Monday, January 10, 2011

"Not a Pretty Day in Europe"

I met a British a financial specialist once.  We never caught each others' names, but we shared some words at this weird juncture in time.  The European markets open Monday morning,  and the United States is still asleep.   The European bond market is screeching to a halt.

"Repeat of April to June last year, which is very concerning," he said.  "Spain will have difficulties."
"It will be potentially worse than what we were expecting before."

Smelling the coffee in Europe, anyone?  Or is it still Kool-Aid time? I wonder what numbers came out this morning. 

"They lost access to the private repo markets and are at negative spreads on their mortgages," he continues, while I hold my tongue in deference.  He thinks I know more than I really do, which is okay.  I don't let on to this financial jargon too much.

He excuses himself from the table to make a phone call.  I take a drink of water.  Too much coffee.

After asking whoever was on the other end to ask someone else if they wanted to participate in the China Pacific deal for $32, he got off the phone and sat back down in the chair behind him.  Noticeably slouched and breathing shallowly, phone not far in front of face, I speak up.

"Not a pretty day over in Europe, eh?"
"No...not at all," he replies.
After some rudimentary explanation of how banks get their money, other than deposits, he leads on to the fact that liquidity is drying up.
"See, I'm a financial specialist...and the banking system is disintegrating.  The European bond market is freezing up and it's pretty grim.  Last time this happened when the wholesale markets closed down, we had bailouts.  The ECB and the Federal Reserve can pretty much expand their balance sheets however much they want."
"Not the best option," I say.
"No, but they don't really have any others."

Hmmmm.  What kind of situation is this, again, where all there is to do, is print money?

Oh, Mondays these days...

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