really works to them. All that remains in question is the timeline.  Going on several hundred years now.

Fri, 10/21/2011 - 13:01 | 1797555 Kurion
Kurion's picture

Listen carefully, think about what you do because if I Go...
We all Go.
What's for supper?

Fri, 10/21/2011 - 13:09 | 1797578 sabra1
sabra1's picture

goats head soup!

Fri, 10/21/2011 - 13:06 | 1797572 JustObserving
JustObserving's picture

All the currencies in this world are in trouble as fiat currencies meet unsustainable debts and even more unsustainable pension and social obligations such as Medicare (unfunded liability $80.5 trillion).  There has to be massive printing by all concerned.  England is already printing 75 billion pounds.  This is a perfect environment for gold and silver to skyrocket.  But, instead, they wallow like fat pigs stuck in mud.  Can someone explain?  

Fri, 10/21/2011 - 13:08 | 1797577 Mark123
Mark123's picture

The Wizard of Oz.

Fri, 10/21/2011 - 13:29 | 1797660 oddjob
oddjob's picture

Why wait until the music stops to grab a chair?

Fri, 10/21/2011 - 14:08 | 1797833 Zero Debt
Zero Debt's picture

The correlation with money supply is likely intact but gold in the short-term was way overextended.

If you care about the gold price on anything less than a yearly basis you must use technical indicators like trend lines, supports, resistance, SMAs, changes in open interest, market volume, backwardation, premiums, production, central bank action, sentiment etc. and critically, know when to short. Gold near 2000 before year-end 2011 is a safer short than long trade.

Also an increase in the money supply can be used to dilute paper gold as cheap credit at 0% rate can be used to cover losses indefinitely on short positions. Due to the nature of the futures market what can actually happen in a disaster scenario is that the price falls while there is no physical settlement available, only cash settlement. This is a valid concern, refer to metal depository levels and movements.

Sat, 10/22/2011 - 01:37 | 1799591 John_Coltrane
John_Coltrane's picture

When big losers like John Paulson (and other hedgies who bet heavily on banks) need to liquidate to meet redemption, margin calls etc. what do they sell to raise cash, BAC at $6 (which they bought at $12) or GLD at $1600 (which they bought at ~$1000)?   You guessed it, and it really drives prices down.  (Its always supply/damand for stocks, bonds etc)  This is exactly what happened in the last 2008 crash with everything (APPL, GLD etc).

Fri, 10/21/2011 - 13:09 | 1797575 kaiten
kaiten's picture

You dont need to bailout both, banks and sovereigns. Either you bailout countries and then banks are OK, or you write down the debt and then you need to bail out the banks. So your triangle is an illusion.

Sat, 10/22/2011 - 02:56 | 1799625 StychoKiller
StychoKiller's picture

Come to grips with this illusion:  Currency is small, colored pieces of paper.

Fri, 10/21/2011 - 13:12 | 1797585 anonnn
anonnn's picture

The core problem is privileged FRAUD. Privileged because of failure [among the participants] to prosecute .

Fri, 10/21/2011 - 13:11 | 1797586 vast-dom
vast-dom's picture

The Truth Behind The Truth Is That There Is No Truth.

Fri, 10/21/2011 - 13:12 | 1797592 Nothing To See Here
Nothing To See Here's picture

The only question these central bankers are asking themselves the past few months is how do we inflate ourselves out of this without causing the price of gold to rise.

Fri, 10/21/2011 - 13:21 | 1797624 Belarus
Belarus's picture

And, as hard as they try, Central Banks while being very powerful entities, can not overturn the simplest rules of nature.

.....Agreed on all points, except dropping money from Helicopters on front lawns, corporate campuses, and sovereign treasury departments can happen longer than anyone can imagine. And beforehand, stock up on anything real and tanglible. 

Fri, 10/21/2011 - 14:04 | 1797821 s2man
s2man's picture

I am.

