A private Euro bailout–now with Italian flavor

No matter how annoying the European debt-crisis soap opera has become–reminding me of the old Saturday Night Live Weekend Update routine about Generalissimo Francisco Franco still being dead–there’s no way to pretend that it isn’t going to cost us here in the land of the free and the home of the brave. Even before the Euro leaders huddled and brought forth their bailout mouse (getting their banks to “voluntarily” take a 50% haircut on Greek debt so as to avoid triggering the credit-default swaps that a formal default would entail, then promising to make the banks whole with taxpayer money), skeptics were predicting its failure. Now the PASOK government in Greece has scheduled a referendum on its austerity end of the bargain, and the likelihood of a rejection by Greek voters has spooked the markets more. New Eurozone manufacturing numbers are dire, suggesting another slowdown, lower tax revenues, increased deficits, rivers turning to blood, cats and dogs living together, and so on.

“So what?” you ask, with a Gallic shrug or perhaps some Teutonic schadenfreude. Well, the IMF, heavily backed with U.S. tax dollars, is in on the deal and will probably be hit up for more money later. What’s more, some of our banks have exposure to European sovereign debt and I’m not confident that equity or loss reserves will turn out to be adequate in all cases, given our past experience here with regulatory diligence (and given the regulators’ professional courtesy toward fellow governments, treating sovereign debt as “safer” than, say, bonds from cash-laden private companies). And finally, a big recession-and-default contagion in Europe is guaranteed to chop into the profits of U.S. and Asian firms, crippling confidence, investment, and hiring.

The central bankers and technocrats and politicians are not going to be able to stop this; they’ll ride out the crisis and take credit if everything works out and duck the blame if it doesn’t.

But fear not. Because I Have a Plan.

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