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Hungary’s default – the first victim, Erste bank.

Erste bank of Austria has just announced a 1.6 billion Euro loss. It’s share price fell nearly 10%.

It is the nature of the losses more than the amount which is critical.

First and foremost the losses were because of Hungay’s default (Yeah that’s right, Default) and the ‘unexpected’ slow down in Romania. Hungary passed a law which is now close to coming in to force, which allows people who borrowed in Swiss francs to pay back on Hungarian florints. It is this law which is causing the banks to lose about 21%-25% on a large chunk of their loans.  I wrote about this in Greece, Hungary and Italy – a nexus of debt failure. I made this point then, and it is now clear I was correct, that the law amounted to a default.  While everyone was looking at Greece asking will they, won’t they, Hungary did.

The result are now, it seems, finally surfacing. Erste bank is the first to surface. It won’t be the last. This evening there are all sorts of figures and explanations flying around. The Hungarian site Portfolio.hu  quotes from Erste’s press release. The bank’s press release makes clear the cause of the losses,

“…the Hungarian parliament has recently passed legislation that cuts banks’ FX claims against their private mortgage customers by about 25%…”

The release goes on to detail that Erste expects about 700 million euros in write downs losses and that Erste now expects 62% of Hungarian loans to become Non-performing!

However over at ZeroHedge they pick up on a €460 million loss on a total of €2.8 billion in sovereign CDS business.  As the article says, this is a surprise because according to the recent European Bank Stress Test, Erste didn’t have any sovereign CDS exposure at all.  How could this be? Seems the bank had not been holding them in its trading book where they would be seen as a risk but outside that book where the bank held them at mark to myth, sorry model prices and counted them as ‘Credit Surrogate”. And in banker/accountancy world changing the name and moving the numbers in a ledger is all it takes to make it all go away.

Imagine if the army simply wrote down unexploded mines in a different book called ‘Stored’ rather than ‘unexploded’ and then said they were now not dangerous because they were no longer going to be used for stepping on and thus there were not ‘unexploded’ mines but ‘stored’ and there was therefore no danger! Excellent. Job done! Makes me think we should send the bankers and their accountants to Helmand to a mine field and leave them there. See if they can make it out alive, simply by writing things down in different columns.

But Erste’s knavery aside, there are larger implications. First, if Erste have been hit then other banks will follow. The only bank which does more business and is therefore likely to be more exposed in Eastern Europe than Erste is… UniCredit!  Much of their exposure will be through their subsidiary Bank Austria.  What I wrote about way back in Decmber of 2010 in Dominoes falling from the East is now starting to come true. As always my timing is terrible. A bad case of premature prognostication.

Erste also sold CDS protection to other banks. About 2.4 billion euros worth. And of course those other banks will no doubt have sold CDS to other banks and to each other, as well as to Erste. How many of them have not declared any of those CDS because they too were holding them in a convenient column where they ‘weren’t at risk’? I should think we’ll find out soon.

Which brings me to Raiffeisen the other big Austrian bank, down 5%. Raiffeisen was quick to say it hardly had any sovereign exposure to Europe’s troubled countries. But I note that it specified sovereign exposure which conveniently excludes municipal or bank exposure. I think if they had neither of those either they would have been quick to point it out. A sin of omission I think.

Other banks who will get stung in Hungary? BeyernLB (Landesbank) which majority owns Hungary’s MKB, Intesa (the other Italian insolvent) which majority own CIB and KBC bank which is Belgium’s other bank.

Is it coincidence that KBC is suddenly selling (announced today) it’s private banking unit to Qatar? Need a little bit of cash do we?


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72 Responses to Hungary’s default – the first victim, Erste bank.

  1. Ed Porter October 11, 2011 at 12:11 am #

    Also from their press release…

    RBI also expects an additional significant provisioning need because of the difficult market environment in Hungary

  2. Bearbonez October 11, 2011 at 2:06 am #

    And so it starts, is that the sound of a domino falling I hear ?

  3. James October 11, 2011 at 3:30 am #

    Domino theory may well be correct here, and I think it’s a very large part of what’s going on. A big part of the problem following the 2008 crash has been the loss of trust. I think considering the amount of lies and deliberate deceit, that was to be expected.

    However perhaps what was less expected is the rising public interest in the regulation and control and operation of finance by the general public. I’m sure this latest crash was engineered as it was in the 30s, but unlike then the internet has provided the populace with a means of sharing information and discussing events.

