It's 3pm: do you know where you last hour of trading bailout rumor is?
Today, the Guardian passes the baton back to the FT, which however has
released a report which when digested will be very negative for the
zEURo.qq. It appears that in order to accommodate more funds for
sovereign bailouts under the total max EFSF guarantee cap, as reported
on several occasions yesterday
Zero Hedge, only €100 billion will be set aside for bank
There is a problem with this number: it is predicated
on the European Banking Authority's estimates of capital shortfalls of
between €70-90 billion, the is the same EBA which 4 months ago said
Dexia was in sterling health when it passed the 2nd Stress Test in pole
position. As a reminder, Goldman predicted a €1 trillion capital shortfall, while Credit Suisse said €400 billion.
matter: the EU will come out with a number from its lower colon, just
to make the residual maximum sovereign debt "guarantee" notional appear
that much bigger. Too bad, however, that in the process it will once
again crush Europe's banks which the market will suspect, rightfully
so, that they are undercapitalized even post the recap, anywhere
between 90% and 75% and will have to accelerate their asset
liquidations to fund themselves one more day in lieu of a functioning
interbank liquidity market.
And so the risk flaring will shift from
Europe's sovereign to Europe's banks, and their main proxy in the US -
none other than Morgan Stanley which repeatedly refuted it has any
exposure to France... but said nothing about its gross (gross because
counterparties will blow up fast and furious) to French banks.
result: this is very bad for Europe because it means they have finally
done the math and realize that to get the €2 trillion or so in EFSF
insured capital they have to sacrifice their banks.
is no outcome that saves both the banks, and guarantees future
European sovereign issuance under the currently contemplated structure.