Blind 'em with science

[peterbirks]

When all of the heavy firepower that the EU said it was firing after the Wednesday summit is analyzed, a fair proportion of it looks to be the result of blanks being fired. Cunningly, the EU has pushed out three "solutions" simultaneously, in the vague hope that the general public, at least, will not bother to read the analyses that come from, well

Comments

Focus, Birks, Focus

[real_aardvark]

Good Lord, Pete, you didn't even follow through with that "focussing on the Greek haircut" promise, did you? I haven't counted the words, but all three preposterous pixie dust notions seem to attract the same amount of analysis.

This, for some reason, worries me.

It's sort of like watching a five-tool baseball player hit the limit on all five tools in the same game. Somehow, you can sense that the game is already over...

(And no, I don't have a clue what I'm talking about this time, either. But I'm still in a state of pro-Europe trepidation.)

Re: Focus, Birks, Focus

[peterbirks]

No, I didn't. I got a little carried away "getting the other two out of the way", didn't I?

PJ

Mamma Mia

[real_aardvark]

Obviously, I'm a financial novice.

But if the EU powers-that-bewoerdingenkraftmachten were to narrow down their aims, say, to completely shutting down the likes of Espirito Santo Financial Group and paying investors off at, say, 90c on the euro, wouldn't that actually de-leverage the upcoming catastrophe when every single bank in Europe gets their short-term funding cut off at once, needs to recapitalise at 9%, and discovers that, post Arab Spring (a side issue that I note you have not yet factored in), not a petro-dollar in existence is going to come their way?

In other words, I'm far more worried about the feedback mechanism on all this (cf Lehmans, etc) than I am about individual examples of catastrophic failure.

Greece is doomed, but surely it's not beyond the wit of Europe's central bankers (basically, Frankfurt) to mitigate the stench from tiny little economies like Portugal.

Re: Mamma Mia

[peterbirks]

Well, I can see what you are saying here, but even I, a man in favour of radical "let's clear this up quickly and take the pain for a year or two" feel that there are horrific problems (economic and political) related to a mass bank shut-down and compensation at some arbitrary rate (and how would everyone be persuaded to agree what that rate would be, short of instituting dictatorships throughout the world

Re: Mamma Mia

[real_aardvark]

That, in a sense, is where all these summits fall down. Nice photo opportunities, shame about the quality of the concrete.

"Let's clear this up quickly and take the pain for a year or two" is hardly radical (although I will call it that if it makes you feel happier about your U. Cantab days). It's sodding obvious, isn't it? And it was sodding obvious in 2008, which is, let's see, -1 year away from a result.

As you keep banging on, the basic issue is that Hoi En Telei are, bizarrely, concerned with Business As Usual and making the assumption that a few sticking plasters will keep this going into the middle term, say, 2015.

Obviously it will not. Even if all three major participants (I'm including Italy purely as a courtesy) deliver, it will not.

Sorry, I'm still generalising as an institutionalised historian (yes, we're institutional as well). I'll have to think about this a bit more.

Re: Mamma Mia

[real_aardvark]

Hmm.

How you "shut it down" is theoretically very simple.

You buy it.

Admittedly you'd have to get various Portuguese interests to agree, but frankly the alternative sounds even worse to me. You're not buying every single Portuguese bank; you're just taking the more worrying ones out of the equation.

Of course, you're then left with the rest of them. But you could do this at minimal cost throughout the entire EU (possibly with a warning sign over French banks, whose finances make no sense to anybody who is not a graduate of the Ecole Polytechnique), and at the very worst you'd end up like the UK, lumbered with a huge unwanted equity in various Scottish farragoes and Northern Rock and Lloyds.

I haven't seen a melt-down of UK Government finances based on that.

To extend your exuberant last sentence, I cannot see a problem with innoculating the worst of the bad banks in order to keep at least some of the bad banks going to stop the good banks becoming bad banks ...

And doesn't that sound a tiny bit like feedback?

[real_aardvark]

It's hard not to conclude that a complete crisis is developing. (And incidentally I was not suggesting that Portugal should buy ESFG, far from it: I was suggesting that some sort of back-door Germany should buy it.)

French and Italian banks are another matter. I'm looking forward to your analysis of how and when to sell these junkers short.

I still think my (otherwise absurd) suggestion that the EU should buy up the low-hanging, but not entirely Greek, fruit and then spend some time working out what to do with the resultant mess is not unreasonable. It honestly looks like reverse leveraging to me. And we could all do with a bit of that.

On the bright side, a complete freeze-up is ridiculously unlikely.

Ask yourself what the movers and shakers are going to do with their trillion after a couple of weeks or so.

[real_aardvark]

So, your basic conclusion here is that we need a Eurobond, if necessary by the back door. (Correct me if I am wrong.)

If so, I can only hope that your characterisation of Merkel as a dull, bland, Lutheran scientist who would really like to do the right thing (as opposed to being a politician) is correct. Otherwise, it's tits up by Christmas, isn't it?

Bump That Baby!

[real_aardvark]

(And incidentally, as a historian, I find it interesting quite how fast Sarkozy and Berlusconi and what's his face in Spain have become entirely irrelevant to the question. This is one of those metrics that makes me worry even more.)