The Crisis Resolution Plan?

This post was written by Philip Lane

This Sunday Telegraph article provides an outline of what might happen next.

100 Responses to “The Crisis Resolution Plan?”

  1. Eureka Says:

    Ok.
    How, do you increase the EFSF to 2 Trillion?
    Who pays?
    How do they pay?
    What happens when the ESFS is left short 20-40% who owes what to whom then?
    Don’t understand the mechanism here.

  2. PR Guy Says:

    @Eureka

    Surely the question is why would you want it to be be increased to 2 Trillion?

    What do they know that we don’t?

  3. Eureka Says:

    @ PR Guy
    I’m beginning to think that we are all being played here. There seems to be a banking clique that can get the governments to do whatever they like. They’ll bully, threaten and harrass until they get what they want - the people of Europe paying them tax for the rest of eternity. It’s like a modern day tithe.
    I say sc*** em.

  4. Dom K. Says:

    They are not increasing the ESFS to 2 trillion. They will leverage ESFS using ECB debt purchases with ESFS designed to take a hit and ECB should carry protected debt. The only trouble is not even the 400b ESFS agreed in July has been ratified by all member states and we are almost into October. So much of EU action and sense of urgency. All these guys know how to do is to take pictures of themselves in nice European castles.

  5. Lord Wellington Says:

    The recap of the Euro banks and insolvent Euro states will be placed on the taxpayers of all Euro states.

    There will be no vote.

    The banks will be made whole whether you like it or not.

    Democracy European style.

    The stupidity of this is that Greece would even want such a deal.

    Stay in the Euro and watch your country be slowly consumed by a greedy Euro elite over the next twenty years?

  6. hoganmahew Says:

    +1 Dom K.
    They’ve the urgency of a rural landlord at closing time when the gardai are having a session…

  7. Brian O' Hanlon Says:

    Eureka wrote,

    I’m beginning to think that we are all being played here. There seems to be a banking clique that can get the governments to do whatever they like. They’ll bully, threaten and harrass until they get what they want - the people of Europe paying them tax for the rest of eternity. It’s like a modern day tithe.

    The thing that one needs to remember, is that career ladder in the corporate world is wholly based upon the idea, that the mid level manager has a proven track record that they are able to be totally impartial, and pursue the interests of their shareholders, to all eternity. This is how markets function. This how the average CEO becomes a CEO. Unless, one meets one or two of these folk in real life, who have made it up the corporate ladder, it is a bit hard to imagine how it works. But even, if you spend some time and discuss things with the guys who ‘almost’ made it, you can also gain a great amount of insight. The guys who ‘almost’ made it, understand the play book that is necessary to execute - but sometimes don’t have the taste for the jugular that is needed - to turn the playbook into real results.

    It is no coincidence either, that many of the executives that I have known over the years, who have stayed in the game a long time, are also addicted to league type sports, such as the soccer premiership in this part of the world. It so happens, that the form of capitalism that has been allowed to evolve in our part of the world, is one that requires the executive to support an enterprise in a quasi-competitive landscape, based on support from the public purse at critical intervals. It is a last man standing kind of game. Does any reader here seriously believe, that in five or ten years time, when all of this is water underneath the bridge, that some organisation such as Allied Irish Bank or Bank of Ireland, is going to be remembered as that awful institution that cost the Irish taxpayer ‘X’ amount? Not lightly. More like, it will be AIB or BOI, that shining, bright example of Irish corporate excellence with a photo of the latest and greatest executive on the cover of the Irish business press magazine covers.

    Clayton Christensen of Harvard, who studied in detail the rise and fall of several giant American corporations in history made an interesting remark about the fall of Digital Equipment Corporation. He said that ten years before DEC went for bankruptcy, it had been winning all of the top awards for management in corporate America. But that when DEC went under, all of the press was reporting that DEC got into trouble, because of poor management. Christensen asked the obvious question, of how such excellent management in one company, could become so bad, in such a short space of time? The story that you see repeated time and again, at the Irish Economy blog site, and in the mainstream media, is about the poor management that led Irish financial institutions to disaster. I also believe, that years from now, journalists will be writing exactly the opposite story, and about the very same managers. BOH.

  8. The Dork of Cork Says:

    Again the thinking that banks are the economy is muddled at best - what exactly are they when capitalized ? - they add digits to bank balance sheets - they are the mechanism through which capital flows but they are not the economy , the post 1980 and more recent monetization on both sides of the Atlantic has not involved much spending as under the current credit hyperinflation a spending of real cash into the industrial ecosystem would involve inflation flooding through into a grossly physically undercapitalised western economy.

    I was watching George Soros in his latest CNBC interview and he claimed that the majority of capital flows into emerging markets came from European and not American & Japanese banks.
    So think of China and its building of 1 /2 coal plants a week and all that lark.
    That was the export of “our” capital so that others could industrialise at the average Europeans expense.
    I think the European elite were thinking of using a pleasant smog free Europe as a base of operations - and live off the interest in the south of France.
    But what if these capital flows were turned inwards ?
    This dollarisation of the world economy has reached its limits - there is no more worlds to strip - the post war bushfire is in danger of choking even the winners
    But narrow Colm McCarthey views that there is no money for infrastructural development is crazy - the money is coming out of their eyeballs - but it has been shipped lock stock and barrel abroad.
    The entire world model post 71 is breaking down - watch out below for a quite amazing spectacle.
    If the Euro elite cannot earn interest abroad we could be on the verge of a truely massive industrialisation here and a complete reversal of the “modern” service economy - or quite possibly a dark age - the balls are in the air.
    I would lay bets that they will be building giant ships on the Clyde withen 10 years - the present transmission mechanism is not working - too much is wasted in the financial ether - somethings got to give.
    If they decide to do another 1980s decaptilisation experiment to extract one last bit of surplus it will end in a even bigger disaster.
    People will have to get their head around this Hydra - its a quite fantastic but demonic creation - strange days strange days.

