12/06/2011 archive

What’s that?  Never heard of it.

The eurozone’s terrible mistake

Felix Salmon, Reuters

Dec 5, 2011 23:36 EST

The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”. If this principle really does get enshrined into some new treaty, it will be one of the most fiscally insane derelictions of statesmanship the world has seen – but it certainly helps explain the short-term rally that we saw today in Italian government debt.

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To understand just how stupid this is, all you need to do is go back and read Michael Lewis’s Ireland article. The fateful decision in Ireland was to take the insolvent banks and give them a blanket bailout, with the banks’ creditors all getting 100 cents on the euro. That only served to put a positively evil debt burden onto the Irish people, forcing a massive austerity program and causing untold billions of euros in foregone growth, while bailing out lenders who deserved no such thing.

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The worst case scenario is that the EU kicks the can down the road with one new bailout facility after another, until it eventually gives up throwing good money after bad and imposes the restructuring which was inevitable all along. In that case, as one hedge fund manager was explaining to me last week, private sector creditors get devastated: because the EU and the ECB and the IMF won’t take any losses on their loans, all of the haircut, pretty much, will have to be borne by a private sector which accounts for only a fraction of the debt. So the private sector could end up with very, very little indeed.

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The immediate result of this plan is that everybody will rush into the highest-yielding bonds in Europe, which is exactly what seems to have happened today. The other effect of the plan, however, is that every country in Europe is now effectively guaranteeing everybody else’s debt. Which is more than sufficient to explain why S&P is minded to downgrade every country in Europe, up to and including Germany.

In order for markets to work, lenders need to suffer when they make bad lending decisions. If the Europeans didn’t learn from Ireland, couldn’t they at least learn from the Fed’s much-criticized decision to pay off all AIG creditors at 100 cents on the dollar? Blanket guarantees at par are pretty much always a really bad idea – and this one, if it comes to pass, will be the biggest one yet. It won’t end well.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Dean Baker: The Stop Online Piracy Act: Class War in Cyberspace

The One Percent and their employees are masters of word play. They turned the estate tax into the “death tax,” life-saving health and environmental rules became “job-killing” regulations and, of course, when it comes to taxes, the richest of the rich are now “job creators” who are supposed to be exempt from paying taxes.

Given this track record, it is hardly surprising that a bill that would require every web site in the country to become unpaid copyright enforcement officers for Time Warner, Disney and The Washington Post comes packaged as the “Stop Online Piracy Act.” While the name may lead the public to believe that Congress is trying to keep our email pure and our computer screens safe, the real story is that the One Percent are again trying to rig the rules so that they get as many dollars as possible from the rest of us.

David Brooks: The Wonky Liberal

Republicans have many strong arguments to make against the Obama administration, but one major criticism doesn’t square with the evidence. This is the charge that President Obama is running a virulently antibusiness administration that spews out a steady flow of job- and economy-crushing regulations.

In the first place, President Obama has certainly not shut corporate-types out of the regulatory process. According to data collected by the Center for Progressive Reforms, 62 percent of the people who met with the White House office in charge of reviewing regulations were representatives of industry, while only 16 percent represented activist groups. At these meetings, business representatives outnumbered activists by more than 4 to 1.

Nor is it true that the administration is blindly doing the bidding of the liberal activist groups. On the contrary, the White House Office of Information and Regulatory Affairs and its administrator, Cass Sunstein, have been the subject of withering attacks from the left. The organization Think Progress says the office is “appalling.” Mother Jones magazine is on the warpath. The Huffington Post published a long article studded with negative comments from unions and environmental activists.

I know, David Brooks you ask, well, the only problem with Bobo’s article is his title. As the article illustrates so precisely, Obama may be “wonky” but he ain’t no liberal.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 6 is the 340th day of the year (341st in leap years) in the Gregorian calendar. There are 25 days remaining until the end of the year.

On this day in 1884, the Washington Monument is completed.

