What Color Is Your Panic Button?

Tyler Cowen suggests the sort of thing Obama 2012 ought to be contemplating - take TARP abroad and bail out the Spanish banks, multilaterally of course.

I will Boldy Predict that the use of US taxpayer dollars to bail-out Spanish banks would be even less popular than the bail-out of US banks. And the economic impact will probably be in damage avoided and jobs saved, not jobs created prior to the first Tuesday after the first Monday in November.

And even if the Treasury and Fed can sneak this off-balance sheet somehow, we do have another debt ceiling scuffle down the road, and El TARPo would surely spill over into that debate.

Still, who knows? My favorite story today (since updated into oblivion) is that European markets were up today on expectations that the European Central Bank would leave interest rates unchanged and fulminate about the importance of a more vigorous, sustained and credible political process. A flavor remains here:

[ECB President] Draghi generally isn’t expected to unveil any fresh policy moves—such as an additional dose of long-term liquidity operations—at his news conference. But the euro, equities and other risk-oriented assets managed to rise in earlier activity on hopes the ECB chief “will offer clues about forthcoming easing in the months ahead,” said Ilya Spivak, currency strategist at DailyFX, in emailed comments.

...

“The ECB may reiterate its willingness to support Europe’s banking sector if credit dries up in future, but we think it will stick to its guns and resist calls to step in to directly help governments,” said Kathleen Brooks, research director at Forex.com in London.

“We will be listening out to any reference Draghi makes to Spain’s banking sector, but we believe the ECB will leave the recapitalization of some weak Spanish lenders up to the EU authorities,” she said, in emailed comments.

Keeping hope alive!

Comments

[NK]

RichatUF@7:48-- the reason Euro worked for Germany 1993-2008 because it allowed southern europeans to borrow in Euros denominated terms (mostly from French, Dutch and German Banks) and buy expensive German products. Products they couldn't afford of course, but the debt allowed them to buy in the short term. Well the southerners are broke-- not a cashflow problem-- they are broke and they will default on sovereign debt and never be credit worthy for a generation. The Germans busted out those export markets, they are no good to Germany any longer for exports. German exports now go to the ME, east asia, NA, and the BRICs. Unlike the collapsing Euro,you're correct that the NeuMark will be competitive with those currencies, but the germans don't export based on currency manipulation, they export on super engineering and manufacturing efficiency. The NeuMark will be much stronger than the SouthernEuro, but that will allow Germany to control German inflation (food products and energy costs will be lower than today), and controlling inflation is culturally vital to Germans because they actually intend to payoff on their pension promises. A strong NeuMark will also allow German firms to pick off some fine Italian industries at cheap rates. For those reasons, I've believed for 2 years this ultimately plays out with a NeuMark and PIIGS defaults and a Southern Euro. As you say, time will tell.

[NK]

BenB@7:24-- yes we have been paying attention. And if you do it again with QEIII asset purchases, we're gonna give you the full Mussolini Treatment.

[Melinda Romanoff]

NK-

Euro launched into circulation in 2002.

Not 1993.

There was some debt issued in euros earlier than the Jan. 1 launch, but not much.

[NK]

MelR --Maastricht was in 1993, and the exchange rates of the original Euro members were locked in as of January 1, 1999, and as you say the paper currency began circulating in 2002. But the reality was that German banks and exporters made business plans and decisions based on the Euro starting with (and probably before) Maastricht. Italy, Spain and other traditional currency manipulators stopped debasing after Maastricht because they didn't want germany and france pulling out of the Euro, so the EuroZone denominated economy started forming in the 90's. the EZ didn't just spring up like a mushroom when the currency started circulating in 2002.

[Melinda Romanoff]

And the Common Market was formed in '55. This has been a long march (where have I heard that before?) when Gorby was brought in to "consult" on the Maastricht" project back in 1991, some notes should have been taken public.

[NK]

MelR-- the continental "European Experiment" has a long pedigree. Before the Common Market there was the Third Reich, and before that Napolean, and before that the Ottomans, before that the Holy Roman Empire, and Byzantium, and Rome... none of them ever seemed to have worked out.

[Melinda Romanoff]

Hmmm, go figure.

Must be the messaging.

[NK]

...or not enough Panzers (or CDSs in today's world). Tyler Durden links to Art Cashin talking about Thatcher calling all of this Euro nonsense back in 1999. Unfortunately, one of the ZH commenters has it right-- voters don't want to hear the truth, they want empty promises, ask Ron Paul. Waay too much truth in that. the link: http://www.zerohedge.com/news/cashin-conjures-thatchers-prophetic-euro-folly-call

[Melinda Romanoff]

CDSs are a tool. No more, no less. A private transaction between private parties quoted publicly for financial manipulation purposes. Long dated, binary options, which technically CDSs are, serve purposes that do not actually reflect face value. They primarily exist to allow money center banks to avoid higher capital holdings. Know this "product" all too well.

[Melinda Romanoff]

I'll top your ZH post by one of their contributors, a clip of the President of the ECB ripping on all solutions to date, and dares to use Latvia's success as the model to follow.

(as we all should.)

And the man quoted is one of Merkel's opponents. Heh.

[NK]

MelR-- thanks for the further link. I don't disagree about CDSs, they are amoral financial products, they are neither inherently good nor evil. But in the hands of fools who look for taxpayer bailouts of their tradeing losses.......

[Janet]

MelR-- the continental "European Experiment" has a long pedigree. Before the Common Market there was the Third Reich, and before that Napolean, and before that the Ottomans, before that the Holy Roman Empire, and Byzantium, and Rome... none of them ever seemed to have worked out.

Wow. Biblical prophecy coming to life....a reworked Roman Empire...Babylon (Iraq) rising up...Russia siding with Syria against Israel....Israel/Jewish hatred rising again as they are used as a scapegoat for world problems. It is like the chess pieces are all moving into place.

[NK]

MelR/BenB-- I just read the Bernanke's prepared testimony to Congress. I just don't know what to make of it. The optimist in me hopes he's saying we'll keep Twist going, but NO QEIII asset purchases between now and November. And he is double dog daring Congress to keep tax rates low and reform entitlements, because Congress has screwed the pooch, not the Fed. I know I must be projecting there-- what do you think? PS: Janet, this isn't Biblical Armegeddon-- as Mel said it's just more poor Euro Project messaging.

[Melinda Romanoff]

Janet-

The Great Game is afoot!

[Melinda Romanoff]

NK-

This IS a Senate hearing, so the "Gotcha" guns are out.

[NK]

MelR-- you mean nothing productive will happen at the Hearing? Oh no.......

[Melinda Romanoff]

Swoon!