The Eurobailout Might be a Stealth QE3
The big idea in Washington now seems to be that if Europe can be paid off to pipe down about its banking crisis for just a few weeks, then Wall Street can settle into a good old-fashioned earnings season in October with no distractions. This is sort of like packing your crazy old uncle off to the movies when your guests arrive for a dinner party, but hey, you do what you gotta do.
The plan, cooked up by U.S. Treasury Secretary Tim Geithner, is to persuade European leaders to vastly expand the size of the emergency bailout fund known as the EFSF, or European Financial Stability Facility. His proposal, and I’m not making this up, would use leverage -- i.e., borrowing -- to increase the size of the already borrowed money in the fund by up to 10x.
This is a little hard to believe, but it’s the truth. The funds from euro-zone countries in the EFSF have already been borrowed. And now the plan espoused by Geithner is to use that money as collateral to borrow as much as ten times more. The guy does not get enough credit for his evil genius.
Why would they do this? Well dial back your mental time machine to the fall of 2008, if you will. You will recall that before TARP there was a similar U.S. plan to bail out the financial system, but it was judged to be too risky. So now it looks as if Geithner, who was the head of the New York Federal Reserve Bank at the time, is conspiring with the International Monetary Fund and others of like mind to recreate that massive weapon of financial destruction to aim at the debt crisis in Europe.
You can think of this extra-extra-large EFSF as a stealth quantitative easing platform, or better yet, a super-gigantic stimulus package that, despite its size, would actually be rather stealthy. They aren’t calling the EFSF a stimulus ploy, but you see if the money is actually deployed into the European banking system to fill in the cracks where Greek bonds used to be, then it would push money that did not previously exist into the world’s financial veins.
The cover story is that boosting the size of the EFSF would prevent national parliaments in France, Germany, Finland, Slovenia and other euro-zone countries from having to vote on an increase for the size of the bailout fund.
In short, the super-sized EFSF is not a done deal. But if it is accomplished, it could be a whopper that would make the fairy tales seem unimaginative, and set the stage for a robust fourth quarter rally.
marketwatch.com |