In Washington, D.C., workers place a nine-inch aluminum pyramid atop a tower of white marble, completing the construction of an impressive monument to the city’s namesake and the nation’s first president, George Washington.  As early as 1783, the infant U.S. Congress decided that a statue of George Washington, the great Revolutionary War general, should be placed near the site of the new Congressional building, wherever it might be. After then-President Washington asked him to lay out a new federal capital on the Potomac River in 1791, architect Pierre L’Enfant left a place for the statue at the western end of the sweeping National Mall (near the monument’s present location).

The Washington Monument is an obelisk near the west end of the National Mall in Washington, D.C., built to commemorate the first U.S. president, General George Washington. The monument, made of marble, granite, and sandstone, is both the world’s tallest stone structure and the world’s tallest obelisk, standing 555 feet 5 1/8 inches (169.294 m). There are taller monumental columns, but they are neither all stone nor true obelisks. It is also the tallest structure in Washington D.C.. It was designed by Robert Mills, an architect of the 1840s. The actual construction of the monument began in 1848 but was not completed until 1884, almost 30 years after the architect’s death. This hiatus in construction happened because of co-option by the Know Nothing party, a lack of funds, and the intervention of the American Civil War. A difference in shading of the marble, visible approximately 150 feet (46 m or 27%) up, shows where construction was halted for a number of years. The cornerstone was laid on July 4, 1848; the capstone was set on December 6, 1884, and the completed monument was dedicated on February 21, 1885. It officially opened October 9, 1888. Upon completion, it became the world’s tallest structure, a title previously held by the Cologne Cathedral. The monument held this designation until 1889, when the Eiffel Tower was completed in Paris, France. The monument stands due east of the Reflecting Pool and the Lincoln Memorial.

If anyone thought for a second that Barack Obama’s threatened veto of the Senate’s passage of legislation that would allow for indefinite detention of Americans, think again. From Washington Blog via naked capitalism:

And at first, I – like many others – assumed that Obama’s threat to veto the bill might be a good thing. But the truth is much more disturbing.

As former Wall Street Street editor and columnist Paul Craig Roberts correctly notes:

   The Obama regime’s objection to military detention is not rooted in concern for the constitutional rights of American citizens. The regime objects to military detention because the implication of military detention is that detainees are prisoners of war. As Senate Armed Services Committee Chairman Carl Levin put it: Should somebody determined “to be a member of an enemy force who has come to this nation or is in this nation to attack us as a member of a foreign enemy, should that person be treated according to the laws of war? The answer is yes.”

   Detainees treated according to the laws of war have the protections of the Geneva Conventions. They cannot be tortured. The Obama regime opposes military detention, because detainees would have some rights. These rights would interfere with the regime’s ability to send detainees to CIA torture prisons overseas. (Yes, Obama is still apparently allowing “extraordinary renditions” to torture people abroad.) This is what the Obama regime means when it says that the requirement of military detention denies the regime “flexibility.”

   The Bush/Obama regimes have evaded the Geneva Conventions by declaring that detainees are not POWs, but “enemy combatants,” “terrorists,” or some other designation that removes all accountability from the US government for their treatment.

   By requiring military detention of the captured, Congress is undoing all the maneuvering that two regimes have accomplished in removing POW status from detainees.

   A careful reading of the Obama regime’s objections to military detention supports this conclusion. (See http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saps1867s_20111117.pdf)

   The November 17 letter to the Senate from the Executive Office of the President says that the Obama regime does not want the authority it has under the Authorization for Use of Military Force (AUMF), Public Law 107-40, to be codified. Codification is risky, the regime says. “After a decade of settled jurisprudence on detention authority, Congress must be careful not to open a whole new series of legal questions that will distract from our efforts to protect the country.”

   In other words, the regime is saying that under AUMF the executive branch has total discretion as to who it detains and how it treats detainees. Moreover, as the executive branch has total discretion, no one can find out what the executive branch is doing, who detainees are, or what is being done to them. Codification brings accountability, and the executive branch does not want accountability.

  Those who see hope in Obama’s threatened veto have jumped to conclusions if they think the veto is based on constitutional scruples.

Even if Obama’s threatened veto was for more noble purposes, the fact is that it would not change anything, because the U.S. government claimed the power to indefinitely detain and assassinate American citizens years ago. [..]

