3 Strikes And You’re In!

The “Grand Plan” on October 27th had 3 prongs.

Bank recapitalization. That has been a failure. The EFSF gave up on that and just said it would loan to member countries so they could recapitalize. Since the EFSF was supposed to lend to governments anyways, how is this different? So fail on any form of standardized pan-European bank recapitalization.

An IIF led PSI agreement in Greece. Ackerman stepped out of the limelight and left the hot potato in Dallara’s hands. It seemed obvious to anyone at a bank that the IIF had absolutely zero ability to commit banks to anything. That has turned out to be true as well, and last report is that Greece is now negotiating directly with private holders. Fail on the 50% haircut.

The EFSF was going to leverage and get outside money. In spite of a lot of frequent flier miles and some fancy summits, no real outside money has materialized, and leveraging the EFSF has been a fiasco. The meeting today that was supposed to confirm it, has turned into a who can downplay it faster quote fest. This has to be a failure, and seriously who allowed such sloppy documents to be prepared and sent out, time and time again?

So they have failed on each of their major initiatives, but now the market is comfortable that they will get ECB to “print” and that some form of “policy changes” will be fast tracked. Giving them the benefit of the doubt that they will accomplish things “this time” seems one thing. Actually believing the plans will work out is another. Virtually all the analysis ends with print and treaties and we will be fine. I doubt that we get those yet, and I remain dubious that they will work and won’t unleash new and bigger problems. In baseball, three strikes and you’re out, but in this world of central bankers and politicians, three strikes seems be at least acceptable, if not actually good.