Hussman on Europe

From this week's column:

Europe doesn't face a liquidity problem. It faces a solvency problem. What investors really want isn't just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn't ever actually have to be repaid. That isn't going to happen easily. Short of major fiscal improvements in Europe (which appear increasingly hopeless in the face of an oncoming recession) any solution will have to explicitly or implicitly impose losses on someone. In my view, the best "someone" is the investors who willingly made the loans in expectation of earning a spread, and who knowingly took a risk.

Exactly. Since it is obvious that these sovereign loans are bad the strategy is to try to sell them to the public at par. That is the strategy that U.S. banks tried in 2007 and early 2008, and you can see how well it worked. It isn't going to happen.