  9. Frank Galton Says:

    And the Eurocrats are slowly waking up to the fact that the banks negotiated a great deal with themselves on the July 21 Greek “haircut”

    http://www.nytimes.com/2011/09/02/business/global/european-banks-are-hard-selling-greek-bailout-plan.html

  10. DOCM Says:

    I will re-post here two contributions from earlier this afternoon on the thread dealing with austerity (and Krugman). The items linked to in the German press would confirm the accuracy of the Sunday Telegraph article (no doubt based on a briefing from UK sources).

    @ All

    A hot off the presses item from the FT Deutschland which seems to confirm;

    (i) agreement to speed up adoption of the ESM (Schaeuble being quoted as “having nothing against it””)

    (ii) added “flexibility” for the EFSF (one anonymous diplomat being quoted as speaking of its firepower being increased by a factor of five)

    (iii) Weidman weighing in for the Bundesbank ruling out monetary financing of government deficits but with Schaeuble hinting that there were other means

    (iv) the IIF being quoted that in the matter of PSI, circumstances had changed since the July agreement.

    http://www.ftd.de/politik/international/:schuldenkrise-schaeuble-will-rettungsschirm-schon-2012-aktivieren/60108537.html

    @ All

    Reuters Deutschland confirms the story.

    http://de.reuters.com/article/topNews/idDEBEE78O00320110925

    There are two major additional elements. First, as real cash would (finally) have to be put up front by the creditor countries, the antics of the True Finns in the matter of collateral (and the Slovaks generally) would no longer be effective. Second, there could be no question of increasing the funding of the EFSF as this would imply a major change requiring that the agreement of the Bundestag being sought on Thursday would not be possible as a new parliamentary procedure would have to be started.

    Unfortunately, Berlin has put itself in a bit of a bind in insisting on a change to Article 136 of the TFEU - requiring ratification by all 27 member states - in order to allow it to participate in the ESM. But, like a delayed birthday present, it is the thought that counts. It remains to be seen if it proves sufficient to mollify the injured party: the dreaded markets.

  11. The Dork of Cork Says:

    PS I think the euro experiment is one of only a series of Russian dolls - the complexity of international capital flows is wonderfully absurd and I think quite delicate - theres very little redundencey in the system now that derivatives has created a economic hollow shell which has driven its artifical & temporary profitability
    Extreme efficiency is dangerous in nature - overly adapted complex creatures are in constant danger of breakdown when the envoirment even changes marginally.
    http://www.youtube.com/watch?v=KOUdakrP52E

  12. DOCM Says:

    @ All

    I would add that the key new element would appear to be recognition both by Berlin (and her satellites) and Paris that the game is up and some harsh actions with cost implications will have to be explained to their taxpayers in a true rather than a sanitised and scapegoat hunting manner. In short, their banks have indulged in irresponsible lending to Greece for unjustified and unsustainable state expenditure, especially in relation to armaments - in cahoots with their own governments and heavy industry in both countries - and the consequences have now to be accepted i.e. writing at least half of these, and related, loans off with the consequential need to recapitalise the banks affected.

    The Commission task-force put in place to spend legitimately the €15 billion in unspent regional and cohesion funding might suitably invest it in giving Greece a functioning tax collection system.

    And the implications for Ireland! “Proceed with caution” might be an appropriate slogan.

  13. The Dork of Cork Says:

    @DOCM
    If I had Greek wages with euro expenses I would also learn to dodge taxes.
    But how will a “functioning” tax system help anything ?
    Taxes do not fund Goverment - only banks that produce paper funds goverment - the lack of tax take is only a metric of declining money supply withen a country.
    Imagine if half the euro capital exported to China was used to industrialise the euro periphery ? - me thinks the tax take would be higher don’t you think ?

    Remember most of the money exported to the periphery was used to consume items - not to build them - even the roads built was all about us buying the cores cars.
    Europe cannot live off global interest income anymore - even “Industrial” Germany has now become a specialised boutique supplier of luxery items to the worlds financial centers - its just a tertiary play thing really - there is no real deep industrial base to Germany anymore - their abandonment of nuclear was confirmation of their deindustrialization ambitions.
    Europe is just a great holiday destination and cool base of operations.

  14. Mickey Hickey Says:

    This article will be of interest to some people.

    http://www.asymptotix.eu/content/banking-systems-most-exposed-piigs-nations-32-trillion-usd

  15. Eureka Says:

    @ Mickey Hickey
    Great link. Does our level of exposure mean that we’ll have to recapitalize more if there’s a series of defaults. Afraid no-can-do.
    No way the system can take the chain reactions.

  16. Mickey Hickey Says:

    Here is a Swedish-Lars Jonung, Dutch-Agnieszka Markiewicz, US-Michael Bordo look at some of the flaws that may yet prove fatal to our beloved economic and monetary unions. One could say that the flaws have to be recognised before they can be corrected.

    http://www.voxeu.org/index.php?q=node/7007

  17. Desmond Brennan Says:

    It looks as if the Ez leaders are finally embracing reality. An orderly Greek default and c €2 trillion for EFSF appears adequate.

    It will be interesting to see how they manage the leveraging, as it might be an opportunity for some QE.

    Also there will need to be bank stress tests, and after the EBA’s lunatic fudge…I’m not sure markets will trust them ever again. The solution would be to publish the data and the models.

  18. PR Guy Says:

    @Dom K

    “The only trouble is not even the 400b ESFS agreed in July has been ratified by all member states and we are almost into October.”

    I wonder if there’s a possibility that democracy might be sidestepped? Perish the thought. Surely they wouldn’t do that?

  19. Bryan G Says:

    The IMF meeting was just a talking shop - there has been no agreement on anything; on two big issues, both sides are as far apart as ever:

    (i) Should the ECB be used as a source of funds to ‘leverage’ the EFSF (either with the EFSF acting as a bank obtaining funds via repo from the ECB, or as an insurer of ECB sovereign bond purchases)? Schauble, Wiedmann and Regling say no. Others, including Baroin and even our good friend LBS, seem to be saying yes.

