Greece Must Fail – and Soon

 | Oct 03, 2011 | 12:10 PM EDT
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This market wants to rally. It knows that the rail-car loadings are good. It knows that auto sales are very strong. It knows that jobless claims look OK. It knows that rates are so low it makes sense to expand. It knows that retail sales are very strong, considering where we are and where employment is.

But it doesn't want to rally for the simple reason that tonight there will be unpalatable news somewhere that makes the "wants to rally" issue a needless abstraction. So what if it wants to rally if Europe can't agree to anything?

This is why Greece must fail and fail soon. This is why no more money should be wasted. If one bank after another in Europe has sworn that it has enough money to mark the Greek bonds down to oblivion and if the European countries feel that the banks should not be penalized for buying sovereign debt -- remember these banks were supposed to buy this debt and they are not buying corrupt mortgage debt -- than anything short of shutting down Greece is silly.

It is why it would be good at this point to see what hits the banks take and to test the resolve of Europe. No resolve needs to be tested by continuing to write Greece checks because it just makes it so the banks have more time to adjust to the coming default.

To which I say, who needs more time? If each bank says it has enough capital, if Credit Agricole and Paribas and SocGen say they have the capital then what is the point of doing this any more? We know that the governments stand ready to quasi-nationalize anyway.

I don't say this because I am tired -- as you are -- of caring about Greece. I am more tired of hearing from the banks that we shouldn't worry. I say call their bluff. I say that until we do, our banks are hostage as hedge funds can't short their banks so they use ours as a proxy and it is working.

Until the governments and the central bank take these banks at their word and basically Chapter 11 Greece, we will not have a significant bottom and we will continue to fight the late afternoon tide.

It's time for them to act, time for the pressure on the system to explode and finally see what happens.

Somehow, I now believe it will be better that this fantasy that plays out every day.

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