The Obama administration has also said for more than a year and a half it could target American citizens for assassination without any trial or due process. [..]

It’s hard to believe that any genuine democracy would accept a claim by its leader that he could have anyone killed simply by labeling them an “enemy.” It’s hard to believe that any adult with even the slightest knowledge of history or human nature could countenance such unlimited, arbitrary power, knowing the evil it is bound to produce. Yet this is what the great and good in America have done. Like the boyars of old, they not only countenance but celebrate their enslavement to the ruler.

(emphasis mine)

I had not read Dahlia Lithwick’s article at Slate on military detentions when I wrote about Obama’s veto threat of the NDAA because he objected to military making the decision:

Now, perhaps you suspect these thorny questions about the handling of terrorists are best left to the experts, and that the Senate was simply listening to them. Such suspicions would be unfounded. The secretary of defense, the director of national intelligence, the director of the FBI (pdf), the CIA director, and the head of the Justice Department’s national security division have all said that the indefinite detention provisions in the bill are a bad idea. And the White House continues to say that the president will veto the bill if the detainee provisions are not removed. It sees the proposed language as limiting its flexibility.

There may be no good outcome here. It could be an unholy victory for both the prospect of unbridled executive power and for the collapse of any meaningful separation between domestic law enforcement and military authority. The law manages to expand the role of the military in domestic terror prosecutions and also limit the authority of the civilian justice system to thwart terrorism. These were legal principles to which even the Bush administration said they adhered.

No good will come of this no matter what Obama and Congress do or don’t do. This “war on terror” has now become the “war on liberty” by our own government.

Former US Congressman Alan Grayson (D-FL) and Rep. Ron Paul (R-TX) pushed for an audit of the Federal Reserve, the first in its 99 year existence, that produced a massive 251-page GAO report entitled “Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance” (pdf). Rep. Grayson summarized some his favorite parts and explains what it all means in an article in the Huffington Post:

(1) In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street. That’s now how a democracy should function, or even can function.

(2) The notion that this was all without risk, just because the Fed can keep printing money, is both laughable and cryable (if that were a word). Leaving aside the example of Germany’s hyperinflation in 1923, we have the more recent examples of Iceland (75% of GNP gone when the central bank took over three failed banks) and Ireland (100% of GNP gone when the central bank tried to rescue property firms).

(3) In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine. But there is no reason why our money should be involved in that.

(4) For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism. The Fed is a central bank, not a barber shop.

(5) The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success. (If you don’t believe me, ask Jamie Dimon at JP Morgan.) The Fed helped the losers to squander and destroy even more capital.

(6) During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

There is nothing to stop the Federal Reserve from doing this again. More money please but only if you’re a bank.

In 2007, Eileen Foster, a former executive vice president in charge of fraud investigations for Countrywide Financial Corp., and her team began looking through documents in the company’s mortgage division. What she uncovered was massive fraud that was being committed on a daily basis. When Countrywide was acquired by Bank of America in 2008, Ms. Foster was fired for “inappropriate and unprofessional conduct.”

Ms. Foster filed a wrongful termination lawsuit with the Department of Labor. During her three year fight to clear her name, the extensive fraud committed by Countrywide employees and executives came to light. Bank of America, as typical, says that this in nothing new and the claims against Countrywide were settled. In the first part of a two part article by Michael Hudson published at i-Watch News, recounts the extent of the fraud committed by Countrywide employees, condoned by executives and covered up by BoA:

In government records and in interviews with iWatch News, Foster describes other top-down misconduct:

   

She claims Countrywide’s management protected big loan producers who used fraud to put up big sales numbers. If they were caught, she says, they frequently avoided termination.

   

Foster claims Countrywide’s subprime lending division concealed from her the level of “suspicious activity reports.” This in turn reduced the number of fraud reports Countrywide gave to the U.S. Treasury’s Financial Crimes Enforcement Network.

   

Foster claims Countrywide failed to notify investors when it discovered fraud or other problems with loans that it had sold as the underlying assets in “mortgage-backed” securities. When she created a report designed to document these loans on a regular basis going forward, she says, she was “shut down” by company officials and told to stop doing the report.