    (ii) Should there be ‘real’ PSI (as against July-21-let’s-pretend PSI)? The Germans (and Austria & the Netherlands) say yes, in the context of an ‘orderly default’. The usual suspects say no. This is likely why the Germans want the ESM brought forward, since it has in-built provisions for PSI for insolvent countries.

    So on the biggest issues it is simply a rerun of the weeks up to the July 21 meeting. The particular proposals being discussed are different, but the main fault lines are still exactly as they were before. The crowd on the sidelines has increased, and are frantically shouting advice as they become more agitated, but it is still the same game as before.

    This time around I think the AAA-countries have a greater chance of success on PSI, since the EU Commission/ECB/France’s position that Greece is ’solvent’ is getting even more ridiculous with each passing week. Much will depend on whether Merkel sides with Schauble and the other AAA-FinMins, or caves in again and sides with Sarkozy/Trichet.

  20. Gavin Kostick Says:

    @ Bryan G

    “This is likely why the Germans want the ESM brought forward, since it has in-built provisions for PSI for insolvent countries.”

    Do you know if the ESM also has provisions for insolvent banks - which I thought was the original point of it?

  21. Bryan G Says:

    @Gavin K

    No - the ESM, like the EFSF, is designed to lend money to Member States, not directly to banks. Of course, as in Ireland’s case, some of these funds could be used by the States to recapitalize their banks (though in practice in Ireland all the recap money apart from the promissory notes came from the NPRF and Exchequer (pre-EFSF) cash balances, not from EFSF loans)

    There has been quite a bit of talk about the EFSF directly recapitalizing banks, however this is not allowed by the new improved EFSF currently being approved by EZ parliaments. The EFSF framework agreement is clear that all bank recap funding will be by loans to national governments (i.e. national taxpayers are on the hook for paying it all back).

  22. DOCM Says:

    @ Bryan G

    I think that you are absolutely correct in both posts above, the first summing up succinctly the main fault lines between the Anglo-Saxon financial world, as the French like to describe it, and the view taken by Germany. Given that Merkel, in her usual fashion, has chosen to stick her oar in at the most unhelpful moment, the course of events in the coming days will be decided by the markets, the main weak point being French banks. Meanwhile, the ECB will have to hold the ring. It must be getting used to it.

    Given the Irish proclivity towards deontas, it was a relief to hear Michael Noonan spell out exactly the right Irish policy position, as far as I can see, on RTE just now.

    It seems to me to be a matter of common sense that we cannot go in two opposing directions i.e. both trying to regain the confidence of the markets and continue fulminating about the injustice of failing to burn bondholders. If we say that Ireland is not Greece, which is thankfully actually the case, we cannot argue that we should get whatever Greece is getting. This will be, in any case, little more than ten years of hard grind and a form of tutelage which the Greek public may or may not accept associated with a camouflaged write-down of debt.

    On timings, the key approval is that of the Bundestag. Whether or not Merkel gets her “Chancellor’s majority” i.e. sufficient for her government to get approval on its own, the approval will be by an overwhelming majority and this can hardly leave markets unaffected.

    Schaeuble’s remark on the ESM is very clever. It leaves it ostensibly up to others to decide the pace of adoption. The key feature of the ESM, however, is not PSI, in my view, but that it requires hard cash up front to guard against it actually ever having to be used (other than as inheritor of the EFSF arrangements).

  23. Bond. Eoin Bond Says:

    @ Mickey

    two problems with that report (from an Irish point of view anyway):

    1. Its April 2010.
    2. Its BIS figures. As previously noted, BIS figures are a terrible reference point for Irish banking figures given the influence of foreign banking (mainly German) subsidiaries operating here.

    Ireland actually has very little exposure to the other PIIGS, we’ve got plenty of crappy assets on this island without having to venture further afield to find some. What that report does clearly show though is the huge exposures of French banks in particular, but even German (Depfa, but lots of the landesbanks as well), Dutch and Belgian (Dexia) banks as well.

  24. Lord Wellington Says:

    So, if this gigantic slush fund is created can Ireland have the €50/€60€70 bank billions, or whatever it is, back?

  25. Yields or Bust Says:

    @Frank Galton

    “..And the Eurocrats are slowly waking up to the fact that the banks negotiated a great deal with themselves on the July 21 Greek “haircut”..”

    The paper that detailed the July 21 haircut in terms of the various options available to investors came from the IIF. That is the body chaired by Akerman I believe, that represents the interests of investment banks and financial types generally.

    Your comment above and the fact that IIF were to the fore in selling the July 21 deal reminds me of a Buffett gem:

    “..Never ask the barber if you need a haircut..”.

    The phrase I think gets to the root of the current impasse. Those with most to lose aka the banks are making the decisions on behalf of the actual Policy makers. The actual Policy makers are looking more bemused and foolish with every passing hour, simply becauase they don’t understand what’s going on.

    Given this turn of events its a racing certainty that the banks will likely get their bailout on their terms and the rest of us will whistle for our respective dinners.

    Is my understanding correct: the EFSF can move from a €400bn fund to €2trn fund - that’s an additional €1.6trn of ECB new funds moving from the ECB coffers to the balance sheets of the banks presumably by the ECB creating the cash (QE Euro style).

    Would it not be simpler for the ECB to simply Guarantee the deposits in the system - and the bond holders take the sovereign default hits. As the extent of the defaults becomes known the banks go to market to raise the cash shortfall themselves - failing that they sell themseleves to the higest bidder or die. The size of the default is a workout with the ECB/IMF and the sovereign in question. What’s so complicated about this suggestion?

