Europe: Squirrel!


Ever see “Up” where the dog has the “talking” collar on and every second word is “squirrel!”


Well, that’s pretty much what you have here in Europe today, and along with it, the market.

“We agreed on short-term measures that should apply to Spain and Italy,” said Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro finance ministers. “We will keep all options open to do the interventions that need to be done to calm the situation. There is a whole array of possible interventions and measures.”

Yeah, right.

Let’s see…. subordination will come with that.  I know, I know, they say it won’t.  Yes it will as it must.  You can’t take $20 from one pocket and put it in the other, then claim to have an additional $20.  But this is what the EFSF/ESM proposes; a huge part of their funding comes from Italy and Spain so the claim that there is no subordination is per-se false; it’s indirect, but it’s still there!

What will this do for the proper price of money in the market for these nations?

It will drive it to the moon, that’s what.

What’s worse is that the EFSF and ESM simply don’t have enough capital to matter.  All they can do is buy at the margin, but in doing so they tamper with seniority, turning what is effectively “most-senior” debt into subordinated debt for those who already held the notes!

This is bad, not good.

And there’s not enough firepower.

And subordination will ultimately drive funding costs up, not down.

And there was nothing — at all — about actually fixing the underlying problem, which is that they’re still spending more than they take in over there.

Never mind here.


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