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Belmont Club

Attila the Run

September 28th, 2011 - 1:26 pm

A Hungarian economist, Head of Global Securities Services at UniCredit Group in Milan and Olympic committeeman Attila Szalay-Berzeviczy has declared the Euro beyond salvation. In an Hungarian-language opinion article, Attila said “The euro is beyond rescue. The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”

The article described a “worst-case scenario,” he said in a telephone interview from Budapest today. Szalay-Berzeviczy’s “are his own personal view and do not reflect the position of the company,” Claudia Bresgen, a spokeswoman at UniCredit in Munich, Germany, said by e-mail.

A Greek default will trigger an immediate “magnitude 10” earthquake across Europe, he predicted. Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes,” Szalay-Berzeviczy wrote.

The impact of a Greek default will “rapidly” spread across the continent, possibly prompting a run on the “weaker” banks of “weaker” countries, Szalay-Berzeviczy said in the article. “The panic escalating this way may sweep across Europe in a self-fulfilling fashion, leading to the breakup of the euro area.”

Zero Hedge has a more complete machine translation of the Hungarian’s prediction, which is gloomy to the point of being apocalyptic. “The ATM is emptied in minutes. The local banks are stuck holding government securities, an immediate liquidity crisis, devaluation of the Greek banking system in total collapse. Thus the savings of depositors is totally wasted because the Greek government deposit insurance or guarantee was now living.”

Although the Eurozone crisis has already has already begun to tighten credit in the region’s banks it is far from clear that the doomsday scenario painted by Attila Szalay-Berzeviczy would actually eventuate. It’s too extreme isn’t it?  Wouldn’t they stop it before it started? Wouldn’t they slam on the brakes in anticipation of the cliff? Why of course they would. Whoever they are. The problem, according to George Soros is that there is no they. He has been wishing for some time for a definite authority in Europe that could do what the Fed did in a time of crisis.

“It is a more dangerous situation…to the global financial system than the collapse of Lehman Brothers…” the 81-year old investor said. “Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences.”

He explained that things were different in the U.S. during the credit crisis as the U.S. Treasury Department’s preexisting authority and contingency plans helped to create and implement liquidity programs in order to stabilize and recapitalize big banks; in the process, investors gained confidence in the integrity of their deposits. …

Despite his recommendation of a unified treasury, he concedes the controversy tied to the concept.

“Creating the common Treasury does not necessarily mean political union.”

One day it may be needed  in the Old Continent but it won’t be there. Interesting thought.

But what happens if an out of control process begins to wreck the existing books of account, wiping out huge amounts of recorded wealth and in some cases, directly transferring it to others without check until the situation described by Attila is reached? Then the situation calculated by wealth computing machine may no longer acceptable to the populations in any way.

Remember that absent a physical world war, the entire process of wealth destruction described by a meltdown will be entirely virtual. Outside the birds will be singing, the cars will still be running and the houses will all be there. Only inside the computer will there be hell; only inside the computer will they belong to someone else. But to whom? If until yesterday your home “belonged to you” through a mortgage and was formerly valued at $300,000, would you accept that 24 hours later it is now worth $75 and is under the receivership of the government?

In the 1994 Tom Clancy thriller Debt of Honor, an entire day’s trades on the stock exchange are fictionally deleted by a hostile logic bomb. Nobody knows what fortunes have been made or lost in the ensuing chaos. But hero Jack Ryan has a solution. “If it’s not written down, it didn’t happen,” he says to himself and the values are simply restored to an arbitrary point in recent time and the world lives happily ever after. The Tom Clancy argument is that at some point we can simply re-conform the wealth machine calculations to some acceptable division based on possession and acknowledgement.

But with one caveat. The institutions which used to run the wealth computing machine will be gone and somebody has to preside over the Jack Ryan-like reallocation. What happens then? Wait for the forthcoming novel entitled “How to Skip Out on Your Tab” by Richard Fernandez on Amazon Kindle.

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