If El Erian has any decency and patriotism at all (and he should since his father was an Egyptian diplomat and he owes much to his homeland) he would help lead his country out of an economic situation that is getting more dire by the day for his 80 million countrymen.

The real problem with the global economy is that younger countries like Egypt are so poor, meaning that as Europe ages, the slack is not picked up.

Great men like El Erian, instead of leading, whip up governments to do their bidding while profiting from the process. I suppose it is much less fraught than the processes of trying to squirrel away a fortune while actually leading a country.

I think this crisis is not because of that kind of illiquidity. This crisis is in government bond. The kind of assets that you think is precisely ‘government bond’ in this case. Government bond is the thing that is now a third of what was paid. (Certain government wants it to be 0 of what was paid)

A side problem with this crisis is that we simply refuse to accept that we have been in a bubble. We need to deflate it. We don’t deflate to death, that’s bad. We deflate to reality. And we can only do this if everybody accepts some sacrifice (some little, some a lot), stop looking on someone else to take the sacrifices for you!

I wonder if there’s some way everything can shrink and (as far as the horizon) we all seem to be relatively unchanged.

Reminds me also of the story of the grasshopper and the ant. The ant toils away, the grasshopper borrows some of the produce to support its relaxed lifestyle. But what is there to borrow against? If the grasshopper wasn’t willing or able to support itself last year, it seems unlikely that it will be able to support itself next year either, even WITHOUT bond payments on top of everything else.

From my view, I disagree with you entirely.

Merkel is not saving just the bank. Whom are the banks keeping money for?
Right, it’s the people, the pension funds, etc…

If the banks collapse, the deposit collapse, bank run, the people with the deposit will need to be compensated by government insurance. They will need to call in central banks and the inkjet. And after that you have hyper inflation. And you know what often comes after hyper inflation already. Violence, chaos and possibly war.

Just wanting the banks to collapse seems to be shorted-sighted and jealousy minded thinking in my view (no offense intended). Yes I agree bank execs make too much money, and they need to be drag back to reality, but put them on an explosion is too dangerous for everybody else.

We should all think about how to peacefully deflate all the bubles that some of us unknowingly inflated, and some evil within us knowingly inflated.

And the side point of democracy, we have not reached near the perfect point where EVERY person is smart enough to make non-narrow minded decision in a democracy. So the system of perfect democracy is a flaw that will be exploited by some devil. If you want to see how ‘smart’ common people are, just look at the protesters, and of course: Black Friday chaos just passed. For now, we need technocrats who are smart enough to take care. The problem is finding ones that are sincere and capable. As we move closer to perfection, the population will be smarter and we will expand democracy further to best fit the situation. As I always love saying: Impatience for perfection will lead to utter failure, and it looks like we go in just that way.

The EU Commission has lost contract with reality, and is now acting to save itself. Europe is not going to collapse, it will still be there tomorrow. Germany/France/Spain/Etc. are not going to go away, they will struggle but they will still be there in the morning. What is at risk is not the concept of Europe, but the concept of Europe as resident in a few unelected technocrats, and some over-compensated bankers who are facing a very severe loss of stature.

Nigel Farage is correct on this one, there is more at risk here than banks. Germany came to its democracy through a very hard path, but it got there. If it needs to flush the EUC and EUR keep it, so be it.

El Arien is arguing for a government(taxpayer) injection, but this ignores the fact that capital is available via bond holders. It’s because governments around the world have, for reasons I can only guess, decided to shield debt holders, with the result that banks have negative equity, are insolvent and in need of tax payer injections.

Not only have we done away with debt conversion of bank debt holders, but we’ve also done away with the double liability of stock holders.

When bond holders don’t have risk of loss, the bank managements have less reason to act prudently. This is just more corporatism. Lets’ not forget PIMCO is a debt holder of banks.

Isn’t this the definition of a “liquidity problem”? Solvency problems are not solved overnight.

“we never got through the crisis of 2009 and anyone who believes that we did simply drank the Kool-Aid.”

We got through the liquidity crunch. Solvency problems and fiscal imbalances take longer to solve.

I don’t know on what sort of thinking you can conclude that European taxpayers are being exploited. And I am not dumb.

The market is doing something that is normal, they worry about the sincere effort from the governments to go back to balanced budget. I think that’s entire legitimate and constructive. Eurobond might be, might not. If there is less politicians/fraud like Samaras, it might be. At least that’s my opinion.

There might be more going behind the scene.
But thinking about it again and again, the root problem is government’s deficit. Fix government deficit and things will go away. No need to worry about all the sugarcoated scheme with liquidity, recapitalization, blah blah. Just fix the root of the problem. It’s the source of other non-economics related problems in Europe too.

Apart from that:
“The Bund auction failed in large part because the European liquidity-go-round is utterly broken right now…” – well, to tell the truth, I think there is a much simpler reason for the Bund not selling. It only takes boycotting one or two of these auctions to give people the impression that things are bad and to scare everyone. And that’s what it really is, scare tactics. The market wants to force the ECB to issue Eurobonds, so that the system (the big banks) can start exploiting the European taxpayer. And I am with Merkel here – Eurobonds are not the solution for Europe’s problems. They only postpone/replace a real solution to these problems, and it would btw. mean doing the same the US has been doing the past 50 years.
It’s not a liquidity problem we are having, as you will see when the stockmarket jumps up by 10% again within a week or two, as it did in October. The money is there. They just wanna keep us and the politicians on our toes.

The only problem is with Greece. I believe the way many (not all) of them see it is still in cycle (ie no logic): borrow, default; borrow, default;..

I can never understand their circular view:
Nobody asks them to pay the principal yet, no body asks them to pay the interest yet. In fact, their budget minus debt servicing and debt repayment is still in deep red. The troika is giving them FREE money right now!!

It’s like the bank tells a family to cut down on the spending, not asking to pay mortgage interest, and not even mortgage lump sum, give the family $3000 a month as help.. and the family keeps screaming at them.
What are they protesting?

Perhaps a good way to show that the old way of cycles is bad and primitive way is to let Greece leave and do it their own circular way on their own in isolation. And then let everyone else see the difference in the long run?

I concur that among the liquidity / asset quality / solvency trio, liquidity is primary for the immediate health of the banking system.

However, I believe Mr. El-Erian has a point: unless you fix the latter two (via debt restructurings, recaps, carve-outs, or even debt-for-equity swaps), than the liquidity you end up injecting perpetuates a zombie financial system *which is still prone* to intermittent liquidity crises, big and small (ask the Japanese about this one). To achieve a complete solution, one that gets Europe *growing* again such that it can (someday) move out of its sovereign solvency problem, all 3 must be tackled in tandem … put differently, Europe and other global bond markets are stuffed full of money (look at the base money supply; look at the global benchmark yields in US, Germany, Japan — never lower!), but the broader markets still lack liquidity because core solvency is lacking.