Fri, 10/21/2011 - 13:24 | 1797637 adyaner
adyaner's picture

Pick up your side on maginot line, french hiperinflation or german superdeflation

Fri, 10/21/2011 - 14:21 | 1797883 JustObserving
JustObserving's picture

How can you have deflation if debts are so high?  You can forgive or reduce your countires internal  debts but getting external debts reduced is not an easy matter as Greece shows.  So superdeflation requires  writing down debt rationally and fairly - that will never happen  It is much easier to hyperinflate and let things fall where they may.

Besides, most people would rather have numerically more money of lesser value than less money of higher value - so all such situations end with hyperinflation.

Fri, 10/21/2011 - 13:27 | 1797647 youngman
youngman's picture

The USA is selling 90 billion next week....where are we on our debt limit..close or it doesnt matter anymore...anyway..they are fun to much interest in them...but there is so little interest paid...

Fri, 10/21/2011 - 13:29 | 1797661 Pasi
Pasi's picture

This is a triangle of death. I wonder why financial markets are not able to see that EFSF with any extent - is and will be a failure. Just think, markets are glad to see countries near insolvency building up a hedge fund - what a heck??? Would you be buying countries or their funds bonds as a long term investment. I wouldn't... But of course ECB will and their balnce sheet will see in the near future as rotten as FEDs. Nice...

Fri, 10/21/2011 - 13:31 | 1797669 gatorengineer
gatorengineer's picture

Has this been considered:

Inflation is running 5% in the UK with Zero growth.  Reciepts should rise at approximately this rate 5%.  That means that they have an effecitve NEGATIVE interest rate.  Granted its less negative than the bonds out there now, but negative none the less....

Also all solution rumors now include the IMF......  What is the perception of the IMFs willingness to Jump in  Europes share of the IMF ticket is about 30 percent.  So if the IMF comes up with a trillion europes debt burden gets worse by 300 Billion.... About the size of the original EFSF.....


Fri, 10/21/2011 - 13:32 | 1797676 machineh
machineh's picture

Ultimately, the only thing which can give here -- the path of least resistance when an irresistable force meets an immovable object -- is massive ECB monetization of unrollable debt.

But of course, Germany is vehemently opposed to inflationary ECB policies.

What could possibly resolve the impasse? Why, a market crash that would curl your hair -- the same extortion method successfully employed by US bankster/looters in 2008.


Count on it, Bitchez ...

Fri, 10/21/2011 - 14:08 | 1797840 gnomon
gnomon's picture

Ah yes, but things are so far gone now, that they rightly fear that they will not be able to control the downslide once it starts.

Fri, 10/21/2011 - 13:33 | 1797680 falak pema
falak pema's picture

debt jubilee for third world sheeple and debt genocide for first world Oligarchs ...that is justice. The reality will be the opposite. Poetic justice is no relation to real justice. Q-daffy got gory poetry yesterday not real justice. Lets see what the poets have to say at Brussels. Something tells me their poetry will we awesome. And their justice a pale, overhanging, festering shadow of injustice for the years to come.

Fri, 10/21/2011 - 13:34 | 1797683 Manthong
Manthong's picture

excess debt, €1.7 trillion worth of it

Aw, Germany and the Scandanavians can handle it.

After all, what are friends for?

Fri, 10/21/2011 - 13:35 | 1797688 glide21
glide21's picture

Couldn't agree more but the US economy is no bed of roses, this makes trading the Euro difficult and hence scalping in and out till it swings. Also, no doubt the Agenda is entirely German as it exports nearly 80% within the EU, so a high Euro rate means nothing, until they can't afford German goods and have to make their own.

Fri, 10/21/2011 - 13:39 | 1797709 slewie the pi-rat
slewie the pi-rat's picture

ok, tyler, i think i understand

these are like the 3 witches or "weird sisters" in macbeth, stirring the cauldron for us this most happy and bullish of halloweens, ever!

toil and trouble, WiCheZ!

Fri, 10/21/2011 - 13:44 | 1797733 Madcow
Madcow's picture

Observe the escalating riots around the globe and ask yourself - how does this get resolved?

a) massive debt repudiation

b) massive inflation via currency debasement

c) ordinary long term deflation - in which the banks get to eventually foreclose on 50% of the world's private homes, businesses, family farms, city parks, etc. etc. etc. 