  26. Bryan G Says:

    @DOCM

    I think Noonan’s strategy on burning the unguaranteed bondholders was pretty amateurish, but it doesn’t matter now since that is off the table. The strategy seemed to be

    In June: Very publicly say we’re going to talk to the ECB about it in the Autumn
    In July: Very publicly say we’re going to talk to the ECB about it in the Autumn
    In August: Very publicly say we’re going to talk to the ECB about it in the Autumn
    In Sept/Autumn: Talk about it to the ECB (for a whole 30 mins) and accept the “no way” without any fuss.

    I’m not sure what the point of the whole exercise was, since it was obvious in June what Trichet would say in September.

    I think there’s two areas where it may be possible to piggyback off what is given to Greece in the next few weeks (like for the zero-margin interest rate in July)

    - if the terms for bank recap funds for Greece are better than Ireland’s current promissory note terms (e.g. 30 year vs 10 years repayment) then it may be possible to redeem the current PNs and refinance on better terms via the EFSF.

    - on the sovereign front it is of course necessary to say the right things, however being Best Boy in the Bailout Class it isn’t clear that there is any great benefit to getting funding from the markets in 2013, for 2014 onwards, rather than more funding from the EFSF/ESM. Market funding will be more expensive than EFSF/ESM funding (assuming zero-margin is maintained). Perhaps the French will raise CT as an issue for any extension of the EFSF/ESM to encourage Ireland to leave the Bailout Class and join the real world again, but otherwise the conditionality of a souped-up SGP for the EZ won’t be that much different from MOU conditionality in terms of deficit targets etc. The plan is to remove Greece from the markets completely for 10 years. The plan for Ireland was/is to remove Ireland from the markets for 3 years, but in practice funding can’t be left till the last minute, so it is more like 2.5 years. It may be in Ireland’s interest to try and get this extended to 5 years, for example, and get a few more years at a low interest rate.

  27. DOCM Says:

    @ Bryan G

    I can only lay claim to some understanding of the politics of the situation and certainly not the technicalities of it. The “strategy” of Noonan on Anglo seems entirely understandable to me. He allowed the clamour to simply run out of steam and, in the meantime, the background situation changed dramatically to Ireland’s advantage.

    It is my aboslute conviction that we can only get back into the markets if we take the necessary steps nationally. I think we can if the government can pluck up the courage - and necessary cohesion - to take them. I can recall, incidentally, when borrowing on the markets for anything other than investment was anathema and decisions were taken on the basis of the return on the investment being capable of servicing the repayments. It is a case now of back to the future.

    There is also the curious case of what is happening to gold. As the FT puts it today;

    ” Gold slides as investors scramble for cash”

    “Monday 09.40 BST. Investors are scrambling to raise cash across selected territories and asset classes as traders fret that a lack of progress in finding a solution to contain the eurozone fiscal crisis threatens the health of the global economy”.

    It is a question more of the health of investors’ portfolios, in my opinion. Berlin is not in any hurry to help the players in New York and London out of mistaken bets on the direction of events.

  28. Desmond Brennan Says:

    Somewhat tongue in cheek, the ever excellent Todd Buchholz explains why Germany is willing to bail out Greece: http://mobile.nytimes.com/2011/09/26/opinion/germanys-love-for-greece.xml

  29. Mickey Hickey Says:

    The parallels are getting closer between the dirty thirties and the dithering economics of the beginning of the twenty first century.

    londonbanker.blogspot.com/2011/09/testimony-of-marriner-eccles-to.html

  30. Sarah Carey Says:

    @Eureka

    “’m beginning to think that we are all being played here. There seems to be a banking clique that can get the governments to do whatever they like. ”

    +1

    when are the governments of US/China/EU going to get together and do Bretton Woods II?

  31. Paul Hunt Says:

    In a recent comment-piece - already commented on here:
    http://www.irisheconomy.ie/index.php/2011/09/20/breaking-up-is-hard-to-do/
    Martin Wolf made a very perceptive comment:

    “..the world looks on in horror at the possibility that the eurozone is about to unleash a wave of sovereign debt and banking crises. If so, it would not be the first time that European folly has brought ruin on the world.”

    The last 400 years of European history have been punctuated by periods of damaging conflict and calamity followed by, often quite long, periods of reasonably sensible intra-state and inter-state behaviour. Think of the Thirty Years War, the ensuing broad settlement, the French revolution in the midst of, and exacerbating, conflict between the Great Powers, the post-Waterloo dispensation that lasted almost 100 years (and accommodated the reunification of Italy and rise of Germany), WWI, the failure to achieve a secure post-war settlement (the exception that proves the rule and invited a cataclysm, WWII, far, far greater than this failure justified) and the post-war settlement of peace and prosperity under the EU.

    It appears that things must get really bad before European nations, collectively, muster the will to address the problems. And so it appears in this instance. Three times in the last century the US was compelled to intervene in Europe to achieve a resolution of problems that were beyonds the capability of Europeans to resolve themselves. This time the US lacks the capability or desire to intervene, but it can provide counsel - and China has an interest in maintaining the stability of the current international order.

    The odds are that Europe will muster the collective political will to resolve this crisis. It will prove far more expensive than it would have if politicians had conveyed much. much earlier to their voters the seriousness of the situation. And it has proved unfairly burdensome for the small peripherals who put themselves in the line of fire. But this is the European way. Better late than never.

    Ireland, ensconced in the EU/IMF treatment room, is a spectator. It should be focused on the steps it can take to speed its recovery. But the urge to seek to impose burdens on others so as to avoid taking these steps seems to prove too much of a temptation for for too many - and for many who should know better.

  32. The Dork of Cork Says:

    @Sarah
    When the banks tell them its time to get together to create Bretton woods III.
    However unfortunetly the banks balance sheets are configured towards the continued operation of Bretton woods II so it could be quite some time before the money supply can be redirected towards productive use.
    In the meantime they will continue to deplete human, technological & resourse capital until it hits some kind of entropy wall.
    It will be quite some spectacle I imagine - if you are unlucky enough to be around when it happens.

  33. seafóid Says:

    “The odds are that Europe will muster the collective political will to resolve this crisis.”

