“The equivalent of putting explosives into a can, before kicking it down the road,” writes the FT’s Wolfgang Munchau about the idea of leveraging the EFSF to create what is essentially a CDO. Should it fail, there would be no governments left to bail it out. “It is the last confidence trick in the toolbox of the truly desperate.”
The FRBNY is quietly conducting talks with European banks about the lenders producing a more detailed daily report about the state of their liquidity, according to sources. “The Fed is trying to understand what the pressure points are in terms of liquidity,” says a D.C. attorney.
Bank of France Gov. Noyer, believing it “unrealistic to expect an increase in the EFSF,” embraces the idea of using leverage “to provide greater intervention capacity.” Also an ECB member, he reminds that the bank’s inflation-fighting mandate requires its purchases of sovereign debt be “extremely limited.”
The FDIC plans to close two of its three temporary field offices, a signal that the agency’s heavy lifting may be over and the wave of bank failures running amok since 2007 may slow down. “Unless Europe explodes and credit markets completely freeze again, this is just going to be the play out of weeding out small banks,” notes a former FDIC official.
A meeting of EU finance ministers in Luxembourg turns into another emergency session following Greece’s acknowledgement it will not meet deficit targets necessary for the next tranche of aid. Greece will get its money, so the ministers will likely discuss how to pay it while still talking a tough line on the targets.