||Well, well. Devalue the Euro?; entered at 2012-06-30 21:04:30 |
East Tennessee Eastern Time
Holy smokes! The EU technocrats have finally pulled out the big guns! The agreement on Friday was to take the incredibly bold step of avoiding subordination in the Spanish bond market. The money needed for the busted Spanish banks will now be made available directly from Brussels with few strings attached. Wow! What a breakthrough!
Global markets have taken a quick look at what has been offered up by the deep thinkers in Euroland and said, “WE LOVE IT!”
Me? I think it’s a spit in the bucket. The half-life of this bailout will be measured in weeks.
We have seen this play out time and again the past four years. The capital markets are forcing policy decisions.
“Wise” people like Paul Krugman have said for years that “Bond Vigilantes” don’t exist. There is no doubt any longer that they exist and are alive, well and hungry. The vigilantes are also armed with highly sophisticated robots that can execute attacks on multiple fronts and across markets in milliseconds. The war going on in the bond markets is not over by a long shot.
My read of the EU summit is that Spanish banks are going to get a “soft” bailout. Existing common shareholders and subordinated bond holders will not get wiped out (as they should). The bankers must love this result. They get to keep their jobs for a few years longer, all the time praying for a miracle.
Where does this go? Directly to Italy. Which Italian bank would love to have some of that cheap equity money that Brussels is doling out? All of them.
But here’s the deal, France’s banks are in desperate need of new equity too. They have been selling off assets left and right. That’s no way to keep up employment in Socialist France. There are some very big balances sheets in Paris that need a new slug of 3% Perpetual Preferreds. If Italy’s banks get the "Sweet Deal," then the French banks will have their hands out too.
Talking about re-caps of banks in Spain, Italy and France, we might just as well include a few dodgy banks in Brussels. A couple of German banks are also thin on equity. Add a few of them to the list.
Ah… I’m sorry to rain on the parade, but the number derived from all that bailing starts with Euro 1 Trillion, and could easily push to E2T.