Monday, August 16, 2010

Warning: European Nervousness Returning

From ZeroHedge:

the Greek/Bund spread has just hit the widest level since May 10, at 811 bps, while the Irish/German spread is at its widest ever of 303 bps, a move of 10 bps on the day.

1 comment:

  1. The Spreads are likely due to heavy purchase of German bonds and continue risk aversion to Greek debt as well as a growing aversion to Irish debt. Its much like here in the US where there is a huge spread between US Ten Year Notes and Junk Bonds as well as 30 Year US Government Bonds and the Junk Bonds.

    I foresee a liquidity evaporation as the bond bubble bursts: a black swan event where there are not enough buyers in the equity and bond markets to meet selling demand. At that time physical assets like gold will be in great demand.

    I believe that out of the liquidity crisis, Credit Bosses, what I call Credit Seigniors, will be appointed to issue and manage credit, as the debt bubble implodes and the economy shatters.

    Here in the US, I envision, that out of a coming credit crisis, where there is no credit available, a Financial Regulator, will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks on their REO properties and those of Freddie Mac, Fannie Mae and the US Federal Reserve.

    I am of the conviction that mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have done servicing mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

    I also envision that this Credit Seignior, perhaps in public private partnership with American Express, AXP, and Capitol One Finance, COF, will provide seigniorage for credit. He will provide finance and issue credit mostly to those companies which serve strategic national needs.

    In Europe, I see a new role for the President of the ECB. I envision that in response to severe credit contraction and banking ill-liquidity, that he also will be Credit Seignior, as he accepts sovereign and other debt and issues credit to Eurozone member banks thereby keeping some degree of money liquidity flowing.

    When the debt bubble bursts, the world will see “the end of credit” as it has traditionally been known, where credit comes from the seigniorage of sovereign nations issuing sovereign debt and financial institutions securitizing bonds.

    Governments will become seignior, that is they will exercise seigniorage and become the first, last and only provider of credit. Then only food stamps and strategic needs will be financed.

    National and regional seigniors throughout the world will likely be networked through unified regulation of banking globally as related in James Politi and Gillian Tett Financial Times article NY Fed Chief In Push For Global Bank Framework.

    Eventually, a Global Seignior, meaning top dog banker who takes a cut, will arise to boss them all.