Eileen Foster appeared on 60 Minutes in an interview with Steve Kroft:

60 Minutes also interviewed the head of the criminal division at the Department of Justice, Larry Brewer asking him about the lack of prosecutions that could be done under the Sarbanes-Oxley law. Brewer’s response was “he thinks nobody ‘lacks confidence’ in the department’s ability to prosecute financial crime”:

   60 MINUTES: We spoke to a woman at Countrywide who was a senior vice president for investigating fraud and she said that the fraud inside countrywide was systemic. That it was basically a way of doing business.

   BREWER: Well, it’s hard for me to talk about a particular case. Of course in the Countrywide case, terrific office, US Attorney’s office in Los Angeles, investigated that. Interviewed many, many people. Hundreds of people, perhaps. Reviewed millions of documents.

   60 MINUTES: Do you lack confidence in bringing cases under Sarbanes-Oxley?

   BREWER: Steve, no one is really has accused this Department of Justice, or this division, or me of lacking confidence. If you look at the prosecutors all over the country, they are bringing record cases with respect to all kinds of criminal laws. Sarbanes-Oxley is a tool, but it’s only one tool. We’re confident. We follow the facts and the law wherever they take us. And we’re bringing every case that we believe can be made.

Some state attorney generals are filing suits and conducting investigations. Massachusetts AG Martha Coakley filed papers in state court suing five major mortgage lenders, including Bank of America, and MERS. Meanwhile, there have been no federal prosecutions of any top level executives and federal prosecutions of financial fraud have fallen to a 20 year low but thousands of Occupy Wall Street protesters have been arrested.

As Zaid Jilani concludes at Think Progress:

After all, allowing criminals to help cause a global recession that plunged 60 million people into extreme poverty and then proliferate in an industry will only sully its reputation.

Mr. Obama?

Part 1

Part 2

Transcript

Overtime

(h/t Diane Sweet @ Crooks & Liars)

You see, the fundamental problem is that their banks are insolvent.

European banks’ asset sales face disastrous failure

By Gareth Gore, International Finance Review

26 November 2011

European banks are being forced to abandon their efforts to sell off trillions of euros worth of loans, mortgages and real estate after a series of talks with potential investors broke down, leaving many already struggling firms with piles of assets they can barely support.

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Deadlocked talks with potential buyers – a mix of private equity firms, hedge funds, foreign banks and insurers – show little sign of making breakthroughs, say bankers taking part in those negotiations, with the stalemate threatening to block the industry’s ability to save itself from collapse through a mass deleveraging.

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People involved in asset sale talks say price is the major sticking point. Lenders want only to sell higher-quality assets near to par value so as to avoid huge write-downs, which would erode capital further. By contrast, potential buyers want high-yielding investments and are offering only knock-down prices.

“There is a huge amount of liquidity among investors right now, but they only want to buy at distressed prices,” said Stefano Marsaglia, a chairman within the financial institutions group at Barclays Capital. “Lots of discussions are taking place but there is a gulf in terms of pricing.”

The homogeneity of assets on offer is also complicating the negotiations – a number of Dutch lenders, for example, all want to sell very similar mortgage-backed securities. Several bankers advising such clients were unanimous in saying that the deals will struggle to happen.

And Now Europe’s Banks Are Starting To Panic As The Oxygen Gets Sucked Out Of The Room

Henry Blodget, Business Insider

Nov. 16, 2011, 9:27 PM

Specifically, traditional sources of bank funding in Europe, such as institutional investors and other banks, are getting cautious as fears grow about the need for sovereign debt restructurings. As liquidity dries up, the only reliable source of funding is often the ECB.

But the ECB only accepts certain types of assets as collateral for loans, and some banks are running out of those assets.

So they’re turning to investment banks and other “counter-parties” that have them. And they’re entering into “swap” agreements in which they exchange their assets for the counter-parties’ assets and then stock-pile the latter assets for use as collateral.

And that’s a fine plan… until the music stops and one big “counter-party” fails.

