Monday, November 28, 2011

Anyone Have a Spare $3 Trillion?

The markets are up sharply this morning on rumors of a possible solution to the euro zone crisis.

I hope the rumors are right, but unfortunately I am a little skeptical. The euro problems are enormous, and political solutions among 17 different member states are not going to be easy.

For example, last Wednesday CNBC interviewed Oliver Sarkozy, the half-brother of French President Nicolas Sarokozy (tip of the hat to blog Zero Hedge).

While I doubt that his more famous relative is giving him any inside information, Oliver Sarkozy happens to be a director of the Carlyle Group, and seems to be pretty well connected. He also is pretty good at math.

As you can see for yourself in the interview below, Mr. Sarkozy figures it would "only" take $3 trillion to stabilize the European banking system. Here's how he figures it:

"The math I'm working with is very simple. In the US banking sector, we had $3 trillion of wholesale funding that needed to be stabilized, got stabilized by the implementation of TARP which saw the US treasury buy $212 billion worth of preferred in the banking sector to stabilize that $3 trillion, give our banks the time to work through their problem assets.

In Europe, that $3 trillion is $30 trillion. so if you multiply the $212 by 10, you get the $2.12 trillion. In my view, the issues on the European banks are bigger than the issues on the books of the US Banks. So if you want to stabilize that $30 trillion and in my view it's not that you want to, it's that you have to, you do not have a choice, you're going to have to be at least at 2.1 trillion and I suspect it may need to be more."