May 19th 2010 – Have a nice day…

There is more than a whiff of panic in the air. Central banks, regulators, governments and politicians are increasingly invoking the knee jerk as a response to problems they should have dealt with some time ago. No I am not talking about hindsight, just a dose of common sense. But common sense doesn’t always get you re-elected or help relationships with the major funders of your next campaign.

Mrs Merkel tried to fudge the Greek debt issue until after the elections in North Rhine-Westphalia but failed miserably. The German electorate is just not that stupid and her majority was lost. Even sadder was the loss of confidence in the EU to solve anything decisively; not that there was that much to lose in the first place. By throwing €750 billion at the markets and threatening dire retribution on the hyenas, jackals, wolves as well as mere speculators the EU bought themselves just one days respite in the downward trajectory of the euro. The bounce on May 10th reached $1.31; as we speak nine days later – $1.21…

This evening we hear that the Germans are to ban short selling in sovereign CDS and some of the larger banks and insurance companies. Existing (and not insubstantial) short positions will likely have to be closed out and quickly. The chaos that might engender will be another unintended consequence that could easily take on Lehmanesque characteristics.

In the US the SEC have announced their intention to introduce circuit breakers to halt trading in any S&P 500 stock that moves more than 10% in a 30 minute period. This is in response to the “bungee jumping episode” on May 6th the causes of which the SEC “still doesn’t fully understand”. It’s not easy being a regulator…

Meanwhile in Washington any Senator with “today’s best idea” is lining up with amendments to the financial regulatory bill. One that was passed on Monday night but has received little press or acknowledgement across Europe is the Cornyn amendment. If not vetoed by the President, this will require the government to appraise any loan made by the IMF where the recipient government has a debt/GDP ratio in excess of 100%. If the government is not of the opinion that the loan can be repaid in full it must use its IMF vote to say no and withhold any funding. So farewell then Greece and, in the not too distant future, pretty much any other government requiring a bail out; including quite possibly the US of A itself! Have a nice day…