Euro Does It Own Tarp: $962Bln Bailout
A: And the playbook to solve the debt crisis with more bailouts continue.
Via the WSJ.com, "EU Approves €750 Billion Bailout":
The European Union agreed an audacious €750 billion bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.I'm sure the Germans are going to be fine with bailing out the Greeks on this one. Sarkozy must be on his high horse now, a few days after issuing a warning to speculators betting against the Euro. The short term reaction so far is a surging euro and surging equity futures. No country is too small to bail out now. With a TARP like bazooka setup, it seems the powers that be are preparing for the worst for Spain & Portugal & Italy and crafted a package not just for Greece but for the markets concerns over the entire Eurozone.
The money would be available to rescue euro-zone economies that get into financial troubles, the diplomats said. The plan would consist of €440 billion of loans from euro-zone governments, €60 billion from an EU emergency fund, and €250 billion from the International Monetary Fund.
The giant bailout package reflects the gravity of the crisis gripping Europe and growing fears that the situation may grow so dire as to hamper the fragile rebound in the global economy. It would also cast aside long-held notions that each EU nation should manage its own finances, opening an era in which members of the common currency take on unprecedented responsibilities for each others' fiscal troubles.
Elena Salgado, Spain's finance minister, said that the €440 billion would be available over three years, and would need approval from contributing governments. She said a new "special purpose vehicle" would be created to make these loans.
Lets see how the markets really feel about this after the knee jerk kool aid wears off. As of this writing, here are the Futures:
DOW: +217
S&P500: +26.50
NAS: +42.50
It seems like nobody will let anyone default anymore.
Posted by MeekSheep
Sun May 9th, 2010 11:01 PM
Don't you know? It's different this time... This may solve the liquidity crisis now but people will soon realize with all the public sector debt being issued in the developing world, private sector investment will have to fall. I haven't peeked over at Zero Hedge but I bet their forums are going wild with "long live speculators" or some other such nonsense.
Posted by Noah
Mon May 10th, 2010 08:31 AM
its a ridicoulous amount of money. These CBs are sending a clear message to the world.
GET INTO RISK ASSETS - DO NOT SHORT - DO NOT FIX STRUCTURAL PROBLEMS BECAUSE YOU WILL BE BAILED OUT
This is enough money to probably warrant a 10-20% move up from here, but the fall will be just as fast later. Shorts are going to get killed because they are the EVIL DOERS!
Posted by Noah
Mon May 10th, 2010 09:10 AM
http://www.bloomberg.com/apps/news?pid=20601087&sid=adZGdKgAJtio&pos=5
ECB starts printing Euros!
Posted by Brian23
Mon May 10th, 2010 11:19 AM
The problems in Europe are because of to many entitlements and to much debt. You cant get out of debt by adding more debt. In the short run this works, but in the long run it probably wont. The fall will hurt more. Noah, I agree that the entire market is oneway, only up. Shorts provide a balance to the market, which is not there anymore. The question now is, if People in Germany & France can bail out people in Spain and Greece, does this mean they get to vote on who gets elected in. I would expect the people in countries providing the loans, like Germany, to not be all that happy with this. I think this is going to get messy.
Posted by Brian23
Mon May 10th, 2010 11:20 AM
The problems in Europe are because of to many entitlements and to much debt. You cant get out of debt by adding more debt. In the short run this works, but in the long run it probably wont. The fall will hurt more. Noah, I agree that the entire market is oneway, only up. Shorts provide a balance to the market, which is not there anymore. The question now is, if People in Germany & France can bail out people in Spain and Greece, does this mean they get to vote on who gets elected in. I would expect the people in countries providing the loans, like Germany, to not be all that happy with this. I think this is going to get messy.
Posted by Thisson
Mon May 10th, 2010 02:50 PM
What does this imply about the size of the bailout that the US will ultimately need?
If EU is 1 Trillion and counting, what will US be?
