Photo: Jo Jakeman via flickr
Economics professor Karl Smith writes on his blog modelled behaviour that the situation on the ground is more grim than people realise. It’s no longer just about sovereign debt, and the ECB, but about a breakdown in the banking system.This malfunctioning appears to be down right mechanical with trades regularly not settling on time, collateral not being delivered, awkward interventions by local regulatory agencies and a host of other deep, deep problems.
I don’t have it all sorted out but its not clear that there is a fully functioning money market in Europe right now. Well informed opinion suggests that there is literally a shortage of know-how on the ground. That is to say, some large banks or brokers cannot trade in certain types of paper because they don’t have anyone on staff who knows all of the relevant institutional details.