It's all Goldman Sachs' fault says Matt Taibbi

[Jan Klimkowski]

Goldman Sachs and Mammon: a Love Story in which everyone else gets Screwed....

Via Zero Hedge:

Goldman Calls For QE In Europe: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further"

Submitted by Tyler Durden on 09/11/2011

Even as the eyes of the world are currently frozen in a spot in time from ten years ago, and Wikileaks is making doubly sure of this by releasing the entire record of Metrocall pager (remember those?) intercepts starting at 9:55 am on 9/11/01, the world itself continues onward, and especially those who determine its global policy of "Prevention of Harm to The Status QuoTM" are busier than ever this weekend. Chief among these is and always has been the one financial firm which has infiltrated "sovereign" decision-making more than anyone in history: Goldman Sachs, whose alumnus, incidentally, is about to replace Jean Claude Trichet at the helm of the world's largest and most undercapitalized central bank (yes, a central bank can be undercapitalized - read on). Which is why the following note just released by Goldman's Dirk Schumacher is of particular attention.

Mere hours after Goldman economist Sven Jari Stehn said that FOMC "easing at the September meeting is very likelyaround 75% according to our model", Goldman is now taking on European monetary policy, and specifically the question of further quantitative easing, across the pond, where printing money has always been a far more touchy subject than in the US, courtesy of the German experience with hyperinflation (when gold soared, but apparently accoding to just released brainstorming by that intellectual titan Paul Krugman, for the completely wrong reasons: see gold is now a deflation hedge according to the Nobelist, and has nothing to do with debasing currencies - the NYT columnist just debunked 2000 years of logic and common sense).

As a result, the key line in the Schumacher note is the following: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further." To be sure, this is not surprising: after all Zero Hedge first predicted that following the latest market trouncing on Friday, in the aftermath of the ECB's admission of failure on Thursday (who can forget Ze Price Stabeeleetee), see "ECBCTRL+P: The Next Steps In The European Implosion", but we are nothing but a simple blog, which predicts what will happen but certainly does not set policy for a corrupt and failed regime. That's Goldman's job. And what is stunning is the brazenness with which it does it now. To sum up: to Goldman both the Fed and the ECB have to engage asap in yet another episode of bonus-preserving currency debasement, middle class be damned. And, we have very little doubt, they will.

Amusingly, Goldman is magnanimous enough to let us know that this policy will result in the ultimate end of the ECB either through its terminal loss of credibility as a monetary policy setting venue, or, and this is Zero Hedge's take, Germany's decision to say enough, and reinstate the Bundesbank as the ultimate mechanism of monetary decision-making... Yes, that would be DEM decision-making, not EUR.

Yet following that brief detour, Goldman proceeds to discuss the inevitable outcome of such a concerted approach, with the rhetorical question: "How to recapitalise the ECB and the national central banks (if needed)." (Yes, the ECB's endless viability is not guaranteed, someone please notify Roubini). Alas, it will be more than needed, especially after reading Goldman's conclusion, which makes the strawman of currency, Eurozone failure all too clear, should the ECB not engage down this suicidal path:

Given the capital position of the ECB and the limited possibilities for recapitalisation, one could argue that the SMP cannot be expanded much further. But, as already mentioned, the ECB's implicit exposure with respect to peripheral sovereign debt through the collateral posted by banks is already very large. To be sure, the ECB is marking its collateral to market prices and the losses would be significantly lower than the nominal figures suggest. But it is easy to see how these haircuts would be insufficient in a sovereign default involving any of the bigger countries.

Thus, the argument that the ECB should not increase the SMP further as this may risk its financial health ignores the fact that the ECB is already heavily involved. Moreover, halting the SMP could lead to a similar or even bigger threat to the ECB's financial health if this meant that a potential liquidity crisis for one of the bigger Euro-zone countries could turn into a disorderly default.

And there you have it: while the world is caught in teary-eyed ruminations over the past, the seeds of a far more painful, and certainly tearful future, were just planted by none other than the bank which always ultimately gets what it wants, no matter how disastrous the implications of its policy are for everyone but Goldman.