October 24, 2011

EU's latest gamble - just a thought

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The EU to try to solve a problem of too much leverage with even more leverage by issuing a sovereign CDO to solve a sovereign debt crisis. Now where we heard this before?

This all reminiscent of the role of AIG in the sub-prime debacle because its like issuing a sub-prime CDO to solve defaults in the sub-prime market.

The EU will provide a sliver of equity, like a leveraged CDO, and then borrow the money to try to convince us that weak countries, Spain and Italy are solvent. If we stop to think about what is going on, we see that we are leveraging the balance sheets of weak countries in order to convince ourselves that those very weakened balance sheets are actually getting stronger eventhough they will be now carrying more debt not less debt. Bizarre.


  1. RE “like issuing a sub-prime CDO to solve defaults in the sub-prime market.”

    Disaster beckons, the markets will laugh at it. Banks in Sub prime countries just waiting to gobble up all the money they’ll get from this.

    Once again, the bankers play ‘ring a ring a rosy’ with the politicians:)

  2. stiofanc02

    Surley no one will be convinced. If you see a dead cat bounce market, it will be extremely short lived,24-72 hrs max as those driving it will be hoping for a slight rise in shares before they sell. Bait and switch. Guess Im lucky to be bust, Nothin to Lose! In any event it wont work.

  3. stiofanc02

    Markets down on Greek referendum news, down sharply. Like I said, Dead Cat. I hate to admit to enjoying all of this but I must say its great to be alive in intersesting times.

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