Kudlow Has A Plan, You See

Larry "The Recession's Been Over For Nine Months" Kudlow has a plan to fix the latest chapter in the ongoing financial crisis, European Edition.  This ought to be good.

So I have a thought.

In the autumn of 2008, when financing markets completely froze up during the very worst of the credit meltdown, the FDIC guaranteed all bank debt, from 30 days out to 30 years. In addition, the Fed and Treasury essentially guaranteed overnight lending in the repo market and the commercial-paper market for bank debt. It worked. 

At the time, the repo market for interbank loans was about $20 trillion, vastly greater than the $1.2 trillion volume of subprime mortgages. And when the repo market was rescued through the loan guarantees, the financial system gradually started to heal — although it took several months. (An end to mark-to-market accounting in March 2009 would aid that healing process.) 

So it’s my contention that the Europeans must now embark on a similar program. The EU/IMF rescue plan, which consists of $1 trillion in loans and loan guarantees for government sovereign debt, must be expanded to include a blanket loan guarantee for all European bank debt, short term and long term. A Europe-wide, centralized, deposit-guarantee system should also be developed. Right now bank deposits are insured by individual countries, like Greece. This is not credible. (Hat tip to investor David Kotok for this deposit-guarantee thought.) 

A loan-guarantee program to backstop the banks in Europe and sovereign debt will put an end to this crazy Greek drama that is pulling down markets everywhere and threatening the economic recovery. As a free-market advocate, I don’t like this sort of government intervention. But we’re talking emergency here. Systemic global emergency. 

Yeeeeeeehaaaaaa!  It's the Hank Paulson Bailout Special!  Guarantee all Eurozone country loans with the power of the ECB, introduce massive moral hazard across the board as no major financial player will be allowed to lose, and re-open the casinos so the big banks can gamble with all of Europe's cash!

Boy that sounds like a wonderful plan.  It's like what Hank Paulson and Bush did here, only an even bigger giveaway of trillions to the big banks.  Meanwhile, the poor chumps on the streets in Athens, Barcelona, Lisbon, Dublin and Rome get to see their salaries slashed, their retirements wrecked and their livelihoods looted as they are forced into "austerity measures" while the fat cats feast.

Hey, it worked for us!  We just call those "furloughs" here.  Anyone surprised by this?  because this is exactly what I expect is going to happen over the next month or so.  It's a terrible plan (after all Kudlow thinks it's  great idea) so count on something very much like it happening very, very soon.