    It’s just a question of finding a political formula that sticks. And this time they have to leave out the shafting of Greece. June’s deal was a joke.

    Europe will get over this. El Gordo is going to come with climate collapse.

  34. anonym Says:

    @Bryan G

    I’m pretty sure this piece is someone’s attempt to influence the outcome or maybe gauge reactions, partly because I’m pretty sure I’ve seen almost the same article - strikingly similar structure and phrasing - under some other journalist’s byline in another newspaper.

    This is likely why the Germans want the ESM brought forward, since it has in-built provisions for PSI for insolvent countries.

    Going by Bloomberg Merkel seems to have already given up on bringing forward the ESM, if indeed she ever wanted that (”She made no mention of setting up the permanent fund before 2013.”). Honestly it seems to me that Merkel herself has never treated the ESM/2013 regime as much more than a get-out, a political promise of PSI at a safely distant time in the future. Some other people in and around the German government may see it differently, but they’re effectively part of the audience she’s trying to string along with talk of future orderly restructurings.

  35. anonym Says:

    @Paul Hunt

    What lasting outcome do you believe is both a) now achievable and b) preferable to a prompt wave of sovereign debt and banking crises?

  36. Jesper Says:

    Lots of shouting that there is a crisis. What is the crisis?

    Is it a crisis that lenders who lent out to people who couldn’t pay back will lose money?

    Happens daily in business. Happens every other year with sovereigns.

    The one and only thing that can resolve this ‘crisis’ is if the losses that have been incurred are recognised. Two main options:
    1. The ones who made bad investment decisions lose their money as their investment was a bad one.
    2. Losses are transferred from the ones who made bad investment decisions to the general public. Losses socialised.

    I can’t see much middle ground, either you’re with the bankers or you’re with the public. If elected politicians do nothing then the losses won’t be transferred to the general public.

    Would Ireland be better or worse off if the Irish government would have been on holiday for the entire autumn of 2008 when the guarantee was given? ;-)

  37. Paul Hunt Says:

    @anonym,

    Nothing short of EZ banks taking their lumps on Greece and some other peripheral stuff, then massive over-cap of those still standing (with quick and effective resolution of those not), will do.

    @Jesper,

    “If elected politicians do nothing then the losses won’t be transferred to the general public.”

    I don’t think politcians can afford to do nothing. They’ll have to make sure the losses are imposed where they should - and then stand ready to clean up the resulting mess rapidly applying more firepower than may be required.

  38. Eureka Says:

    Scary stuff:
    http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world

  39. Bryan G Says:

    @anonym

    “I’m pretty sure this piece is someone’s attempt to influence the outcome or maybe gauge reactions, partly because I’m pretty sure I’ve seen almost the same article - strikingly similar structure and phrasing - under some other journalist’s byline in another newspaper.”

    There have been a good few articles proposing the “Geithner Plan” (EFSF uses ECB to leverage to €2trn, 50% Greek haircut, EFSF recaps banks) and it would not surprise me at all that they are being based on some briefing paper being circulated. However I doubt the plan will get anywhere. Already we have this today on Greek haircuts

    The expansion of the euro zone΄s sovereign debt fund won΄t allow a further restructuring of Greek debt, a European Commission spokesman said Monday.

    So the haircut/recap part is ruled out, and I just don’t see the ECB agreeing to leverage the EFSF as proposed - it would be a complete reversal of their position that solvency issues are a matter for national governments, and national governments alone. They might provide funds if they had a 100% indemnity, but then there wouldn’t be any leverage.

  40. Jesper Says:

    @Paul Hunt,

    I think we might be in agreement. First risk-capital is hit, then and only then it might be necessary to have wider public involvement. However, it seems like loss recognition will not happen unless there are consequences for the board of directors of the banks in question.

    A couple of examples from Sweden:
    HiQ bank failed last year, shareholders have sued the board of directors for damages as they have the opinion that the board failed to protect shareholder interests. The lawsuit is in accordance of Swedish law, damages will put most of the board into personal (& enforced) bankruptcy if the court finds in favour of the shareholders.
    Saab Automobile, currently has only one member of the board. The rest (including employee rep, public interest etc) resigned during the early summer when there were problems with cash to pay suppliers. The reason for the resignations might be that they could become personally liable for debts incurred after these problems occurred. The amount is likely to be large enough to put the entire board into personal bankruptcy. If the current reconstruction attempt fails the board might face jail of up to 2 years if suppliers become worse off than in a bankruptcy now. & while the state guarantees that wages will be paid, the guarantee will become null & void if the union reps, after salaries remain unpaid after a certain period of time and reminders, don’t file a petition for bankruptcy.

    A debate article has been in the Swedish papers about boards of directors. Apparently people don’t want to be on corporate boards as they risk harsh consequences if the company goes under…. Apparently the board of directors are expected to earn their fee & some don’t like it ;-)

  41. DOCM Says:

    @ All

    A blog contribution by Gavyn Davis which identifies, correctly I think, a “crisis of economic competence” as the reason for the sudden economic downturn in Europe.

    http://blogs.ft.com/gavyndavies/2011/09/25/eurozone-teeters-on-the-brink-of-recession/#axzz1Z4f4COir

  42. tullmcadoo Says:

    http://www.spiegel.de/international/europe/0,1518,788352,00.html

    It appears the Germans are going all wobbly on whatever was agreed to at the G20. Interestingly, Weber and the 2 ECB Germans met in a beer cellar in the Ritz Carlton on the margin of the G20. How very Teutonic.

    According to Der Spiegel, Herr Weideman are trying to build a coalition of the unwilling on the ECB.

  43. Bond. Eoin Bond... Says:

    @ all

    WSJ/CNBC now reporting that they’re gonna try and leverage the EFSF 8x. That’s a hell of a bazooka to have at the ready.

