Friday, 7 January 2011

Dumb and Dumber and Duberer?

Europe has solved its debt problems

Or so it thinks.
Obviously, it has not.

The methods muted so far, include out Browning Brown, it will have 4 seperate regulatory bodies, not 3, sounds good so far.

It will have the power to convert bank debt into equity and write off debt, which to my knowledge, is exactly what a bankruptcy court does today.

But this power doesnt apply to current debt, only new debt, which would be fine, if we were in 1995.

There would be a strict ranking of creditors. "Equity should be wiped out before any debt is written down, and subbordinated debt should be written down completely before senior debt holders bear any losses,"

Sensible, but again, isnt that the case today? Well, sometimes equity loses 95%and bondholders lose 10%, but functionaly, whats changed?

The plan allows a permanant prescence in suspect banks, but which banks are suspect, and why will these new regulators do any better than the old ones, who signed off Northern Rocks business plan every year?

Stronger banks will be required to help cover the costs of failure by weaker peers, creating a further buffer between the financial industry and the taxpayer.

So they plan to reward careful banks, by making them cover the losses of bad banks? And thats not moral hazard how?
You might as well run up a load of bad debts, because if you dont, you'll get everyone elses bad debts anyway.

Europe still has not accepted the reality that it is a debtor that wants to borrow more money, the creditor sets the terms, the begger accepts them.
Spain needs to borrow or roll over E300bn next year, why would anyone lend it that money, at anything but a realistic rate of interest when the debtor is already talking of default?

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