The cost of our own blind folly

What a difference a year makes! 12 months ago we were contemplating "exodus" to the markets and now we hope to avoid "exodus" from the Eurozone ...

Here follows an exercise of numbers. It is an analyses of cost of debt based on real market yields and a simple allocation between bonds and t-bills. This exercise was prepared to depict the true implications of (our own blind folly as Homer would put it):

a) the failure of former government to close the review and secure the return to normalcy (access to money markets) and/or an auxiliary funding source through the transformation of the unused HFSF funds into a precautionary funding line (ECCL), and of

b) the failure of the new government to come in terms with the realities of 21st century politics and economics in the fragile environment of an economy that has just undergone a cruel but necessary fiscal adjustment, has lost over 25% of its GDP in the process of doing so and has acquired, as a result, a third world-like-unemployment situation.

Meddling government tasks, the newly elected coalition, muddles through awkwardness and disambiguation with institutions, symbols, ideal-isms, accounting practices, foreign affairs, Laws, and The People.

The result is an absolute disaster that makes Grecovery impossible! 

Much like in Homer's Odyssey, we must now muddle through another epic journey to the unknown.

[1] Tell me, O Muse, of the man of many devices, who wandered full many ways after he had sacked the sacred citadel of Troy. Many were the men whose cities he saw and whose mind he learned, aye, and many the woes he suffered in his heart upon the sea, [5] seeking to win his own life and the return of his comrades. Yet even so he saved not his comrades, though he desired it sore, for through their own blind folly they perished—fools, who devoured the kine of Helios Hyperion; but he took from them the day of their returning.

[30] ....... (Zeus) "Look you now, how ready mortals are to blame the gods. It is from us, they say, that evils come, but they even of themselves, through their own blind folly, have sorrows beyond that which is ordained."

To continue in Homer's Odyssey, book 1 to 24, please go to http://www.perseus.tufts.edu/hopper/text?doc=Perseus:text:1999.01.0136

Happy New Year

2013!

December 21st has come and past. We are still here. And now what shall become of us without any prophesies? Those, end-of-the-world, prophesies were some kind of solution, to paraphrase K.P.Kavafis’ great poem “Waiting for the Barbarians” (Kavafis, 1863-1933).

Well, we are now left with our renewed new year resolutions. 2013 definitely has to be the time of miracles (and not of monsters – Antonio Gramsci). It has to if we are to stand here next year too! So bye bye “Greek default”, so long “fiscal cliff” and farewell Eurozone break-up. I wish for this year to bring a recovery of hope, a prosperous resurrection of economic activity and an end to the austerity-medicine prescribed. I can still hope, can’t I?

In the meanwhile, “Live as if you were to die tomorrow. Learn as if you were to live forever.” (Mahatma Gandhi)

The real fear for the impending decision by the German Constitutional Court

Author: Kiron Sarkar, posted @ The Big Picture (http://www.ritholtz.com/blog/)
Edited by GL

The real fear is German Constitutional Court (GCC), while allowing the German President to sign off on the ESM, (thereby making it effective), may impose some restrictive conditions too. It should be noted that, in the past, the GCC has imposed conditions, which has set a precedent for all to see. The main reason for this concern is as follows. The ESM, which will have a max capital of E500bn at best, has insufficient firepower to undertake its task. Its resources must be increased. The EZ countries will not/can’t, in a number of cases, contribute more. As a result, the ESM must leverage itself, either through obtaining a banking license and then borrowing cheaply from the ECB (as is the case with the European Investment bank, which, by the way lends directly to governments), or through the issue of bonds which is purchased by the market, though possibly by the ECB as well. The German’s have steadfastly opposed this idea, though it is “clear” (to the author) that Merkel, privately, will not oppose such a measure. To date, her opposition has been for domestic public consumption, rather than otherwise. The judges at the GCC will surely know that and may, for example, force Germany to seek prior approval from the Bundestag, God forbid the consent of the Bundesbank or limit Germany’s exposure in some way, unless approved by the Bundestag/Bundebank/the people, etc. If this or something similar is the decision by the GCC, uncertainty will prevail. Medium to longer term bond yields of the peripheral EZ countries will rise (soar?) and unless resolved, these countries will be forced, yet again, to borrow at the short end (given ECB support), which clearly is untenable.

http://www.ritholtz.com/blog/2012/09/september-is-looking-particularly-uncertain/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%253A+TheBigPicture+%2528The+Big+Picture%2529