It looks as if the Euro and Greece have bought themselves some more time with the bailout at the end of last week. I am surprised at how little comment there has been about the €1019bn input from the ECB (European Central Bank) - this was in two instalments and took the form of cheap loans for Banks (€489bn in December 2011 and €530bn at the end of last month). There are probably a number of reasons for this - such as the need to provide support to banks adversely affected by the Greek "default", a signal that the euro was not going to be blown a way by the markets (well not yet anyway) and that such a well timed manoeuvre could out flank some Hedge Traders. However the other side is that this expansion of the ECB's balance sheet is backed by European (Eurozone directly) taxpayers!
On BBC Radio 4 last Thursday a discussion took place in the Business about the bailout and Hedge Funds. If I heard correctly the Hedge Trader had made a loss on the Greek bonds but was covering himself by shorting the Banks. Might not have worked this time! The Hedge Trader was clear that it was not his job to moralise what was permissible in the market and even claimed that their activities encouraged the Regulatory Authorities to do their job better! This is just another version of that juvenile argument - question "Why did you do that?" answer "Because I can". There is no moral compass here as distinct from some in the City of London who believe that without it regulation will be severe and some activities will simply be outlawed. And some might say why not given the mess they got us into and the fact that it is Jill and Jack taxpayer who is taking the ultimate risk! This one has a long way to run yet.
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