Euro Tarp Bailout, Here We Go Again

Stock-Markets / European Stock Markets
May 14, 2010 - 02:52 AM

By: Richard_Shaw

The nearly $1 Trillion bailout by Europe of Greece and whichever countries come next, is like an echo of the US TARP rescue of banks in 2008. It is similar in size, similar in its intention to save the banks from their own bad decisions, similar in making taxpayers eventually pay for the mistakes of the banks, and perhaps similar in other outcomes. One outcome that should be noted is that the US and world stock markets continued to fall for several months after TARP. That pattern may repeat. We need to be prepared for that possibility.

"Euro-TARP" is no more than an agreement to do something, but little has actually yet been done. The terms and conditions of actually doing something are not fully known to most investors. The terms may involve fiscal actions by the Greek and other governments that those governments may or may not implement. The populations, particularly union populations, and perhaps far left political groups, may become disruptive of the economy over their dislike of those fiscal actions that are implemented (certainly burning banks, causing death of innocent bank workers last week proves that sort of thing is possible).

So let's not declare an "all clear" just quite yet. That "all clear" will come eventually, but is is hard to believe that a last minute weekend announcement is the end of the crisis. It needs time to mature as a situation.

Let's also not discount the possibility that Monday's strong market rally was substantially a continuing short covering rally after the gift to short sellers provided by the markets on Thursday.

Here is what Mohamed El-Erian, the chief executive of Pimco said Sunday night:

"... policymakers have shifted to a “whatever it takesâ€