German bunds

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Thanks for the insight! Could you give it to Krugman as well, I think he doesn't have it on this particular issue (or maybe pretends not to have it for cheap reasons?) ... and not only that one ... LOL!

So failed auction is not really failed it just went 'slighty' worse than it used to and you hear in the news 'euro collapsed' well Germany is broke as majority of other western countries are only contrary to what blood sniffing media would like to have they still can service their debt it seems.
I suppose we should educate our journalists first before we can trust them...

Yes, but the contagion effect can have an exponential growth curve especially in the contemporary world. If it becomes unbearably, and very apparently, expensive for Italy (which some would argue is already happening) everyone will rush out the door. This will include Germand bonds -- Italy is too big to fail and too big to save. Once that happens, the collapse will be very sudden and very fast and many will be caught bewildered like a deer in the headlights. It always starts with a trickle.

The thing is why isn't the ECB allowed to be the lender of last resort?

On Wednesday - the day of the auction - the German stock market - the DAX - fell about 1.44%

US markets fell by 2% (on lower than normal volume).

Thursday US markets were closed, and the DAX fell by 0.54%

Regards

retaining and market probing is just part of the policies of the bundesbank to get supply of money for the lowest price possible. And a frugal auction, without any goodies a/o requirements around it such as greenshoes tresherhod etc, has a fine conditioning effect on the market and their perception of the intentions of the bundesbank. Very logical and clearing approach of the bundesbank. That now suddenly people, unaware till so far of this strategy, are scarred by the retainer size, is more telling then what actual happened. people are seeing things where there is nothing.

Why would anyone want to buy German bonds at 2% when French bonds are over 3% and Italian are over 6% with no real default danger. Both countries are liquid and have no problems repaying their loans.
The premiums asked by the markets for these countries against German bonds, are simply profit maximizing taking advantage of emotions, not facts. With falling populations, even the slow to none existent GDP growth will still bring an increase on a per capita base.

In all fairness, how can Germany sell bonds at less than the inflation rate? Only because it is sucking money out of riskier places. Therefore there has to be some case for common Eurobonds. After all that was the case before the crisis, everyone assumed a bond issued by Greece or Italy WAS a eurobond, that's why they had the same risk premium. Now that Germany has made clear that there really is no bailout mechanism all countries are forced to default or balance their budgets. This is what is blowing the Eurozone apart. The shock is comparable to what would happen if the US suddenly decided to cap national debt and enforce balanced budgets on every state in the Union overnight.

The only sane way to end this crisis is for Germany to take the concessions given on national budget oversight, and allow the ECB to step in. This will weaken the Euro but stabilise it and the currency is over-valued anyway. Once the situation is stable, the treaties can be opened up to give countries a choice: proper fiscal oversight or orderly euro exit.

So, the botton line is that it was no big deal...Ok. But, on the other hand, the fact that markets got so scared by this is telling of how much good the germanic "virtues" are doing to confidence...

My reaction was similar: the price was too low for the current level of worry.

Thank you. That "greenshoe option" clearly makes a difference. There is no need to freak out . . . yet.

Ok, I don't really get all that mumbo-jumbo. Could you please ask him a follow up question:

"Mr Pagani, without knowing precisely what the danger is, would you say it's time for our viewers to crack each other's heads open and feast on the goo inside?"