Liar’s Poker

Crossposted from The Stars Hollow Gazette

I have 6 Aces.

The world’s most reckless central bankers

By Colin Barr, Fortune Magazine

May 25, 2011: 6:32 AM ET

Euro area President Jean-Claude Juncker said last month he is willing to mislead the public if the price in terms of market stability is right.

“When it becomes serious, you have to lie,” Juncker said. Either that, or you have to get serious. No prizes for guessing which course Europe will choose.

…

As Ireland’s post-bailout death spiral makes clear, austerity alone simply is not going to do the trick. Balancing a budget that is as out of whack as Greece’s “has been known to cause riots if done in a single year,” warns Paolo Manasse, an economics professor at the University of Bologna.

Yet officials at the ECB insist the alternative — inflicting losses on bondholders who until recently were all too happy to foot the bills for the big, fat Greek consumption party — is still too damaging to even contemplate. Taking a book out of the Tim Geithner playbook, ECB board member Juergen Stark last week called a possible restructuring a “catastrophe” because it would do bad things to the banks.

Meanwhile the real catastrophe plays out before our eyes. Every day that goes by without a restructuring that forces investors to share European taxpayers’ pain, the ultimate cleanup tab rises. You only have to survey the mess that is the U.S. housing market — or the wreck that once was the Irish economy — to see how that movie ends.

“You cannot really afford to keep buying time, because it is so expensive,” says Daniel Gros, who runs the Center for European Policy Studies think tank in Brussels. “Paying out 100% to existing bondholders is just too big a burden to bear in this situation.”