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"Yes, we can!" Obama Goes to Greece

If you needed a perfect analogy to the fatal fiscal fantasies enrapturing Europe, Greek Prime Minister George Papandreou has provided it. He recently echoed Barack Obama in a speech before a German audience.

Is there any hope? Will we ultimately succeed? My answer is yes, we can!

Papandreou was speaking of the feasibility of Greek reforms on the heels of a German vote to expand the already massive bail-out fund for Greece. Clemins Wergin, writing in The Telegraphasserts that "the question for Germany is still unanswered."

Are Germans right to continue, grudgingly, to help their southern European cousins out of the mess that their bad habits have got them into? Or are we simply pouring good money after bad?

Ring familiar? Perhaps Merkel could call her latest bail-out a stimulus bill, and chant a refrain of "Pass the bill." After all, she's already adopted Obama's stimulus tactics.

First, threaten doomsday if your latest spending bill isn't passed - even if there is no evidence whatsoever that this spending spree will prove any more effective than the last (several) spending sprees.

Germans realise that they are throwing their money at a mess that nobody seems able to control, and their anger at having to bail out the wrongdoers is checked only by doom-laden warnings about the consequences of the eurozone's failure. "If the euro falls, Europe falls," is one of Angela Merkel's oft-repeated slogans.

Second, demonize opposition - even if that opposition arises from the very people you are supposed to represent: 

And the reaction of Germany's political and media elites nurtures this notion of a conspiracy. Anyone who opposes the bail-out is labelled as anti-European. And although polls show that an overwhelming majority of people oppose giving more money to insolvent countries, no political force is taking up that case.

Spending addictions apparently exists equally among "social democracy" advocates both here and abroad. One might have hoped that Europe would learn from the mistakes of America, or vice versa. But continuing riots among radicals in opposition to necessary reform, as well as stubborn disregard for objective economic realities and popular opinion among politicians, clearly indicate that reconsideration of failed policies are not in the cards.

At least America has a Tea Party movement and the hope of economic restraint. Are there any indications that Europe has even the beginnings of such a bulwark to pending fiscal disaster? One wonders how far Europe and America must fall before the people finally say, "No, you can't!"

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Discussions - 1 Comment

If the euro falls german exports would think.

If you look at the stock of the big banks, you have UBS surging 10%, while most domestic banks, i.e. BAC, C and GS are up 4-5%. DB or Deutche Bank is up around 5%.

The US stock market rallied hard into the close in part because the dollar index fell against the Euro, this also pushed up commodity prices and stocks associated with commodities.

Here is the thing, People were still talking about a greek default when the yield on a greek bond had increased by multiples which made it almost a moot point.

Example: If you had purchased a 100 Euro 2 year greek bond when the yield was 7% you paid about $86.50, at one point the yield was around 75%, i.e. the trading value was $6.25.... at this point you have lost over $ default is or was more or less a moot point.

Of course if you had bought Greek bonds at this level...then you really wanted to hang on to the agreement which said Greece was going to give you a 21% haircut... i.e. redeem the bond at E79... there was even talk of taking a "hit" and having Greece redeem for 50, but even this was E50 on an instrument you could purchase for E 6.25

It doesn't take a rocket scientist to understand that at some point bailling out the debtor is just bailling out the creditor.

It is impossible to say what the "German" interest was..but the interest of UBS and DB was rather clear.

As for moralism about bailouts, "But continuing riots among radicals in opposition to necessary reform, as well as stubborn disregard for objective economic realities...or throwing good money after bad"... I suggest we stipulate a game scenario for clarification.

Lets take the board game monopoly... Classic Case... lets say you are germany...the greeks land on Park Place...they cannot pay...they go broke and leave the game...

Lets say that instead you decide to throw "good money after bad"... You loan them $1500.... they pay you the $1500....then they roll and pass go... they collect $200...someone else hits a railroad they own... they collect $200.... they are back near the dark blue... they roll and make it to GO(lucky them...they should have rolled a 7!)... This goes on for a while... they hit Boardwalk...they have $1000... They pay you $1000 and they take another $1000 in debt...

You agree to cancel the debt in exchange for the railroad monopoly (thus completely overpaying)...but the key is not necesssarily to get the debt paid is simply to keep them on the board and working for you with a modicum of freedom....

Because I am a sadistic son of a bitch I actually used to play this crazy banker role when playing against my brothers.. game board says they have no income possibility...It is a won game... but I just want to see how much money I can end up with. They stay on the board going into debt and essentially I am indirectly collecting the "Pass Go" income.

Monopoly is not a perfect example...But what is to say that Germany (or UBS, GB, C, BAC, GS) isn't the player with the won game board, taking on bad debts for the sake of pulling an alchemy on beets to blood or lead to gold?

Keep Greece in the game, and the markets will basically adjust to milk the money back out, just look at the game board(objective economic realities).

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