Posted by Karl Denninger
No, no, not the ECB’s.
The “currency speculators” – cough – BANKS that were shorting the hell out of the Euro.
Let’s see if I can figure out what’s happened here.
- Banks shorted the Euro, (correctly) surmising that Greece, Portugal, Spain and others can’t possibly cover their debts.
- The ECB freaks out as the Euro heads toward PAR and calls “emergency meetings” (forgetting, I might add, that the Euro traded under PAR not that long ago.)
- The ECB and Eurozone decides to “defend” the Euro with €1t in “defensive measures”, including buying bonds of bankrupt sovereigns (gee, that’s nice – monetization by another name.) Since the ECB and EuroZone cognescenti is of course connected to the large banks in Europe (including France, where Sarkozy is located) these banks know to back off on Friday (notice the nice little uptick?) to lock in their bonuses from these insanely-profitable trades against their own currency.
- The very same banks, including the ones in Sarkozy’s back yard, see the very nice spike and short the Euro even harder, (correctly) surmising that they have successfully stuck the gun up the nose of the ECB!
Rinse and repeat until you have all the money.
Naw, it wouldn’t be that simple, would it? Why of course it would.
See, lending someone money when they’re bankrupt can’t possibly make them not-bankrupt. It can only make them more-bankrupt. As a consequence the ECB’s action is self-destructive and doomed to fail, and as a consequence there is no reason for these banks to back off at all! Indeed, quite to the contrary – they have (correctly) deduced that they can make billion in bonuses by shorting their own currency to destruction, forcing ever-larger “interventions” by the ECB!
If you’ve ever seen a meth addict goose himself with his drug of choice to the point where his teeth literally fall out, you know how this story ends.
The only winning play is to refuse to play at all, and force the bankrupt to recognize their insolvency and reorganize their debts. That’s it. Attempting to paper over insolvency never works, and the market has now deduced this, as I expected – although I didn’t think it would happen quite this quickly.
“All in” by the ECB drew not a “ok, ok your pot!” response, but rather one loud voice in response: CALL!
Bonne chance Nicolas.