Scary.
Posted by lars
Mon May 10th, 2010 02:54 PM
Noah wrote:This is enough money to probably warrant a 10-20% move up from here, but the fall will be just as fast later.
The half cycles on return on Central Bank "investments" seems to be getting ever shorter. I would be very surprises if we see anything like a 20% bounce over the near term. Indeed, the 5% today may be it.
Euro, which rallied to 1.29 (which makes no sense as this is a solvency NOT a liquidity issue and the EU has now said it will debase its currency thru QE) is now back in the 1.27 range. Expect it to go lower: perhaps the biggest thing the EU's trillion $ investment has bought them is an ORDERLY decline in the Euro instead of a rout.
Posted by Noah
Mon May 10th, 2010 03:04 PM
crazy...just crazy..at first glance, a trln dollars is a ton of money. Man, cant they buy greece and portugal for that amount of dough? Second, I figured the QE start in the ECB would trigger another round of carry and risk trades...that is yet to be seen. We cant look at today as lars says. We need to see how markets react to this news in weeks and months from now.
Posted by lars
Mon May 10th, 2010 03:12 PM
"Man, cant they buy greece and portugal for that amount of dough?"
But not Spain which is the real problem... and then there is Italy to consider.
Posted by Fred
Mon May 10th, 2010 03:55 PM
The risk trade is back on. Look at the commodity currencies and spot prices. Whether it persists, time will tell but can't take cues from the USD/Euro anymore b/c they are probably going to track one another. Are we seeing the beginning of the decoupling between commodity countries / EM and the US / Europe regime? Chinese trade figures this weekend will bolster the Yuan-needs-to-appreciate crowd and if China does announce it's second stimulus, then it's heavy back long into materials and metals......
Posted by In Debt We Trust
Mon May 10th, 2010 05:10 PM
Latest quote from Zerohedge regarding the Euro
"Look at what Soros did to the Bank of England in 1992 - he went after them, they had a finite amount of dollars, he was selling sterling and taking the dollars, and they were buying the sterling and selling the dollars to defend the peg. All he had to do was sell more than they had and he wins. But he needed real money to do that.
Today you can break a country, you don't need money you just need synthetic euroshorts or CDS. A trillion dollar bailout: Goldman can create 10 trillion of euroshorts. So it just dominates whatever governments can do. So basically Goldman can create shorts faster than Europe can create money."
http://www.zerohedge.com/article/jim-rickards-goldman-can-create-shorts-faster-europe-can-print-money
Posted by MeekSheep
Mon May 10th, 2010 08:58 PM
Are you kidding me? If the vigilantes actually win then they'll do something to "punish the evil speculators." It'll probably be something along the lines of illegal to sell CDS against euro or a 50% speculation tax.
Posted by Sechel
Tue May 11th, 2010 06:04 AM
The European union does not have a central treasury, tax system or budgetary authority. The economic policies that work for Germany do not work for Spain which for a while was patched by borrowing and cheating. Now the cracks are visible. What makes things worse is that the one policy tool that could help Greece is off the table because of the Euro, Greece cannot devalue its currency. If the Greeks devalued by 25% they could have attracted vacationers from all over Europe and elsewhere bringing money to spend.
Posted by Sechel
Tue May 11th, 2010 06:06 AM
The traders smell blood, as was said last nite on TV, Goldman can print currency swaps faster than Europe can spend to support the Euro. In the end Europe will blink. The shock and awe arsenal is awfully small.
Posted by MeekSheep
Tue May 11th, 2010 07:58 AM
All I want to know are three things:
1) People gonna start selling more homes in NY for less because of this?
2) Are mortgage rates going to go up due to a flood of debt products?
3) Will George Soros be eclipsed by another daring trader?
