The "Euro Crisis" - Both more and less than meets the eye | 86 comments (86 topical, editorial, 0 hidden)

The Euro: Both more and less than meets the eye (4.00 / 5)

18 months ago, in voxEU, Willem Buiter wrote:

The Fed and Treasury have been captured by save-unsecured-creditors reasoning pushed by special interest groups.

In 2010 it's been the capture of the EU economic policy apparatus that has been made evident.

voxEU - Research-based policy analysis and commentary from leading economists: Zombie solutions: The Good Bank vs Bad Bank approaches

Distributional differences between the good bank and the bad bank solution
The Good Bank solution favours the tax payer. The Bad Bank solution favours the unsecured and non-guaranteed creditors of the zombie banks. `Tax payer' includes those beneficiaries of public spending programmes that may have to be cut to meet the fiscal cost of purchasing or guaranteeing the toxic assets under the Bad Bank solution. It also includes those who lose as a result of future inflation or sovereign default, should either of these two solutions to dealing with the public debt created as a result of the Bad Bank solution eventually be adopted.
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There can be no doubt that, from a distributional fairness perspective, the Good Bank solution beats the Bad Bank solution hands down.
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In terms of both moral hazard (incentives for excessive future risk taking) and the efficient use of government funds ('new lending bang per buck'), the Good Bank solution beats the Bad Bank solution hands down.
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The holders of bank debt, with the possible exception of perpetual subordinated debt (which counts as tier one capital in some countries), have become the sacred cows of this financial crisis. Regulators, central bankers, and Treasury ministers are quite willing to see shareholders wiped out. After the demise of WAMU and Lehman Brothers, however, the unsecured creditors have become inviolable. Somehow, those in charge of macro-prudential stability, notably the Fed, have bought into the notion that if there is either a further default on bank debt, or a restructuring involving a significant debt-to-equity conversion, or a significant write-down of the claims of bank bond holders, this will be the end of the world.
I just don't buy it. Fortunately, I am not the only one. ...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Carrie (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 08:23:25 AM EST

Mental capture progress report (none / 1)

Expectations grow for Ireland rescue package - MarketWatch

Lenihan's remarks drew scrutiny for acknowledging that the government may eventually apply for rescue funds, although the official continued to emphasize that any aid package would be aimed at shoring up the banking sector rather than helping the government meet its funding needs.
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And in fixed-income trading, Irish government bond yields declined across the curve as a result of expectations for a bailout, analysts said, while the cost of insuring Irish sovereign debt against default also fell.
Equity markets rallied, with the Irish ISEQ stock index /quotes/comstock/30q!ieop (XX:IEOP 2,765, +72.74, +2.70%) gaining 2%. Relief spilled over into other equities exchanges in Europe. See more on the rally in European stocks.

(my emphasis)

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Carrie (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 11:11:04 AM EST
[ Parent ]

Re: Mental capture progress report (none / 1)

Opinion hiding among news: Expectations grow for Ireland rescue package - MarketWatch

For Ireland, default delayed
Ireland will be forced to accept a bailout. But this will only postpone its default. That's because it is already overburdened by debt. All these rescues do is switch the pain from creditors to taxpayers. But taxpayers, particularly German ones, won't stay compliant forever.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Carrie (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 11:15:11 AM EST
[ Parent ]

remember (none / 0)

yields declining = asset price increasing

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat Nov 20th, 2010 at 07:19:28 AM EST
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Re: remember (none / 0)

Exactly, the markets are happy!

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Carrie (migeru at eurotrib dot com) on Mon Nov 22nd, 2010 at 06:19:12 AM EST
[ Parent ]

The "Euro Crisis" - Both more and less than meets the eye | 86 comments (86 topical, 0 editorial, 0 hidden)