How does this relate to the sovereign debt crisis?  As Citi’s Willem Buiter puts it-

I think France definitely has its work cut out for itself. It has a government budgeting problem which is structural to a large extent. And then they have a large banking sector. Do not forget that the U.S. banking sector balance sheet is less than 100% of GDP. In Europe and France, it is 300%. Their banks are under fire and so their sovereigns are under fire. I do not think the sovereign will keel over, but they have their work cut out for them.

All the liquidity in the world is not going to solve the problem that European banks are holding over $7 Trillion of valuation on their books that can’t be sold for anything near that AND the sovereign governments have made an implicit promise to bail them and their investors out.

As Roubini put it–

At this point most investors would dump their entire holdings of Italian debt to any sucker – the ECB, European Financial Stability Facility, IMF or whoever – willing to buy it at current yields.

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So using precious official resources to prevent the unavoidable would simply finance the exit of others.

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If, as appears likely, Italy remains stuck in an uncompetitive recession and is unable to regain market access in the next twelve months, then even if such large official resources were mobilised, they would be wasted on financing investors’ exit and thus postponing an inevitable debt restructuring that would then be more disorderly.

As your humble servant put it shortly thereafter-

This is a liquidity fix, not an insolvency fix.  The problem it’s intended to address is that banks will no longer lend to other banks because they suspect (and rightly so) that the other banks’ assets are pieces of crap.

It does nothing at all to address the fact that those assets are pieces of crap.

For their part the governments are making the additional bad choice to pursue a program of austerity that has already stifled growth to the point of Recession and the beginnings of a Deflationary Spiral.

What Can Save the Euro?

Joseph E. Stiglitz, Project Syndicate

2011-12-05

It is increasingly evident that Europe’s political leaders, for all their commitment to the euro’s survival, do not have a good grasp of what is required to make the single currency work. The prevailing view when the euro was established was that all that was required was fiscal discipline – no country’s fiscal deficit or public debt, relative to GDP, should be too large. But Ireland and Spain had budget surpluses and low debt before the crisis, which quickly turned into large deficits and high debt. So now European leaders say that it is the current-account deficits of the eurozone’s member countries that must be kept in check.

In that case, it seems curious that, as the crisis continues, the safe haven for global investors is the United States, which has had an enormous current-account deficit for years. So, how will the European Union distinguish between “good” current-account deficits – a government creates a favorable business climate, generating inflows of foreign direct investment – and “bad” current-account deficits? Preventing bad current-account deficits would require far greater intervention in the private sector than the neoliberal and single-market doctrines that were fashionable at the euro’s founding would imply.

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There is, interestingly, a common thread running through all of these cases, as well as the 2008 crisis: financial sectors behaved badly and failed to assess creditworthiness and manage risk as they were supposed to do.

These problems will occur with or without the euro. But the euro has made it more difficult for governments to respond. And the problem is not just that the euro took away two key tools for adjustment – the interest rate and the exchange rate – and put nothing in their place, or that the European Central Bank’s mandate is to focus on inflation, whereas today’s challenges are unemployment, growth, and financial stability. Without a common fiscal authority, the single market opened the way to tax competition – a race to the bottom to attract investment and boost output that could be freely sold throughout the EU.

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Even if those from Europe’s northern countries are right in claiming that the euro would work if effective discipline could be imposed on others (I think they are wrong), they are deluding themselves with a morality play. It is fine to blame their southern compatriots for fiscal profligacy, or, in the case of Spain and Ireland, for letting free markets have free reign, without seeing where that would lead. But that doesn’t address today’s problem: huge debts, whether a result of private or public miscalculations, must be managed within the euro framework.

Public-sector cutbacks today do not solve the problem of yesterday’s profligacy; they simply push economies into deeper recessions. Europe’s leaders know this. They know that growth is needed. But, rather than deal with today’s problems and find a formula for growth, they prefer to deliver homilies about what some previous government should have done. This may be satisfying for the sermonizer, but it won’t solve Europe’s problems – and it won’t save the euro.

Is there some hope?  How about some new leadership?

Wolf Richter: French Presidential Election – Coup De Grâce For The Euro?

