Friday, November 18, 2011

The Word: Monetization

It would seem that monetization of Europe's debt is now "on the table".  First off, it is the path of least resistance, but with the funding market frozen -- even the US (funding) market is starting to find the going tough.  The easiest solution is for the ECB to monetize, the the risk of inflation and hope for the best (I exaggerate, but not that much).  Europe's bank problem has reached such a catastrophic stage that now the only hope is to starve off the liquidity crisis by buying all the bonds it can, so that banks can access liquidity.

A few days ago Unicredit, Italy's largest bank announced losses of Euro 10 billion -- market didn't move that much, but what is not widely accounted for is that two of Unicredit's biggest assets are its tax loss carry forward and goodwill -- yep, the excess price of acquisitions and the tax implication of making losses (with the potential for lowering future tax payments), account for more than 100% of the bank's tangible net worth. Needless to say that the market cap of Unicredit stands at 25% of its tangible net worth.  BTW, that tax loss carry forward is actually counted as capital in Europe.  Almost as priceless is US banks taking a profit on the falling price of their issued bonds...


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