Fri, 10/21/2011 - 13:52 | 1797779 Quixotic_Not
Quixotic_Not's picture

d) Obama/Stalin 2012

Fri, 10/21/2011 - 14:04 | 1797820 jdelano
jdelano's picture

realized yesterday that he is going to boot Biden and run with Michelle.  Notice how visible she's getting lately?

Fri, 10/21/2011 - 13:50 | 1797766 Market Efficien...
Market Efficiency Romantic's picture

Why doesn't the chart differentiate between core and peripheral and non EUR debt to be rolled. If you take out UK, Germany and France, that deducts about 900bn. And why would the UK debt be considered or why would the rolling of core EU debt count, as they cannot fiscally ringfence themselves. Leaves us with 800bn, including any sovereign debt to be rolled over within the next three years. That does not necessitate the 2tn bazooka, only the question remains, whether longer maturities become relevant as an 800bn 'solution' has foreseeable ends. 

If you follow that argument, how could any differentiation of maturities make sense, as long as there is not fiscal unity or balanced budgets (dream on) in the EUR space. Even if, rolling is avoided with the propped up EFSF providing the refinancing of maturing debt, the situation won't look any different in 2015, especially with the limits of political pressure on peripheral sovereigns as opposed to the core.

Fri, 10/21/2011 - 13:50 | 1797769 NoClueSneaker
NoClueSneaker's picture

Problem is still in 16 Tr. forfeited $$$ issued by Chairsatan after 2008 and given to the banksters coksuckers.

Germany is an slave of TPTB and scheduled the full retard suicide, fuckin' the whole EU with the dumping of wages and selling the expensive shit to the poor neighbourghs, financed with the fake money.

Now, we're all in the deep shit.

EU-sheeple can't do a shit. If s1 is to clear the board, it's you, well weaponized Patriots® . You're waiting till the bullets catch rost or what ?

America is starting full blown genocide in Africa, thanks to GS-TOTUS creep, who made an an impossible stunt: the biggest pile of shit in the corner of the Oval Office ...


Armageddon Stunt or what????


16 fucking trillions of fake money in the system.


I'm too stupid for the shit. But, if I had a chance to push the button - I'd blow this shitball immediately. Just to end the suffer and shame ...





Fri, 10/21/2011 - 14:01 | 1797811 Missiondweller
Missiondweller's picture

In the end there is only one solution.


Print more money

Fri, 10/21/2011 - 14:09 | 1797843 s2man
s2man's picture

In the end, THEY have only one solution.

There, I fixed it for ya.


Sat, 10/22/2011 - 12:17 | 1799983 larynx
larynx's picture

Why not have the best of two worlds? Give the EFSF a banking license and allow them to sell CDS on EURO-Bonds as well as the Bonds themselves.

That would be a solution!

Fri, 10/21/2011 - 14:44 | 1798003 Peter K
Peter K's picture

Just like with the Soviet Union, the math gets them every time.

But on an aside, anybody care to comment on the notion that maybe the ECB has known about the rolling problem as a transmission mechanism of soveriegn stress for a number of years, and this is why they kept rates high in the face of worsening economic growth prospects, not to mention the rate hike in July 2008 that more likely than not caused the whole Lehman crisis?

This would explain very well the ECB's actions over the last 3 years.  As an aside part two, I'm getting tired of the old ECB must have acted in this manner because that is what the Buba would have done. It is pretty obvious from the exit of Messers Weber and Stark that the ECB doesn't give a rats ass about what the Germans think:)

Fri, 10/21/2011 - 15:38 | 1798256 Market Efficien...
Market Efficiency Romantic's picture

Agree concerning the high ir policy by the ECB. That certainly is something the US cannot accept. Structural ir gaps the one or the other way hurt the US in their 'monetary-policy-will-save-us-all policy'.

