First up, some background. You know that the problem is beyond repair when the best solution being discussed lacks logic. The latest discussion about CDO-izing the EFSF funding to save Eurozone is apparently being taken seriously. The logic of supporters is that this will allow Eurozone to lever up, and satisfy funding requirements without expanding the balance sheet beyond the current ~450 Euros. This is equivalent of discussing which side of hill should one let a dead car roll to see if that will perhaps kickstart the car. Or, you can let Münchau describe it as the equivalent of putting explosives in can beyond kicking it down the road. Read it at http://www.ft.com/intl/cms/s/0/9a6d727e-eb57-11e0-9a41-00144feab49a.html
He says – “The big difference between a eurozone CDO and a subprime CDO is the the nature of the backstop. When the eurozone CDO fails, there are no governments that can bail it out because the governments themselves are already the equity holders of the system. This leaves the European Central Bank as the last man standing.
But the whole idea of setting up a eurozone CDO is to avoid this outcome. If you wanted an ECB-backed solution, you could simply grant a banking licence to the EFSF, which would make it eligible as an official central bank counterparty.”
It’s scary out there. No one will need fake ghouls this Halloween. All we need is the other Wolfgang, Wolfgang Schaeuble.