    This gives me some hope that things maybe improved.

    So many people have suffered as a result that I think there’s a realistic chance enough people will pursue the facts (as complex as they are) far enough to bring meaningful change. Although the internet is a fragmented system for bringing such change, that may in fact turn out to be it’s strength. It’s much easier to close one website, than 5000.

    The more interested that people become about finance, and the more they peer behind the curtain, the better off we will all be.

  4. Patrick Donnelly October 11, 2011 at 5:21 am #

    Every bank is a con trick and depends upon growth, else they fail!

    Simple. No growth, banks fail!

    Banks make up credit and when credit goes bad so do the banks. All that cheap credit makes very poor decision making the king for a while. Then banks fail and we need to lose so many useless jobs.

    This is the system YOU want, reader!

    No? CHANGE it then!

  5. Toby October 11, 2011 at 6:58 am #

    Patrick Donnelly has it right. The entire money system is a Ponzi or Pyramid scheme in that if it is not growing it is collapsing. That it is state-sanctioned and less firecracker-rapid than a Ponzi scheme of Bernard Madoff proportions is only a matter of scale, not dynamic. And Patrick is also right to point the finger at all of us:

    What do we want?

    Because the broader system of state and finance and economics generally is corrupt to the core, there are no longer any clear avenues within that infrastructure to pursue towards sufficiently deep change. The mainstream media is also complicit, if only because the web of debt has all aspects and corners of modern civilization tangled up in it. And all this need have nothing to do with some grand conspiracy (though there are of course plenty of littler ones); the current crumbling mess is the end game of a paradigm which assumes selfishness and endless competition in conditions of insurmountable scarcity as Reality, or Nature. Thus the change of paradigm demanded of us by the current breakdown requires our stepping out from existing state/market structures and building new processes; scalable, transparent, honest and just. Occupy Wall Street is the tentative beginning of this, as are other revolutionary efforts elsewhere on the planet, as is, in a way, the Internet itself. The less violent, the more leaderless, the more idea-led these rebellions/revolutions are, the better chance we have of making it.

    I hope the intention of “We are the 99%” is to invite the 1% to join us in building a different world. It is not that anyone is evil, just that this paradigm has outlived its usefulness and needs to be utterly transformed. Those deeply invested in terms of career, belief, emotion, money, property etc., in the old paradigm will have the hardest time adjusting to the changes afoot, so it is up to those ready, willing and able to contribute to the building of the new to prepare infrastructure capable of absorbing ‘the others’ as the current system becomes increasingly unworkable.

    It will take a very long time and be extraordinarily difficult, not only because it is unprecedented, but also because we have been raised to let ‘experts’ take care of things on our behalf. They’ve failed. It’s now our turn to step up to the plate and do what we can.

  6. Paulie Ire October 11, 2011 at 7:19 am #

    This is slightly off topic but spells out the irish situation pretty well i think

    Be warned though that it may raise a smile!

  7. hans October 11, 2011 at 7:26 am #

    Today 11 October starts the Heaven 13, Day 7 of the ninth wave of the Mayan Calendar. This cycle ends on the 28 October. We note the derivative implosion going from compression to smouldering to flames over this cycle. By the 15th of the month we should start to see the funeral of the Central Banking system. Libya is a failure, their gold is missing. This was a last bid desperate attempt to get hold of loot to save the Central Banking System. I have always said history will repeat itself and just as in the run up to World War 1 Austria was the catalyst, in this collapse Austria again will be the catalyst to the demise.

    • thrawn pop October 11, 2011 at 9:24 am #

      @ hans
      Please leave out any references to ancient prophecies. That’s for the tinfoil hat brigade and the swivel-eyed conspiracy theorists.
      We don’t want this place to end up looking like ZeroHedge after all. Bitchez!

      • bill40 October 11, 2011 at 11:19 am #

        Tharwn pop.

        I agree with your sentiments but the comment by Hans makes as much sense as anything I read in the MSM.

        Hope you are well stocked with gold,food,guns and ammo….. bitch!

      • hans October 12, 2011 at 2:06 pm #

        @thrawn pop

        I have yet to be proved wrong based on my analysis of the Ninth Wave calendar.

  8. MrShigemitsu October 11, 2011 at 9:23 am #

    “the first victim, Erste bank.”

    Well, they named that one appropriately!

