Tuesday, September 06, 2011

Distant Early Warning on the Euro Finance Crisis

Interesting little essay here which (in much more civil terms) echoes Hoffa's screech, but on a related (not direct) topic.

The global economy is at a crossroad that demands a decision - whom will our leaders defend? One choice is to defend bondholders - existing owners of mismanaged banks, unserviceable peripheral European debt, and lenders who misallocated capital by reaching for yield and fees by making mortgage loans to anyone with a pulse. Defending bondholders will require forced austerity in government spending of already depressed economies, continued monetary distortions, and the use of public funds to recapitalize poor stewards of capital. It will do nothing for job creation, foreclosure reduction, or economic recovery.

The alternative is to defend the public by focusing on the reduction of unserviceable debt burdens by restructuring mortgages and peripheral sovereign debt, recognizing that most financial institutions have more than enough shareholder capital and debt to their own bondholders to absorb losses without hurting customers or counterparties - but also recognizing that properly restructuring debt will wipe out many existing holders of mismanaged financials and will require a transfer of ownership and recapitalization by better stewards
.  ---Hussman quoted by Mish

I'm not a fan of "Black/White" alternatives; usually, there's a via media which is also *cough* viable.  But the banks haven't exactly covered themselves with glory in the last 5 years, and there's a sentiment which is growing more nasty as time marches on.


neomom said...

Zero Hedge is talking about how UBS is now speculating about what would happen to Europe if Germany decides to dump the Euro...

It ain't pretty.

J. Strupp said...

Good summary.

Those are Europe's two choices in a nut shell.

We're going to find out how unified European unification is over the next year or so.

Until then, I wouldn't put two nickels in equities. Anywhere. Take Uncle Sam's zero/negative real interest rate and be happy.