Volatility And Its Impact

It is not clear how much longer the volatility will continue in the bond markets. Recently it has been high, and has made it very hard for lenders to know exactly how to price the risk. While some lenders have tried to just select a rate vs a spread, this is still risky in that nobody can be sure where index rates will settle out. Likely they will not rise much for quite awhile, but until Europe is resolved well, there is a high risk that volatility could remain high. Maybe this week Merkel and Sarkozy will finally understand that they are playing with a dangerous game of kick the can as they have been for the past two years. There is still a total lack of any leadership in Europe, and things are still just muddle along with no political or monetary structure that is really effective. Having seventeen disparate countries try to agree on anything is a challenge. To have them agree on all of the issues of defaulting Greece, how to stabilize Italy, how to stabilize a very disparate set of banks in all of the affected countries,  and how much each country needs to contribute of its taxpayers money to support the entitled, lazy Greeks and the dysfunctional Italians. Is a massively complex problem which is inherent in the unworkable EU rules. The Euro Zone worked when everything was going well and there was no apparent stress on the system of socialist programs which supported not working in Greece, Italy and Spain. Now that reality has struck and there is no longer the ability to continue these massively unproductive programs, there needs to be a genuine reordering of the underlying rules of the Euro.

Whatever they do this week will help, but there needs to be a rethinking of the whole concept of a single currency with no real rules. Greece cheated and lied, yet nothing was done, and now the whole world is paying the consequences. I really doubt we will see Dodd Frank of the Euro as a result. Instead we will see bubble gum and baling wire to get by and sustain the banks, and a defaulting of Greece, but no real restructuring of the Euro Zone. Nobody will admit the whole concept was fallacious from day one and remains unworkable. All they are doing is a big band aid. This is not the end of restructuring in Europe.