  9. BHomes October 11, 2011 at 9:53 am #

    This is slightly off topic but Ft Alphaville article on contaminated collateral:

    There is a superb comment – explanation of system theory by Itzman – not sure if its correct to copy it :

    “You should study a little system theory: This is exactly analogous to a feedback system in which the feedback path is ‘sticky’. It does not reflect the true value of the output, but sticks at a given point until dislodged by a small shock, when it jumps to a new value causing perhaps a great output change.

    The technical term would be hysteresis in the feedback loop. That hysteresis is the lack of accuracy and transparency (designed?) in the rating system (to hide an actual slowdown in real output?).

    In addition, with ratings following (lagging) rather than tracking or leading reality, you have an even worse instability criteria met: overshoot and ringing, or worse, oscillation and massive instability the natural result.

    In that context all the QE and TARP is merely effective in damping down total instability, it doesn’t fix the problem of stagnant output of a debt dependent system that is running short of debt itself.

    If you take the macro view of debt, and investment, it can only be a stable (sustainable) scenario when it is actually being used to build systems that will produce more tangible wealth: That way debt is multiplied and repaid, with interest.

    The problem with a consumer society is that it is not in that business: it produces items for consumption, the wealth is essentially destroyed. Lending an out of work man money to feed himself doesn’t not produce the potential to feed himself in the future nor any return nor any repayment. Worse, he is not incented to do something productive as long as he has access to easy debt.

    The West’s problem is essentially therefore two fold. Debt was used to at best finance consumer durable purchases – house prices – and at worst to create jobs that had no economic function – that are and were essentially unproductive, or, worse, actively counter productive.

    Additionally there is/was upward pressure on resources – food fuel and minerals. Resulting in inflation.

    What you then have is a large positive feedback element introduced – access to easy debt – and a true limit on actual output that could be used to repay it . That plus the sticky negative feedback of ratings provide all you need in a given model to produce exactly what happened, output falters, because of upwards pressure on commodities . At that point the negative feedback of market sentiment unsticks, and doubts begin to be cast… rapidly the actual liquidity dries up and sentiment reverses..crash No 1.

    Then a massive injection of ‘confidence’ halts falling sentiment and the gurus wipe their brows and expect to see a return to growth, but debt is now cautious: It wants not to be divided by consumption lending, but multiplied by investment lending, but what is there to invest in?

    In essence a problem that belonged to the 90’s is now unmasked – for two decades we haven’t actually invested in anything of lasting merit: we have ‘invested in people’ in simply borrowing and spending on a party lifestyle.

    No amount of Keynesian ether will restart the engine that has run out of fuel.”

    • Hawkeye October 11, 2011 at 10:39 am #


      Keynesianism in the mainstream interpretation is a mis-nomer, used to justify excessive stimulus & bailout plans (which in current guise is just a justification for transfering excessive private debts to public / sovereign debt).

      The best interpreter of Keynes’s theories is perhaps Hyman Minsky (the Post-keynesian school), and the best implementer of Minskian models (using Systems Dynamics) is Prof Steve Keen.

      I saw him at UCL last week and he was very good.

      George Monbiot attended the lecture and has written about it here:


      • Toby October 11, 2011 at 11:19 am #

        FTA you link to, Hawkeye:

        “I would like to see them [Keen’s short term measures] leading to a radical reappraisal of our economic aims and moves to develop a steady-state economy, of the kind proposed by Herman Daly and Tim Jackson.”

        I agree with the systems theory take on what has been happening quoted above. Even more simplistically than is laid out in that comment we could say that our money system is breaking because it is designed to grow perpetually. The real world cannot keep up. We need a new money system and a new economics.

        In “Debt: The First 5,000 Years” Graeber makes the observation, that what interest on money is, is the attempt to get money to grow forever. And he’s right; there are no limits built in, not point at which economists will say, ‘OK, that’s enough money now, let’s turn off the tap.’ Any system growing at some percentage, year in year out, is growing exponentially, e.g. 5% equates to a doubling time of 14 years. Earning or demanding compound interest for creating new money cannot do other than demand an equal or greater growth in the real economy, if that debt-money is to be healthy for the economy. In the end, what really ‘backs’ money is goods and services. If the money supply must grow systemically, but the amount of goods and services it represents cannot (steady-state), you have a fundamental problem.

        We have a system designed atop the unspoken/unconscious belief that immature or rapid growth is the permanent condition, the Way Things Are. But immature or rapid growth has an end goal: maturity. We are now there (in the West anyway), and it is slowly dawning on us that this is so. Do we really believe that ever more stuff for ever growing numbers of humans is what life should be about, forever and ever? Surely not, and yet this is precisely what our money system demands.