Posted by Still Waiting to Buy
Tue May 11th, 2010 10:27 AM
Noah,
How do you think all of this impacts NYC housing? Does the reflation "trade" continue to hold and thus the combination of (1) wealth effect of reflated assets and (2) real assets in favor due to inflation/currency continue to drive a strong technical market in NYC? e.g. one where there seems to be a lot of cash looking to buy and not much desirable inventory (forced selling absorbed by market resulting in 15-20% down but human psychology is such that those who do not have to sell in a down market are not going to sell).
Posted by Fred
Tue May 11th, 2010 10:38 AM
Meek - we won't know until the credit markets can operate on their own and that will take a couple of years. however, if you believe that single family residential real estate prices ultimately do track the capital markets, as I do, you could go back to 2000, and apply a normalized rate of return to get to something today. i use 5%.
Posted by Eastvillboy
Tue May 11th, 2010 12:40 PM
Noah:
I'd be more interested to know what a falling Euro means for NYC.
We all see those double-decker buses packed with Euro Tourists. Wonder how many more commercial retail spaces will become vacant if those folks disappear...
EVB
Posted by Potential Buyer
Tue May 11th, 2010 12:55 PM
Fred,
Do you mean that a buyer should pay today for an apartment a 2000 price with an appreciation of 5% per year? i.e. $1M dollar apartment in 2000 should be sold for $1,628,894 in 2010?
What is your 2000 base price based on?
Thanks in advance.
Posted by Noah
Tue May 11th, 2010 03:57 PM
just got back, will try to answer later as my eyes are messed up from a eye-doctor visit an hour ago.
just wanted to say, WOW, the Euro is no lower than it was before the 1Trln bailout. crazy
Posted by yunling
Tue May 11th, 2010 06:43 PM
the point.
the ECB in cahhot with the fed, is now monetizing eurobonds. germany did not want that for a reason (weimar leading to Hitler leading to ....).
Obama and his Bankster friends in Europe and US are again bailing themselves out. Who will pay?
THE CURRENCIES.
same old, same old.
Got gold?
Posted by Anon
Tue May 11th, 2010 11:28 PM
Fred - you should learn to calculate first before participating in this topic...
Why don't you finish high school and then you can think about posting...
If you want, I can link here your previous post with your incredible math - in case you do not remember....
Posted by Eastvillboy
Wed May 12th, 2010 12:10 PM
Once again, people want to focus on the broader issues and I think it is important to try and discern what this means for the local NYC economy.
A lower Euro and plans for European austerity are not going to be great for Tourism in the city. Likewise, the recent assault on Investment Banks (GS/MS) is not at all going to help the local economy.
Lastly, the recent car bomb attempt in Times Sq was a failure, but how long will it be before something like this succeeds?
Posted by Fred
Wed May 12th, 2010 01:36 PM
Anon - at least i can come up with a relatively original pseudonym. what exactly irks you this time? here's one for you: tell me how much house i could have bought in 2006 in NYC with $250,000 down, an annual gross income of $300,000 and an additional $250,000 in non-retirement liquid assets? then tell me how much house i can buy today in NYC with the same amounts above? it's about half and if i want the same space, i'd be plunking down $500,000 and putting all of my eggs in my real estate basket. the fact is, minions like you only focus on the conventional segment b/c never in your dreams would you be able to afford a real apartment in NYC. there are a million ways to demonstrate how renting is more cost effective but it's a waste of time if one doesn't want to hear it.
Posted by Anon
Wed May 12th, 2010 10:54 PM
Haha - you have a very colorful imagination fred...
Posted by Paul Salamanca
Thu May 13th, 2010 06:02 AM
I found my luxury apartment on www.SkipBrokers.com No fee apartments...
Posted by Mbt
Wed Jun 2nd, 2010 10:39 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by coach handbags
Fri Aug 13th, 2010 04:18 AM
It would also cast aside long-held notions that each EU nation should manage its own finances, opening an era in which members of the common currency take on unprecedented responsibilities for each others' fiscal troubles.