Regarding the respect for German interests, I agree the German ultra hawks had no chance, but they even in the German camp were pretty much hardliners. The ECB is fully aware of its German dependency in terms of credibility and equity stake. Don't underestimate the German forces in the technocracy of the ECB and the not so public governing members. Trichet's statements and other statements out of the ECB governing body over the past days have very much pushed the German line of thought, arguing against the EFSF banking license, the ECB bailout, or other similar ideas that in consequence lead to printing and circumvention of the national parliaments.

Don't count on the ECB to change its position without German backing. By now, I even think, the ECB governing body won't lose its face by agreeing to a giving in by the German side. After having been pressed so heavily, they will fight for them being perceived as independent.

Fri, 10/21/2011 - 14:52 | 1798040 El Viejo
Fri, 10/21/2011 - 15:54 | 1798330 dcb
dcb's picture

It's only a prpblem if your main goal is to aintian the status quo. the problems are so difficult. back stop the depositoers, nationalize the essential functions, and shoot them in the head if the people want to leave their job at reduced pay. the emerfing markets, and savers like me have lots of oney to buy bonds or stock in good banks that aren't dragged down bu those old mistakes. plus it's good if the loosers in capitialism are allowed to fail. there are also lots of alternative asset managers with money. the problem is because they insist in saving the status quo.

Fri, 10/21/2011 - 17:44 | 1798705 howswave5workin...
howswave5workingforyou's picture

all these articles assume that the only buyer of sovereign bonds in europe in the next 2 years is the EFSF/ESM. what about the pension funds, sovereign wealth funds? a lot of pension funds are in deficit and if confidence shifts they will be scrambling for the excess yield of french, italian and spanish debt. and who will be first out the door? allianz and pimco. you think they will have put in all this effort to influence the european outcome and not be in the market in coming weeks buying bonds. come on. you know how it works. 

Fri, 10/21/2011 - 19:21 | 1799003 zippy_uk
zippy_uk's picture

Don't worry - I will explain how this will work. Europe has it covered.

The way this plan works is a bit like standing in an elevator when it is at the top level when the cable breaks.

Now, a 40 store lift car plunge is certain death unless you take the correct actions. So to survive, all you have to do is wait until the lift car gets to the 1st floor, then jump 4 ft in the air (careful how you time this though). Even though lift has plunged 40 stories, you will only have jumped 4ft high so you will land safely.

The EFSF works on this same simple principle. Just wait until right the last minute, then at the critical moment stick in 2 trillion EURO. For the Germans amoung you, if you leave it really, really late and call it an insuance scheme, you might only have to put in a couple of hundred billion. Just remember to avoid that Italian muppet who might fall in front of you at the critical moment.


Please - none of your Zero hedgers posting propaganda about "terminal velocity" or falling object bodies. We don't need any of that false ideiology clouding the issue. And this being a Europ conversation, anyone trying to model this with physics is banned.

Sat, 10/22/2011 - 06:43 | 1799706 twotraps
twotraps's picture

you guys are least someone over there is thinking

Sat, 10/22/2011 - 12:11 | 1799966 larynx
larynx's picture

Nice! That sounds like a plan that could work at last.

Fri, 10/21/2011 - 20:13 | 1799152 Buck Johnson
Buck Johnson's picture

The US will have to come in using the IMF with 2 Trillion dollars like Geitner said last week.  And that is just to keep the image of things running smoothly not even growth.

Sat, 10/22/2011 - 06:48 | 1799709 twotraps
twotraps's picture

I've made comments on this before......Morgan Stanly or any other US financial company making declarations about someone elses finances.  Does anyone else see this as hilarious??  We just accept this practice as given and people listen to them because thats the way its been.   Would we be laughing at GM if they made declarations about the car industry and the Research Arm of GM gave guidance, wrote comments on all aspects of the industry from labor relations to CAFE standards to emerging markets bla bla bla bla bla???????????????????????/  No, we could laugh in their face.  Not to mention they ran themselves into the ground, took govt money and are back at with the help of generous  accounting holidays and other govt intervention magic.        


Wow, it really is just like the banks.  

Do NOT follow this link or you will be banned from the site!