  44. David O'Donnell Says:

    … more of a Polaris - but in line with what is probably required. Now is definitely the time to decommision most of those toxic derivatives within the financial system

  45. David O'Donnell Says:

    … and we want that IOU on €20 billion from Mr Geithner honoured before that submarine returns home …

  46. Dom K. Says:

    PR Guy

    “I wonder if there’s a possibility that democracy might be sidestepped? Perish the thought. Surely they wouldn’t do that?”

    The situation in which the Euro finds itself is a direct result of a series of moves by the EU elite in which the democracy was sidestepped. So I do not think this is the answer as two (or multiple in this case) wrongs do not make a right. The Euro is one in a series of small steps designed to bring European nations closer by imposing integration through projects which appear to be economic in purpose.

  47. anonym Says:

    @Mr. Bond

    A slipping gear could let your M203 grenade launcher fire when you least expect it. That would make you quite unpopular in what’s left of your unit.

    — The U.S. Army’s PS magazine, August 1993

  48. Sarah Carey Says:

    @Eureka

    Holymoly that BBC link scared the bejaysus out of me.

    He says savings will be gone in a year. So do I use savings to pay down the mortgage?

    Help!

  49. Desmond Brennan Says:

    @Tullmcadoo
    Yep, Telegraph confirms that things in Germany getting ugly http://www.telegraph.co.uk/finance/financialcrisis/8790799/Germany-at-war-over-eurozone-bail-out.html

    Also I’m not sure how the EFSF will get 5x leverage unless ECB rules are changed. That said, ECB rules were found to be very ‘flexible’ when our own CB decided to print €50bn ELA.

    Which leads me to think that because of the quantities involved…it will be akin to QE

  50. Jarlath Says:

    @Eureka

    It is hard to put much credence by that BBC clip when he says in the same breath that a crash is what he wants and what he’s been preparing for for the last 3 years. He seems to confident he can make an awful lot of money from it. Naturally then, if he happens upon a few minutes of air time on a global broadcaster, he’s gonna lay on the whole “the end is nigh” spiel pretty thick. Which he certainly did, but he undermined everything he said by admitting its what he’s planning and hoping for. The witness is compromised.

  51. Eureka Says:

    @ Sarah
    just invest in hedges - that’s what I’m gonna do - that’s what he said - I’m just gonna go out there and buy lots of hedges. Never knew there was so much money in the damn things

  52. Eureka Says:

    @ Jarlath
    Yep - think you’re right - he wants to create a bit of self-serving panic. But one thing he’s absolutely right on Goldman run the world.

  53. Sarah Carey Says:

    lol.

    But the frost might get them :)

    @Jarlath

    hmmmmmmmmmmmmm

  54. anonym Says:

    @Desmond Brennan

    The best explanation/forecast I’ve seen for the new leveraged EFSF is that it is in effect (and very possibly in intent) a political bait and switch to clear the way to future monetary easing by the ECB. All kinds of assurances can be made now that the ECB will surely never, never see losses on its senior tranche in the CDO. Then in the future, when the senior tranche makes losses, there will be “no alternative” to either a large recap of the ECB by the EZ core states or, more likely, EZ QE to make the losses go away. Or I suppose a third possibility is that when the EFSF starts looking a little unwell, it can be pepped up through special permission to buy a small amount of EZ core sovereign debt, then a steadily increasing amount, until it’s a de facto issuer of Eurobonds.

    (I am not an expert on anything.)

  55. PR Guy Says:

    @Bryan G

    “and it would not surprise me at all that they are being based on some briefing paper being circulated.”

    Surely not? Who would possibly carry out such dastardly practice?

    Doh!

  56. Bond. Eoin Bond... Says:

    @ Eureka/Sarah

    Amidst all his ranting, did he actually say anything particularly useful or coherent? Basically his spiel amounted to:

    - the end is coming
    - he doesn’t care
    - in fact he’s been wishfully dreaming about it
    - he intends on making a lot of money from it
    - he says other people can make money from it too thru ‘hedges’
    - he doesn’t say what these hedges are other than treasury bonds

    Eddie Hobbs could do better than this.

  57. Tullmcadoo Says:

    DB,
    It appears that the Core Europeans have been told what to deliver by the G20. It is something along the lines of “do this or prepare to face the consequences”. When you are an exporting nation, lack of access to export markets is going to hurt.

  58. Eureka Says:

    @ Bond, Eoin Bond
    ..or
    I’m a trader, I don’t care about anything other than making money and “the Market” you’re all so eager to please is a collection of guys who think and operate just like me… We have let guys with this kind of mentality take over the world…
    So…I think he’s told us a helluva lot.

  59. Eureka Says:

    @ Bond, Eoin Bond
    A potential dumb question but isn’t leveraging what got us into this mess in the first place? How do they really leverage the Efsf? Does it mean that they actually borrow 8 times its value?

  60. PR Guy Says:

    @Jarlath

    “The witness is compromised”

    The witness didn’t even sound like he knew what he was talking about!

    :-)

  61. Joseph Ryan Says:

    @Tull

    “”"re It appears the Germans are going all wobbly on whatever was agreed to at the G20. Interestingly, Weber and the 2 ECB Germans met in a beer cellar in the Ritz Carlton on the margin of the G20. How very Teutonic.

    According to Der Spiegel, Herr Weideman are trying to build a coalition of the unwilling on the ECB.”"”

    Meanwhile Greece is fast becoming the New Jerusalem, of those afflicted by the recession. Greece will soon be a cause celebre with which to pummel the financial industry and its backers.

  62. Tullmcadoo Says:

    I am afraid Greece is going to be a model for a society that has to live a hand to mouth existence. It will serve as a monument to the end of social democracy. You can’t live indefinitely on someone else’s credit card

  63. Eureka Says:

    @ PR Guy
    The witness attests to the true nature of “the Market”. He is a personification of “the Market”
    So next time they tell you they have to close a hospital ward to appease the Market - think of him.

  64. Bond. Eoin Bond... Says:

    @ Eureka

    Well leverage is part of the problem, but it’s not bad in and of itself. A mortgage is leveraged, right? Bad lending/buying bad assets with are the ultimate cause of the problems. Leverage magnifies these mistakes.

