Europe Bailout Requires a ‘Wall of Money,’ High Frequency Says: Tom Keene

Europeans need to commit capital, not just make promises, to protect the region’s economy and banking system, Carl Weinberg of High Frequency Economics said.

“We have to see real money on the table,” Weinberg, chief economist and founder of the firm in Valhalla, New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. Policy makers need to put up “a wall of money protecting the European banking system that can’t possibly be breached, and that money has to be real,” Weinberg said.

The $700 billion Troubled Asset Relief Program, which the U.S. employed to recapitalize banks during the financial crisis, was successful because it was a commitment of cash, according to Weinberg.

“TARP wasn’t a series of pledges and guarantees,” said Weinberg, 61, a former economist at Shearson Lehman Brothers. “TARP was a pile of money sitting in a box on a table that everyone could see was available to capitalize banks. And just the fact of that stabilized markets.”

That contrasts with the inability of politicians in Europe to stabilize the debt crisis there, according to Weinberg.

“In Europe, nobody’s put up any money,” Weinberg said. “The whole thing has been contingent on a promise that they could raise money that they needed when they needed it, in order to write out these guarantees that they never expected to use.”

Bond Sale Canceled

Problems caused by the lack of firm commitments of cash by European governments were evident in the decision to cancel a bond sale yesterday to raise money for the European Financial Stability Facility, according to Weinberg.

“So much for the theory you can raise money whenever you need it at agreeable terms,” he said.

The euro appreciated 0.6 percent to $1.3829 after Greek Prime Minister George Papandreou signaled he won’t call for a referendum on a bailout package, easing concern voters would reject it and send the country into default.

The European Central Bank unexpectedly cut interest rates at Mario Draghi’s first meeting in charge even as the new president signaled no plans to backstop the region’s most vulnerable nations.

“What makes you think that becoming the lender of last resort for governments is what you need to keep the euro region together?” Draghi asked reporters in Frankfurt today. “That is not really in the remit of the ECB. The remit of the ECB is maintaining price stability in the medium term.”

Following Trichet

Draghi rebuffed calls for the ECB to commit to unlimited purchases of sovereign bonds of distressed members of the unified currency, following the approach of his predecessor, Jean-Claude Trichet. The ECB’s bond-purchase program is “temporary, it’s limited in the amount and it’s justified on the basis of restoring the functioning of monetary policy transmission channels,” Draghi said.

“I just want to see him say somewhere he’s not going to cut it off right now,” Weinberg said. “This isn’t the time to stop buying bonds. That time will come, but it’s not right now.”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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