As I predicted, the various highly touted European debt and currency interventions last month did squat. This is no surprise. The basic plan currently is to have the ECB give essentially 0% loans to banks with the implied provision that they use the money to buy sovereign debt. Eventually there are provisions for austerity, but I wrote that I don't think it's possible these will be effective. It's a bit unclear where this magic money of the ECB is coming from - either they are printing money (which they refuse to own up to because the Germans fear money printing even more than Soviet tanks in the Fulda Gap) or there is some kind of leverage circle-jerk game going where the ECB is effectively leveraging deposits and a few scraps of funding to the moon.
At this point, short of some fiscal austerity which simply is not going to happen, I can't see how the answer is anything but printing and devaluation. Either the ECB prints, spreading the cost of inflation to all counties on the Euro, or Greece/Spain/Italy exit the Euro and then print for themselves.
The exercise last month, as well as the months before that, are essentially mass hypnosis spectacles, engineered to try to get the markets to forget the underlying fundamentals. And the amazing part is it sort of works, from two days to two weeks. It reminds me of nothing so much as the final chapters of Atlas Shrugged where officials do crazy stuff to put off the reckoning even one more day.
Disclosure: I have never, ever been successful at market timing investments or playing individual stocks, so I generally don't. But the last few months I have had fun shorting European banks and financial assets on the happy-hypnosis news days and covering once everyone wakes up. About the only time in my life I have made actual trading profits.
Thought problem: I wish I understood the incentives facing European banks. It seems like right now to be almost a reverse cartel, where the cartel holds tightly because there is a large punishment for cheating. Specifically, any large bank that jumps off the merry-go-round described above likely starts the whole thing collapsing and does in its own balance sheet (along with everyone else's). The problem is that every day they hang on, the stakes get higher and their balance sheets get stuffed with more of this crap. Ironically, everyone would have been better getting off a year ago and taking the reckoning then, and certainly everyone would be better taking the hit now rather than later, but no one is willing to jump off. One added element that makes the game interesting is that the first bank to jump off likely earns the ire of the central bankers, perhaps making that bank the one bank that is not bailed out when everything crashes. It's a little like the bidding game where the highest bidder wins but the two highest bidders have to pay. Anyone want to equate this with a defined economics game please do so in the comments.