    They’d get 8x leverage via the ECB. They’d either issue loans or buy bonds, and use the ECB to finance these, just like banks do right now. The 440bn would be the ‘equity’ that would take the first loss, should it arise, on the 3bn+ of ‘assets’.

  65. Jarlath Says:

    @ Eureka

    The witness was trying to further his own ends. Thats not the true nature of the market, thats just the true nature of people.

  66. Eureka Says:

    @ Bond, Eoin Bond
    Thanks for the explanation. I’m out of my depth with this.
    Arent the assets they’ll be acquiring bad assets though (if they weren’t there wouldn’t be an EFSF in the first place). So the ECB itself could go bankrupt?

  67. Eureka Says:

    @ Jarlath
    The market is people

  68. PR Guy Says:

    @Eureka

    The guy is clearly a tosser who doesn’t know what he’s talking about and probably makes the odd £50 placing spread bets on the laptop in his bedroom (in his mum’s house) and calls himself an ‘independent trader’ (as per the title on the screen during his interview) and tells girls he tries to chat up in bars that he’s ’something in the city’.

    So yes, you could be right… he’s a personification of the markets. He was certainly as full of 5hit as any other trader I’ve met ;-)

  69. Jarlath Says:

    @ Eureka/Sarah

    “the market is people”
    “hmmmmmmm”

    ye 2 belong together!

  70. Bond. Eoin Bond... Says:

    @ Eureka

    We’re back to the old liquidity vs solvency issue, right? As somewhat noted above, if the assets turn truly bad, the ECB just monetizes them by printing cash. Not sure if the ECB itself can really ‘go bust’.

  71. Anto Says:

    @ all

    Are we currently experiencing a currency devaluation and, if so, how far will the euro fall and is it good for the irish economy?

  72. PR Guy Says:

    As for the crisis resolution plan.. anyone see Faisal Islam on C4 news this evening? Heavy hints that the vote in Germany on Thursday might not go Angela’s way? Is he guessing or does he know?

    I see the gold bubble has popped for now. One that will quickly be blown back up again… and Irish property has lost another 14%. Anyone seen the bottom yet?

  73. Eureka Says:

    @ Jarlath
    Ah … stop that now…. it’s not a matchmaking site yet ….although…now that you mention it…..

    @ Bond, Eoin Bond
    That seems to make sense. Though from a social point of view it if you combine printing money to pay creditors with austerity to take it from the poor you end up with a fairly major and permanent redistribution of wealth

  74. Sarah Carey Says:

    ok, he’s malevolent. I feel better now.

    Although Eoin, I’d be interested in your view on savings vs debt.

    Is cash king? Or a rapidly depreciating asset? Should I be looking here http://www.hedges.ie/ or Inflation still under control?

  75. tullmcadoo Says:

    Sarah,

    The next 48 hours will tell. If the PTB in Europe follow their orders & decide to leverage the EFSF then cash will be a gently depreciating asset. If they go all wobbly like previous then it is tinned food and shot guns time. I would hole up in a canyon in Meath if I were you. Are there canyons?

  76. Sarah Carey Says:

    No hills, no canyons. But we do live in a cul-de-sac. And we have an inordinate amount of rabbits. Plenty to keep us going for a while.

    I guess the upside is that debt would gently depreciate too?

  77. Dom K. Says:

    Boy I’m glad I’m paid in the currency backed by world’s biggest oil reserves and in a country which is not taxing me to the kilt. I have settled in the armchair with popcorn (no beer) and eagerly await the Euro show. Either it depreciates and with it my debt or it falls apart and my debt becomes converted into Irish punt. Not sure yet which scenario I prefer.

  78. Bond. Eoin Bond... Says:

    @ Dom K

    “Not sure yet which scenario I prefer”

    Hopefully the one which causes oil prices to fall back to $25 a barrel…

  79. Ceterisparibus Says:

    I wouldn’t get too excited…
    “Leveraging up the EFSF through the ECB, though, would not be without risk. Germany and France could both lose their AAA credit rating, a top official at Standard & Poor’s warned.
    David Beers, head of S&P’s sovereign rating group, said: “There is some recognition in the eurozone that there is no cheap, risk-free leveraging options for the EFSF any more.”
    On Thursday, the German parliament is expected to vote through reforms to the EFSF agreed on July 21 to make it more flexible. However, the latest revelations have redoubled opposition efforts.”

    And

    “Heaping more pressure on Chancellor Merkel, Andreas Vosskuhle, president of the German constitutional court, warned against further transfer of powers to Brussels. “If anyone wants to go beyond these boundaries, which may be politically justified, then Germany needs a new constitution. For that to occur, there must be a referendum,” he said.”

  80. Ceterisparibus Says:

    And if you think the new promises are going to work just read the following from Greece….
    “In a related development, it emerged that the process of compiling lists of surplus staff at dozens of state bodies has hit a snag. Officials at most of the 151 bodies reportedly claimed to be unable to identify surplus staff or demanded additional evaluation criteria, sources said. The bodies have been asked to put 10 percent of their employees on a “surplus list.” These employees would join a labor standby scheme, taking heavily docked wages for 12 months before their status is re-evaluated.”

    Don’t which is better…Croke park or the Greek way.

  81. The Dork of Cork Says:

    Its always been about Dollar Bitches vs Gold Bitches - who will win nobody knows , Hmm correction - nobody on the outside knows.

  82. Yields or Bust Says:

    @Bond.Eoin Bond

    “..They’d get 8x leverage via the ECB. They’d either issue loans or buy bonds, and use the ECB to finance these, just like banks do right now. The 440bn would be the ‘equity’ that would take the first loss, should it arise, on the 3bn+ of ‘assets’..”

    Don’t you mean the €3 trillon of assets ?

    Just so we’re all aware a trillion is a million million, not to be confused with his much less well to do neighbour known as a billion, which is a mere thousand million.

