(NS5) Irish Times: Euro zone ‘may drop private sector role in bailouts’

We should not be rallying on this news. This to me is bad. Of the 3 big proposals of the “Grand Plan” that the EU was in some control of, all 3 have failed to materialize. The banks basically rejected capital infusions because they didn’t want to dilute shareholders (which I think will turn out to be a horrible decision on their part when the pressure to wipe out bank shareholders grows). The EFSF is never ever going to get 4 or 5 times leverage (which was obvious at the time). And the IIF agreed to some 50% NPV reduced EFSF backed haircut – shocking nothing is happening on that. But if you have a “Grand Plan” that fails on each and every leg you are in control of, you had a very poorly thought out plan in the first place – In spite of stocks ripping to 1185.

And that is just the part they had control of. No China money, no Russia money (though having an actual workable plan might have helped there). No IMF money, no massive overseas help.

This really isn’t good news, and the fact that the market is trying to rally on it, shows me that the fear factor isn’t as high as I thought. This is bad because Greece still needs to get fixed, so hard restructuring/default likely to come, and clearly the leaders did NOT “get it” and the equity market didn’t understand it either.

And while talking about “being behind the curve” I can’t help but think the fact that for 2 days in a row, treasuries were weak when futures were down hard, is a sign of concern. We are taking our eye off the ball, and it seems that many people are reveling on the fact that the market is “punishing” Merkel for her prudence by forcing bond yields higher. We should be careful about gloating too much. And we re-posted an old article about “Reaching for Yield and Clubbing Baby Seals” (http://www.tfmarketadvisors.com/2011/07/01/reaching-for-y…ing-baby-seals/) ‎which we think demonstrates how quickly credit markets can fall apart (in case of Spain and Italy aren’t example enough).

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Irish Times: Euro zone ‘may drop private sector role in bailouts’

2011-11-25 15:00:30.645 GMT

http://www.irishtimes.com/newspaper/breaking/2011/1125/breaking35.htm

PageExcerpt:

Euro zone member states are discussing dropping private sector involvement from the permanent bailout mechanism that is due to come into force in 2013, EU officials said today. The discussions are taking place as part of wider negotiations over …