Juggling Dynamite

This morning early news is abuzz that Spanish banks have been extended a 125 billion Euro liquidity line from the European taxpayers with no conditions whatsoever. Shades of the US TARP come to mind when Congress passed the first of many cash pumps to banks with the 700B Troubled Asset Relief Program free of any conditions, costs or consequences for the institutions and executives that had created the debacle. All culprits to date have walked off Scot-free, made whole by unsuspecting taxpayers.

The Spanish PM is refusing to acknowledge this latest infusion as a bail out.  Whatever the politicians wish to call it, this is just the next installment of GMAB more ‘good money after bad” in a system that so far is still refusing to acknowledge that there is no way to pay back the money which has already been “lent”.  Adding more debt zeros is the opposite of the solution needed.  The bond market knows this as we see bond yields continuing to rise in Club Med countries this morning and falling in “safe haven” zones like US Treasuries. Now look for Greece, Ireland, Portugal, Italy et al. to expect more money and less conditions going forward.

Despite an agreement to bailout Spain’s banks, Europe still faces tough times ahead, including an election in Greece this weekend. Martin Wolf, Financial Times chief editorial commentator, discusses the future of the euro zone.  Here is a direct link.

Over the past 20+ years I have counseled hundreds and hundreds of individuals, families and businesses on the full gambit of financial decisions from budgets and planning, divorce, bankruptcy, litigation and all forms of negotiated financial settlement.

One constant throughout is that no one likes to make do with less than they are accustomed to.  So long as people are able to fund themselves through access to capital or more credit, most will not change behavior even when it is clearly leading them to financial suicide.  Once cash flow cannot be expanded or continued however, once payments from others and credit lines are cut, most people figure out the changes needed to survive.

The culture of entitlement engendered over the past many years, enabled via “financial securitization” (a euphemism for leverage suicide) has brought the western world to a tipping point. This clip explains the plain math of the US fiscal deficit, but it really highlights the challenges facing most of the world today.

Zeros will have to be wiped off of debts globally and credit lines will need to be closed (or the debts will just grow back), inflated asset values will need to be written down, spending habits will need to be changed and individuals will learn to be more accountable and self-reliant–spend less and benefit more. In the new post-debt bubble world, we cannot afford the wasteful habits we have developed over the past 30 years. Efficiency and financial honesty about what we can actually pay for, must be the new model.

Here is a direct link.

We in the west are literally eating ourselves to death. I look forward to a day when we realize what a destructive habit this is in every possible way: for the earth, for our health, for the financial burden to our health care system which is increasingly consuming more and more of the funds needed for everything else.

Recently I was meeting friends at a high end seafood restaurant in Vancouver and was once again amazed at the gluttony of the menu offerings and the mind-boggling volume the patrons were consuming. Bad for their health no doubt. Bad for the ocean for sure. It’s not that there is not enough life in the ocean, it is that we humans have developed a destructive, insatiable appetite. Time to wise up. Here is a direct link.