        • Hawkeye October 11, 2011 at 11:58 am #


          I was quite surprised to see Monbiot refer to Herman Daly.

          This article of his back in 2008 summed up the real source of the crisis for me, and I have not looked back since discovering the field of Ecological Economics:


          “In his 1926 book Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox, (a book that presaged the market crash of 1929), Soddy pointed out the fundamental difference between real wealth – buildings, machinery, oil, pigs – and virtual wealth, in the form of money and debt.

          Soddy wrote that real wealth was subject to the inescapable entropy law of thermodynamics and would rot, rust, or wear out with age, while money and debt – as accounting devices invented by humans – were subject only to the laws of mathematics.”

          Soddy completely nailed the flaws in economics back in 1926, but the economic canon ignored him / dismissed him as a crank. Which is shocking for if you actually read “Wealth, Virtual Wealth and Debt” the arguments he puts forward are clear, cogent & compelling (unlike the turgid tripe that emmanates from Neoclassical propagandists!).

          • Toby October 11, 2011 at 12:44 pm #

            I admire Soddy greatly, but have thus far only read “The Role of Money”, which has this zinger in it:

            “Money now is the NOTHING we get for SOMETHING before we can get ANYTHING.”

            (The all-caps are his.)

            In around 1918 (I think?) Silvio Gesell had identified hoarding of non-rotting money as the principal problem, which I think is a vital observation. Gesell was likewise not a trained economist. Whatever new money system emerges from the breakdown, I hope humanity will have the wisdom and perseverance to ensure hoarding money makes no sense anymore. I heard yesterday (in German) Franz Hoermann (a very open minded professor of economics from Austria) describe our challenge as transitioning from “Haben zu Sein” (per Erich Fromm); that is, from having to being. We have to get away from the delusion that possessions ensure security and prosperity, over to recognizing that contribution and belonging do a far better job.

          • Mike Hall October 11, 2011 at 5:54 pm #

            I’m afraid that ftalphaville piece (BHomes), whilst being quite fun in using system theory (which I can readily relate to as an engineer by training) is missing the vital element which is actually at the heart of the crisis.

            That element is the massive growth of the financialised ‘economy’ which serves no useful purpose whatever except being extractive both in the present & in it’s huge expansion of extractive debt service obligation, from the ‘real’ economy, way into the future. This aspect is barely a decade in existence in a size comparable & in some respects far exceeding that of the real economy. But this +is+ the core of the problem, the cause of the crisis, & in the casino banks’ efforts to maintain it, the reason there are no solutions emerging 3 years on (from the mainstream).

            To suggest that some ‘consumerist’ debt fuelled expansion within the ‘real’ economy was even capable of creating the sheer depth of this ongoing crisis is pure nonsense. I’m no great fan of ‘consumer’ society, but in pure economics terms, rather than ecological, it has very little to do with the present situation.

            The total of oustanding ‘bets’ in the leveraged, optioned, securitised derivatived casino exceeds $700 trillion – some 12 times total world GDP. Nearly all of it returns no useful purpose whatever to the productive economy.

            This FT piece, to me, smacks of yet another contorted attempt to divert blame from the casino banksters to ordinary citizens. It is simply absurd to blame the ‘borrowers’ at the bottom layer of a gigantic ponzi pyramid. Most have little notion of ‘micro’ economics, none had any responsibilty at all at the macro level.

      • Mike Hall October 11, 2011 at 9:06 pm #

        I think who is the best ‘implementer of Minskyan models’ & leading post-Keynesian school might be open to some discussion.

        Leading MMT & functional finance advocate, Prof Randall Wray, actually studied under Minsky.

        (Not that there’s much, if any difference, in the methodologies used by either Keen or Wray.)

        • Charles Wheeler October 11, 2011 at 11:14 pm #

          This publication offers a useful primer on the monetary system(and it’s under £3 if you have a Kindle!): http://goo.gl/U1M2V

          • Charles Wheeler October 11, 2011 at 11:31 pm #

            Of course, this book http://goo.gl/Rwye8 – published 1998 was ignored because the author wasn’t an economist. Which highlights the Catch-22 that has helped cause and perpetuate the crisis – only the orthodox with the correct beliefs are regarded as having credibility. Like a latter-day priesthood – with abstruse equations in place of latin texts, impenetrable to the layman, they dominate the discourse, while ‘mavericks’ like Keen, Hudson, Bill Black, Roberts Reich and Kuttner, Chick, Pettifor, et al are cast in the role of heretics for suggesting that the Earth may revolve around the Sun.