Naked Capitalism

Friday, December 2, 2011

France isn’t doing well. Unemployment, which has been rising since May, breached 9%. Wages haven’t kept up with inflation, and purchasing power has dropped. Industrial orders plummeted. Layoffs have been announced. Yields are rising. Banks are teetering. Sarkozy had tried to reform the French welfare and tax system. Result: rising income disparity, tax loopholes for the rich, diminished pension benefits for the middle class, reduced subsidies for the poor, etc., and now ugly unemployment trends.

Voters are angry. And the poll numbers that came out today show to what extent (L’Exress, article in French). During the first round on April 22, François Hollande of the Socialist Party would obtain 29.5%, Sarkozy 26%, and right-wing populist Marine Le Pen 19.5%. And this after Sarkozy got a 6-point bump from an anti-nuclear imbroglio on the left that Hollande had trouble squelching. In a face-off during the second round on May 6, Hollande would win by a landslide 56% against Sarkozy’s 44%.

If the economy deteriorates further, Marine Le Pen, president of the National Front, might beat Sarkozy in the first round. Media savvy and endowed with a captivating presence, she’d stunned the French political establishment by beating Sarkozy in the polls earlier this year.

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François Hollande is more temperate. … His camp has come up with a five-point plan:

1. Expand to the greatest extend possible the European bailout fund (EFSF)
2. Issue Eurobonds and spread national liabilities across all Eurozone countries
3. Get the ECB to play an “active role,” i.e. buy Eurozone sovereign debt.
4. Institute a financial transaction tax
5. Launch growth initiatives instead of austerity measures.

But the core of their solution-monetizing sovereign debt without central control over national budgets-is totally unacceptable to Germany. So, if the euro and the Eurozone as we know them are still alive by early May, then the French presidential election may well deliver the coup de grâce.

That is, if Germany remains intransigent.

On the other hand it’s highly likely Mr. Market isn’t going to wait that long.  German bonds (I refuse to confuse you by calling them bunds just to pretend to be hip and cosmopolitan) were already under considerable pressure before the latest optimism bubble and projected growth of the German economy has been sharply revised downward even from the anemic 1.5 to 2% of a month ago.

The vast majority of German exports are to EU partners who can no longer afford them under the austerity regimes dictated by the German banks who in fact hold more of that unsellable crap sovereign and commercial debt than most of their peers.  If they continue this policy they’ll be committing economic suicide.

There is no confidence fairy.  You can’t cut your way to prosperity.

I say good riddance to bad rubbish in my very best imitation of Hayek and refer you again to David Apgar-

As far as costs go, massive European bank restructuring comes to mind, especially following a cool €300 billion or so of losses on government bond holdings. It’s hard to say anything nice about bank restructuring, but at least we know how to do it. We know, for example, how to split good banks from bad banks. (Hint: rank balance sheet assets by quality and liabilities by seniority and draw a line across the balance sheet after the last asset of reasonably determinate value.) That’s handy when you need banks with systems in place ready to restart lending. And we know these transactions work when free from political interference as they were in Sweden in 1992.

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(M)assive European bank restructuring may be unavoidable even if Europe somehow enlisted enough ECB printing presses, enough future earnings of all those carefree northern European taxpayers, and enough future benefits of all those docile southerners to plaster a smile on the face of every bond portfolio manager at BNP Paribas and Commerzbank. The scale of the bailout needed to avoid further investor losses as of today – much less tomorrow or next week – would entail cross-border consolidation or de facto nationalization of a significant portion of the euro banking sector.

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The most popular alternative has the ECB stepping in to buy bonds every time investors try to cut their exposure. At first blush, it looks clean – no forced austerity, no messy investor losses and bank restructurings, no burden on taxpayers in creditor countries like Germany.

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With such ECB generosity on offer – and with euro zone inflation looming – why would any bond trader with a pulse stop after dumping her Greek, Portuguese, Irish, Italian, and Spanish exposure? Why not get rid of the French and German paper in the vaults, as well? Get rid of it all.

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This, then, is the impasse euro zone bond investors have reached. To avoid losses, they clamor for alternatives that could disrupt the currency itself – one of the few things that might actually make them worse off in real terms than they are right now.