  83. PR Guy Says:

    @Ceterisparibus

    “Germany and France could both lose their AAA credit rating, a top official at Standard & Poor’s warned… Heaping more pressure on Chancellor Merkel…. etc.”

    I just spent the past hour talking to a colleague based in Germany. He was describing just how hacked off Germans are with the whole situation and if they end up losing their AAA because of it would go nuts. He also gave me a chilling description of the rapid rise of the right over there in recent months and attacks on Turks and other non-Germans that are largely going unreported.

    Listening to him relay conversations with Germans, one gets the impression that Angela is losing the plot (or grip or whatever it is).
    My guess is their highest priority now is ensuring that German banks don’t take a soaking when Greece defaults… another massive transfer of wealth/banks being cushioned from the consequences of their actions coming up and nobody shouting ‘moral hazard’.

  84. PR Guy Says:

    …and a sobering article in the WSJ

    http://online.wsj.com/article/SB10001424053111904199404576538261061694524.html

  85. Ceterisparibus Says:

    @PR Guy

    Yes indeed. The human misery gets very little attention. The photograph of the man setting himself on fire that appeared in the Sindo was even more graphic and horrific than the one in that article.

  86. Mickey Hickey Says:

    An article in the NYTimes on A. Merkel’s address to the German business community. Her remarks are tailored to the audience and gives one an idea of the attitude of the German business community to bail outs. Essentially it is do it, now, without delay, and in sufficient magnitude to put an end to uncertainty about the solvency of the Euro Zone for a decade.

    http://www.nytimes.com/2011/09/28/business/global/german-leader-reaffirms-backing-for-greece.html?_r=1&hpw

  87. Bond. Eoin Bond... Says:

    @ Sarah/Eureka

    Seems like that trader on BBC might be an elaborate fake…

    http://www.dailymail.co.uk/news/article-2042291/Alessio-Rastani-Claims-greedy-dealer-praying-recession-FAKE.html

  88. Eureka Says:

    @ Bond, Eoin Bond
    Then what do you think of this:
    Now repsectable research says that traders are even more reckless than psychopaths

    http://bottomline.msnbc.msn.com/_news/2011/09/27/7993962-traders-more-reckless-than-psychopaths-study-shows

  89. Eureka Says:

    That guy was probably just too nice to make it as an company-affiliated psychopath

  90. Eureka Says:

    But to be honest - I don’t really think that they’re all psychopaths at all.
    I just think that they’re making a mess of the world economy and that governments have to start standing up to these guys. It gets me angry.

    No offence intended

  91. grumpy Says:

    @Eureka

    The psychopath thing is old hat. Try trading sometime and have a go at doing a lot of research so you fully appreciate the consensus view and then try to do something contrarian to oppose the herd. Think about the psychology of that and bear in mind that it is one thing to think about it and another to do it.

  92. PR Guy Says:

    @Bond Eoin Bond

    “Seems like that trader on BBC might be an elaborate fake”

    As I pointed out at the time when I posted this:

    “The guy is clearly a tosser who doesn’t know what he’s talking about ….”

    I am constantly surprised at just how gullible the public (and a lot of journalists) are.

    Greece has gone quiet….. too quiet. I guess most attention will be on Germany over the next day or two.

  93. Eureka Says:

    @ Grumpy
    Look at the collective result of that behavior. I’m sure it was tough being a marauding Hun as well. Then as now it was young(ish) men trying to acquire resources by taking those of others. People dont change much in a few hundred years. That kind of behavior needs governance.

  94. grumpy Says:

    @Eureka

    It is the “non-psychopathic” traders, investors and politicians that have done most of the damage. Think about the way the consensus underpriced risk and what has followed from that.

  95. Eureka Says:

    @ Grumpy
    I don’t follow.
    The psychopathy piece is about disregard for the consequences of actions on other people.
    Unfettered pursuit of self interest leads to destruction of everybody. I think it boils down to the fact that we all think we are smarter than we actually are and will do on in a free-for-all (or at least better than others).
    A fish rots from the head down they say - so look at the calibre of the people running the markets (e.g. Lloyd Blankfein)
    The bond vigilantes turned out to be bond thugs.

  96. PR Guy Says:

    @Eureka

    “I think it boils down to the fact that we all think we are smarter than we actually are ”

    This sounds a bit like the thinking that goes on in a workforce where there’s a performance-related element to the pay and all the heartache and garment rendering/wailing/gnashing of teeth that goes on at the end of the year….. because 90% of the employees think they are in the top 10% of the performers!

  97. grumpy Says:

    @Eureka

    It has been recognised for some time that more successful traders (as opposed to less successful) share some characteristics with psychopaths.

    I think “sociopaths” is maybe more what you object to ?

  98. Eureka Says:

    @ Grumpy
    “Psychopathy (/saɪˈkɒpəθi/[1][2]) is a mental disorder characterized primarily by a lack of empathy and remorse, shallow emotions, egocentricity, and deceptiveness” Wikipedia granted.

    Let’s face it though. The guys who used to be mercenary soldiers are now the same type as in the bond markets. It’s a kind of dark ages with Lloyd raising his private army. It’s a bloody mess
    I recognize this post is a little OTT but doing it for dramatic effect. Would it make an interesting play - deals flying like arrows across the battlefield littered with fallen traders and dead civilians. And the evil Lord Blankfein surveying the carnage with his bumbling lackeys in toe?

  99. Gavin Kostick Says:

    @ Eureka

    “deals flying like arrows across the battlefield littered with fallen traders and dead civilians.”

    Yes please.

  100. Mickey Hickey Says:

    Sociopaths are people who fit in quite well in the modern business world. Grey, mundane, make no waves, very little conscience but not totally devoid of empathy. Psychopaths on the other hand can be charismatic, highly ambitious, absolutely no conscience and have a penchant for doling our pain and humiliation. Very few psychos in the world but some of them do rise to spectacular heights and bring down large companies in the process.

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