          • Charles Wheeler October 11, 2011 at 11:36 pm #

            p.s. “The process by which banks create money is so simple that the mind is repelled.”
            J.K. Galbraith, Money: Whence it Came, and Where it Went (1975), Chapter III, p.18

    • Guido October 14, 2011 at 11:11 am #

      mmmhh… check, check and check.

      Behold the diminishing marginal utility of debt inherent in Debt Based Fiat Money…

  10. SidFinster October 11, 2011 at 9:56 am #

    I had drinks with the chief economist of an Erste Bank subsidiary last night. Total cooincidence, for what it is worth.

    I will not betray any confidences, but he did remark that “economics” is mostly “accounting.”

    • Mike Hall October 11, 2011 at 5:18 pm #

      Sadly, “accounting” is precisely what mainstream macro economics is +not+, but should be. Specifically, the rapid growth & effect of debt/credit, relating to the casino financial sector, out of all proportion to the ‘real’ economy was not & is still not included in any of the ‘models’ of the mainstream.

      This is precisely what the ‘few’ who predicted the crash, Steve Keen, various MMT advocates & some others did differently, terming their approach as an ‘accounting methodology’.

      Perhaps your banker actually meant this? But I’d be inclined to think he’s just like the rest of the mainstream in the (convenient for banks) pretence that ‘macro’ is just ‘micro’ but bigger when it comes to economics.

      It’s worthy of note that the concept of ‘macro’ barely existed among any economists prior to 1929.

      30 years of neoliberal (neo/theo classical) bullshit domination & we’re repeating the same scenario.

      • SidFinster October 12, 2011 at 3:16 pm #

        I think what he meant by “accounting” can be replaced with the phrase “hide the sausage.”

  11. richard in norway October 11, 2011 at 10:37 am #

    Interesting piece in the telegraph I can’t post the link(mobile won’t do it) but I post the basics

    The Bank of England was forced to abandon part of its quantitative easing (QE) programme after city traders made government bonds too expensive for the Old Lady to buy.

    In a highly unusual move on Monday, the Bank of England refused to buy bonds with a maturity of 2017 and yield of 8.75pc after dealers drove up the price to £140.78 ahead of the auction.

    The Bank of England has never previously refused to buy government bonds as part of a reverse auction [a sales process whereby market makers and traders sell government gilts to the Bank of England].

    In a statement, the Bank of England said: “The Bank has decided to reject all offers against the 2017 government bond following significant changes in its yield [a reflection of the gilts price] in the run-up to the auction.”

    A person close to the situation said: “The price of the 2017 bond behaved very strangely compared with other gilts the Bank of England was buying on Monday.”

    John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, told Bloomberg that traders had been pushing the price of the 2017 bond up “aggressively, obviously in the hope that they’d be able to sell it to the Bank of England”. Mr Wraith added: “The Bank of England rejected it [the 2017 bond] and that might have given people a bit of a shock. There would have been some people who hoped that the bank would be willing to pay significantly higher prices for the bonds.”

    This really pisses me off, talk about biting the hand that feeds you.

  12. SirBob October 11, 2011 at 11:04 am #

    David, you do realize that the Luxembourg unit of Dexia, Banque Internationale à Luxembourg, has also been sold to the Qataris, don’t you?

    Honi soit…

    • bill40 October 11, 2011 at 11:31 am #


      Yes he does, he provides the link at the end of the article from busineess week. Quote; “The capital release is at the low end of the range KBC indicated when they announced the plan to sell KBL,” said Jan Willem Weidema, an Amsterdam-based analyst at ABN Amro Bank NV. “Still, the main thing is that it is reassuring that they managed to do this under the current market circumstances.” Weidema recommends clients to buy the stock”


      • SirBob October 11, 2011 at 12:21 pm #

        Oops, missed that. Apologies. But on the subject of firesales, the Luxembourg government has generally been very accomodating with Qatar lately. Dexia, KBL, Cargolux airlines (in which Qatar has increased its stake by taking over Dexia Lux who are a shareholder…). Odd.

        The fact that finance Minister Frieden was in Qatar in February to discuss “investment opportunities in Luxembourg”, and the speed with which the Qataris snapped up Dexia and KBL really makes you wonder how much of this was planned long ahead.

