In his morning note, RBS strategist Tim Ash makes an important observation regarding the ongoing crisis in Europe, and how it differs from past crisis.
In many respects it reminds me of the run up to the April 2009 G20 London
summit, when Emerging Europe was in the eye of the storm and clearly in crisis.
The G20 London summit turned sentiment because G20 states agreed to give
the IMF the firepower to tackle the problem. The Fund dolled out money first and
asked questions later. My sense is that Europe needs to follow a similar strategy.
Decisive action is now required, but I worry that Europe is simply unable to act
quickly enough. The developing cycle/spiral needs turning, and very, very fast.
Ash’s comments are smart, but are coming a little late. Europe decided to ask questions first, and then only drib out the cash slowly (if at all– Greece has yet to receive a penny). Now it’s too late to put the genie back in the bottle.
Ash could also include the US’ bank bailout, which “worked” because the government basically decided: We’re going to give the banks gobs and gobs of cash in every way possible (direct investments, preferred stock investments, cheap money, AIG (AIG) as a conduit to Goldman Sachs (GS), etc.), and then we’ll ask questions later. Remember, the initial TARP proposal was just one page, which basically said: Give us lots of cash to do whatever we want with.
If Bernanke and Paulson had taken the Europe approach, and demanded the banks offer extensive details about what exactly they were going to do with their money, it probably wouldn’t have worked.
The problem, there, though is that blank-check bailouts are basically immoral, taking cash from one party and giving it to another party, and that’s why we’re asking a lot of questions now (in the form of SEC charges and extensive hearings). But if it’s going to work, that’s probably the way it has to be.
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