The financial crisis of the past week, that claimed the leaders of two European governments, came within a whisker of recreating the 2008 Finance Crisis, but was averted by timely action from European financial leaders.
At least that is how it is being reported in the media.
Prime ministers fell, markets shook and there were rumours that the eurozone would split up. But it survived – for now
The stock market rallied on news of new austerity measures, a former central banker becoming leader of Greece’s new government, and agreements on a new bailout plan.
The thing is, this was never a stock market problem. This is a credit market problem, and the credit markets don’t believe any of it. Most importantly, they don’t believe in the bailout.
Sources said the EFSF had spent more than € 100m buying up its own bonds to help it achieve its funding target after the banks leading the deal were only able to find about €2.7bn of outside demand for the debt.
The revelation will be seen as a major failure and a worrying sign of future buyers strike after EFSF officials and their bankers had spent recent weeks travelling the world attempting to persuade key investors, including China’s national wealth fund and Japanese government funds, to buy its bonds.
To put this as plainly as possible: a central bank being forced to buy up the debt that it just issued, in order to hide the fact of the failure to find buyers for its debt, is the perfect example of a Ponzi scheme reaching its end game.