AVENGING THE DEFICIT?

The UK this week sees the premier of Captain America: The First Avenger.

The good Captain was the original 9 pound weakling Steve Rogers, rejected by the army but given a second chance through the use of a super-serum that German scientist Abraham Erskine developed.

Erskine was killed just after Rogers' transformation by Gestapo agent Heinz Kruger. 

As the debt ceiling deadlock continues with politicians point-scoring and blaming each other as the deadline-day for default looms near, I wonder what would have happened back in 1940 with today's politicians?

Surely the Republicans would have appreciated getting someone out of 4F and into the US Army but would have baulked at the costs, complaining that this action can only happen if cuts were made elsewhere?

Meanwhile, the Democrats, although worried about the ever-increasing debt would have complained that the Republicans were playing petty-politics and that action was needed now to deal with the issue of a lack of super-soldiers. Any vote in favour of the Republicans would not deal with the threat in an instance but create problems six months down the line.

Of course, as events occured   in the story, the Democrats would have won but with the killing of the creator of the Super Serum, the Republicans would go into the next elections complaining that despite the Democrats spending all that money, the country was only left with one super-soldier so how could President Roosevelt justify the costs.

The Tea Party would have questioned how a German scientist got a job ahead of a good old American boy and how the lack of immigration controls and decent security checks allowed the assassin to get into the lab in the first place.


Editor's note: Erskine was originally called Reinstein, why it was changed, I don't know

THE END OF THE BEGINNING?

In the space of 24 hours the Greek government has escaped a vote of no-confidence

So far so good.

However, Allied Irish Bank has effectively defaulted and think tank Open Europe has called on the IMF and Europe not to give Greece a second bailout - instead manage its default and restructure to scale down the event's impact.

AIB's credit event is fairly minor for the bank, not unexpected and for a very small tranche of senior debt.

However, it calls into question what the scope of Greece's CDS spread will be? How many underwriters will be affected if Greece defaults and CDS are activated - indeed, will the CDS be able to cover the default?

It is now known that UK banks have been shifting their exposures away from the Eurozone and the Treasury is holding emergency talks about what to do if contagion spreads.

The problem now is what will happen? How bad is it going to get? Open Europe firmly believes that even a second bailout will just delay the inevitable and the markets appear to agree with Greek spreads heading even higher than before.

We are in new territory every day it seems and the actions of both banks and countries will be vital if the global economy is to avoid going down the pan.

In the words of Winston Churchill (I don't know if Goodwin's Law applies to Winnie):

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

A tad hyperbole perhaps, but as we face this uncertainty then that view could be more pertinent than any of us realise.

ECB CAN GO BANKRUPT?

Open Europe is a think tank with grand ideas - namely one of a transparent Europe. Now bear in mind that the EU hasn't had its books signed-off in what seems like forever, I applaud organisations that are seemingly on a hiding to nothing, you know like the Football Association and Fifa.

However, in A House of Sand, Open Europe warns that the European Central Bank (ECB) could lose its capital base with just a 4.25% loss on its loans to the periphery Eurozone countries.

Now I do have a small issue with this estimate...namely that there isn't a chance in hell of the ECB going essentially bankrupt. Too many politicians and banks have an interest in this working. All central national banks support the ECB and, at the end of the day, the taxpayer will be called on to bailout if the unmentionable happens.

And hasn't that always been the case?

GREECE SLIDES

I make no apologies for coming back to this topic - the periphery Eurozone countries are going to be in the news quite a bit over the coming months.

The interesting thing to note about Moody's latest downgrade is that there is an evens-chance of a default on Greece's sovereign debt.

Although Moody's says that it doesn't think that Greek debt restructuring is inevitable, it is curious that of all the Caa1- rated insitutions, within a five-year period, 50% have defaulted. 

Many in the media have concentrated on the fact that Greece is now at the bottom of the league table with a worse credit rating than Montenegro, but is this the first time that the odds have significantly foreshortened for the worst from a ratings agency?