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Kicking the Can

December 1, 2011

George Washington at Zero Hedge gives us a history lesson as to why the latest round of QE for the Euro won’t work.

From Jim Rickards at Zero Hedge in May of last year:

Today you can break a country, you don’t need money you just need synthetic euroshorts or CDS. A trillion dollar bailout: Goldman can create 10 trillion of euroshorts. So it just dominates whatever governments can do. So basically Goldman can create shorts faster than Europe can create money.”

Washington ends his post:

This isn’t a financial crisis … it’s a bank robbery.

Well, actually a reverse bank robbery.

Ipso facto:

Goldman Sachs Group Inc., after this year’s losing endorsement of U.S. bank stocks, recommends as its top trade for 2012 a bet against European high-yield corporate debt and forecasts a “deeper recession” for the region.

Meanwhile, from the most recent victim of naked short selling:

BRUSSELS, Nov 25 (Reuters) – The Chief Executive of troubled Franco-Belgian bank Dexia on Friday accused speculators of using underhand methods to try to force a default in sovereign bonds, a practice he compared to 17th-century piracy.

Pierre Mariani has been forced to seek government help for Dexia, after it was hit by the dwindling value of its holdings of European government bonds. At a seminar in Brussels, he spoke out against speculators who, he said, buy insurance against bond defaults, and then try to cause a default.

And don’t tell me the rating agencies aren’t complicit in this piracy.

From Bloomberg, two weeks ago:

European Union lawmakers backed a proposed short-selling law that paves the way for an optional ban on naked credit- default swaps tied to sovereign debt. The legislation, which would also curb so-called naked short selling of stocks and government bonds, was approved by the European Parliament at a meeting in Strasbourg, France, today. A CDS is considered “naked” when an investor buys the swap without being at risk of suffering losses from a default.

Hello, you have to regulate the derivatives first. They may as well legislate that the sky remains blue.

As the Germans can tell you from last year, good luck with that:

The Euro hit a new four-year low overnight following reports that Germany was banning naked short-selling of some banks’ stock and bonds which ultimately means a ban of selling shares without owning them, borrowing them, or ensuring that they can be borrowed in the future.

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