Arnold Kling  

Today on the Eurozone Crisis

SarbOx and MF Global... Does This Work?...

Tim Worstall writes,

We're going to be gearing the eurozone banking system up on sovereign debt. Which means that if anyone does in fact default then the eurozone banking system really will go bust, crash and burn in a great big ball of flames.

...Have a nice week.

As he explains, and as we and others have pointed out, the plan is to have insolvent European banks load up on insolvent European sovereign debt. That is what I keep describing as two drunks trying to prop one another up and make it home.

Another metaphor that keeps coming to mind is the Monty Python pet shop routine. The politicians are like the store clerk, insisting that the parrot is alive. The market is like the customer, who thinks that the clerk is, er, mistaken.

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CATEGORIES: Eurozone crisis

COMMENTS (2 to date)
Tim Worstall writes:

The thing is, sometimes two drunks make it home.

Less often does gorging the banking system on the carry trade do so: but it does, sometimes, happen.

This time? Who knows?

Dumitrascuta writes:

I like how this is all going (sarcastic). Well, lets allow banks financing at 1% and let them buy sovereign debt for yields between 5-6.5%. The new carry trade? Maybe the new Ponzi Scheme. This time, the financial heart attack will be severe.

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