Monday, November 1, 2010


Now this is what I've been talking about.

It appears that the Germans are moving closer to making the bondholders, and not just the taxpayers, take a hit during the Eurozone bailout period. Recognizing that current austerity measures will do little more than add debt and put individual countries into a deflationary spiral - which will make debt loads ever worse - German Chancellor Angela Merkel appears to be done with the European Union's smoke & mirrors policy approach (which resembles the U.S. bailout approach):

We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers.

Put another way, the Germans have gotten tired of the the European Central Bank circumventing bailout limits by providing additional loans to European banks so they can purchase home country bonds (which simply adds more debt).

What the Germans are advocating is that instead of anticipating a never-ending debt and interest payment parade (paid for by taxpayers) that banks and their investors curtail profit expecations. The idea is that individual financial players suffer losses, instead of depending on individual governments - and their taxpayers - for a continuous stream of guaranteed profits.

Imagine that ... someone who actually believes that individual investors should suffer losses for their stupid decisions. What a concept.

The U.S. and the Obama administration, on the other hand, seem content to muddle along, hoping things get better with taxpayer Federal Reserve funded bailout cheap money (called Quantitative Easing, or QE), and favorable policy bailouts (like mark-to-market) that allow our undercapitalized banks to continue operating as if it's business as usual. Because, you know, we can always expect the banks to do the right thing.

- Mark

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