The Real Systemic Risk

SUBHEAD: Euro-Fix? We're counting down the days, weeks, maybe months. Volatility, chaos, what’s next? Mayhem?! Image above: "The Valley of the Shadow of Death" by James Gillray. Political satire of Europe in 1808. From ( By Ilargi on 10 May 2010 in The Automatic Earth - ( I think I’ve managed to tie together the Euro "rebirth", UK PM Gordon Brown's resignation and the Gulf oil wank. And it goes beyond stating that they’re all ugly. Both Brown's decision to quit and the EU's decision to move to quantitative easing come way too late. Moreover, both are, were, always would be and always will be, the worst possible options available. The EU should at the every least have done their trillion dollar deal at the same time the US did it, not some 12-18 months later. What are they thinking? But by the same token, the US deal has been a miserable failure, and so will the EU one, only, inevitably, because of the time delay involved, a worse one. While the US $trillions bought the world about a year of hologrammic hallucinations of green pastures in better times to come, the EU plan will be lucky if its "positive" effect lasts a month. Or even a week. Talk about bang for your buck. Since everyone and their pet parrot was shorting everything they could lay their hands on with their eyes closed last week, on Monday European stocks went up 5-6 even 10%, and Wall Street a still jubilant 4%. Nothing rose more than European financials, of course, because the $1 trillion plan proudly announced by a bunch of "leaders" who neither speak each other's languages nor can stand the sight of one another unless there’s political gain to be had was and is about those financial institutions all the way. So what about tomorrow? Under the pretense of saving the world itself, and perhaps because at least some of them actually think it's one and the same thing, it's all about propping money into European banks. And not just the Eurozone banks either, as can be seen in the numbers: the biggest gains on Wall Street today were for UK banks: Barclays up 16.18%, Lloyd’s: 13.95%, and RBS: 15.15%. The much heralded (if only for a day) European plan serves not to save countries and solve their deficits, it serves instead to save the banks that are exposed to these countries' debt. Every European citizen -and, through the IMF, Americans and Canadians (and all the other IMF "constituents")-, pay to 'save' Deutsche Bank, Société Générale, Crédit Agricole, and all the rest of them from having to fess up and pay up their gambling losses. We heard that tale before. And if there were only a reasonably chance of such a scheme succeeding, I would understand to a certain -albeit low- degree why Europe's democratically elected dimmer switches are creating this tragedy, which is much bigger than they could ever dream to be. But there's no such chance, none. European "leaders", like their US counterparts, are -or pretend to be- under the illusion that to save their economy they have to fork over truckloads of taxpayer money in order to preserve the very institutions that played instrumental parts in causing that very crisis. The argument used to defend this kind of policy measure is encapsulated in the term "systemic risk". But, if you take a second or two to think about it, that is a fake argument. The real, the main, the major systemic risk is not in the banking or even the economic system. It’s in the political system. And neither of them can or will eventually be saved. The real systemic risk lies in the fact that politicians the world around operate on the premise that if they don't rock the cradle of the banking herd too hard, they'll survive to receive another round of hand outs and serve another term. And another. That and most of them are absolutely clueless when it comes to the field they’re supposed to oversee and regulate. And the only people who can tell them how and what are the lobbyists who work for the very parties they’re there to regulate. That is real systemic risk. The kind that would affect you yourself. The political system versus the economic system. And they have become hard to tell apart, because they serve the same purpose. The link to the oil disaster? Halliburton poured cement into "the hole" based on depth information they received from BP. Turned out, the problem was way deeper, and the pressure, therefore, was way stronger. And then it all blew. What better metaphor for all of you to understand what’s going on in the marketplace today? The EU pours $1 trillion down the hole, but the hole is far deeper than anyone seems to realize. Perfect metaphor. The markets in the days to come? Volatility rules. While all the stock exchanges had their lofty gains, the euro was at $1.2752 Friday afternoon, and it’s at $1.2757 right now. Does this require any further explanation? We're counting down the days, weeks, maybe months. Volatility, chaos, what’s next? Mayhem?! .

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