The Banking and Strategy Initiative

Chillin' out till it needs to be funded

European Sovereign Debt Crisis: Still on the blocks? (Refresh edition Sept 23, 2011)

BERLIN, GERMANY - AUGUST 31:  German Chancello...

Image by Getty Images via @daylife

While now there is a precedent (of a bailout of a government) the US TALF and TARP are hardly prime examples of a working prescription.  and here we are, Europe having hung on to its own coattails long enough and finally caving in to a bailout, now “borrowing” most of its bailout structures from the US. The innovative EFSF has well run its course with only $440 bln and unlikely to be ‘tolerated’ by the Euro citizens asked to vote more drawals for it. In this next phase, ECB is probably paying a larger bill and making the American Banks look good for having bought government paid lives in 2008. Also as the European Banking system falls apart at least the 16 banks declared ‘fragile’ in the last round of stress tests would be prioritised for recapitaalisaton. The recapitalisation would be independently funded while further EFSF drawals will now be supportd by leveraging the existing $440 bln much like the TALF faciltiy in which senior collateral and other eligible collateral on defaulting debt was passed to a SPV and the Fed paid out the first losses. Thus the EFSF line will be extended by a ECB facility whence the first losses will be due from EFSF. the so empowered EFSF will be the European Stability Bank probably as the later 2013 edition looks like shot down by the Germans. The EFSF bank will be able to use its remit from the ECB to now buy and sell all Euro debt from any government and aid troubled banks / offer credit lines

Meanwhile the US Fed Sovereign Liquidity facilities will be made extendedly available to the European Banks with new 90 day paper to tide them over the liquidity crisis

Even as the restructuring is almost there for Greece with 81% investors looking to voluntarily roll over, it would still come to a Greek default and thence many more esp the French banks would immediately need support as till now only Greek banks seemed to need

Here is a banker with all the Greeks in the press:

http://www.calculatedriskblog.com/2011/09/europe-update-greek-austerity-eu-to.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

 

European Central Bank Headquarters

Image via Wikipedia

 

 

 

 

 

 

Editor’s Note (and a couple of book links)

Before we proceed to explain our understading of the financial deep dive, the ECB investigators have taken, I must assure you that the limitations of information available in the public domain, though not more than a challenge  as for green reporters covering the Crisis in US newspapers, and I may not apologise, it may be possible that the information foundhere may not be verifiable beyond a 99% confidence interval in terms of the facts and the denouement of the crisis. We will however do a much better job than most business press has done in understanding and delineating what is going down, much like others with deeper industry access like The Big Picture (Bailout Nation) or  Yves Smith’s blog (Econned

You might think the prescriptive example being followed is Greece, but then Greece is falling apart and then most of us in the 20 year period leading to this unfortunate turn, thought that it would never amount to governments paying up for the banks as it shall now be ( we are at least halfway there) 

 

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