Sunday, September 25, 2011

Multi-trillion Euro Bailout -- Ambrose Doesn't Mince Words

"There is no plan, and we don't need one. The banks are very solid. None of them is hiding any toxic assets," he said.
What is the point of uttering such rubbish? The markets know this is untrue, and so does the IMF. It is an almost surreal refusal to recognize that investors are - for good reasons - terrified about French bank exposure to Italian sovereign debt. Mr Noyer encapsulates the mixture of stubborness and amour propre now threatening the world with disaster, and which is so like the French reflex as everything collapsed in mid-1931. Funny how they never change.

The rest here.

The interesting thing will be how the cultural and political differences between Europe and the US will be reflected in the structure of the bailout.

Ambrose talks of the French "seizing" banks to recapitalize them. Taxpayer bailouts or "recapitalizations" of the banks really warrant public control, especially if the banks are insolvent and the remaining equity is zilch -- new money should own 90%+.

Now in the US, given Obama's disgusting worship of financiers, the idea of actually forcing through some serious change never was really on the table. But with the FDP's electoral loss in Berlin, and the potential revolt of the backbenchers, a government of national unity with the Social Democrats is a possibility; and the Social Dems support the European project, but I'm not sure that they are going to be as banker friendly as all the Goldman Sachs alumni running things in the US. So we may actually see a publicly funded bailout in Europe that reflects the public interest a bit more.

If they really go down that path, forcing the bondholders (banks) to take their losses, and then printing to neutralize the deflationary impact, then the Eurozone may actually emerge stronger than anyone imagines.

No comments:

Post a Comment