        • Golem XIV October 11, 2011 at 12:26 pm #


          there you put your finger on it. They (the bankers and the EU officials) did know and therefore have been pursuing a coordinated official line of lies. That PISSES ME OFF something terrible.

          I really, really don’t like liars and being lied to makes me angry. Especially when the purpose is to defraud me and my country of our wealth.

    • Golem XIV October 11, 2011 at 12:23 pm #

      Yes, I do but I didn’t point it up and should have.
      Thank you for making it explicit.

  13. bill40 October 11, 2011 at 11:16 am #

    I think this also explains the current impasse between Germany and France and why there are no details about their “plan”. I suspect Germany is willing to take what the banks say at face value and plan accordingly. France is a lot more real world about what the banks say and want to plan for what they are actually going to need.

    The ESEF is eventually going to reach just under 3 trillion euros. Ignore irrelevant objectors like Slovakia it will happen anyway. Now I’m sure that European tax payers will consider that money theirs.

    Our financial elites will disagree and just see a large pot of money waiting to be spent on them, ie it is money for them. This is not going to end well.

    • Toby October 11, 2011 at 11:24 am #

      Yep. The only dignified reaction to this continued criminality is rebellion.

  14. StevieFinn October 11, 2011 at 11:28 am #

    Get the money out of US politics website, seems to be catching on, UK version ?


    • John Souter October 11, 2011 at 2:06 pm #

      In short Stevie – this idiocy is choking on its own bull-shit

  15. Pirate Jenny October 11, 2011 at 3:07 pm #

    An interesting read.


    • Neil October 11, 2011 at 8:22 pm #

      The chart of the debts of recently downgraded UK banks (half-way down) is especially interesting for UK readers. Where to put your savings if you have any?

  16. bill40 October 11, 2011 at 4:37 pm #

    Well, well well Golem asked where has the money gone and look what action aid have dragged up. http://www.guardian.co.uk/news/datablog/2011/oct/11/ftse100-subsidiaries-tax-data

    The Ft 100 companies own 34,216 subsiduries with up to one quarter of which are in tax havens or secrecy juristictions. It will cause great amazement this next fact, that the main players in this are our big 4 banks, I knew you’d be suprised.

    Naturally there are legitimate purposes for these myriad companies, but “tax planning” is not one of them according to a spokesman.

    No, of course not, who would think such a thing?

  17. Mike Hall October 11, 2011 at 8:30 pm #

    There’s been a few comments now suggesting that we need to create a ‘steady state’ economy & others that money ‘growth’ is unsustainable.

    First off, ‘steady state’. I could be wrong (if I am, please post up links & correct me), but I’m not aware of any thoroughly worked systems of monetary & fiscal operations that suggest this is practically achievable. Certainly we have no historic, empirical evidence to support such theories, if they exist.

    The operation of an economy is hugely complex, with a vast number of variables. Even whilst we are able to collect & collate data, with modern IT technology, better than at any time in history, the level of accuracy is surely lacking in even trying to measure ‘steady state’, let alone control it. And likely not without an incredible degree of central planning &/or intrusion into everyday economic activity. In this sense, is it even politically acheivable, on any sort of useful time scale, bearing in mind the current psychological disposition, level of awareness etc. in both matters of economics or ecology of the mass of populations? I strongly doubt it.

    We do need, urgently, to address the existential (for most of humanity & perhaps most other life on Earth) issues of resource depletion, ecological destruction. I’ve been active on these issues for many years. I understand very well what the challenges are. I have concluded that without an economic system that can reverse the trend toward ever greater unemployment, wage slavery & debt peonage, serious transformation to a sustainable society is a non-starter for most citizens. Most assuredly not in the neoliberal paradigm. All that has been produced in the last decade of MSM ‘noise’ amounts to little more than Greenwash & confusion.

    So, what I believe we need to do, now, is to campaign for radical change, but for a system that has both theoretical & practical operational aspects already worked out to a high standard. And preferably a system that can easily be introduced.

    Another vital function is to facillitate a major role of ‘public purpose’. The private sector will +never+ take the lead in the kinds of deep & rapid transformations in use of resources. It’s absurd to expect it to do so.

    I see no other practical option, given the urgency, than using an appropriately reformed government to represent & further the public purpose, in an expanded & empowered role.

    Given that in the next few decades we +must+ transform economies to a high degree of sustainability, ‘growth’, in economic (money) terms, as an issue will also disappear. (Obviously, by ‘growth’ here I mean growth in the real economy, not the extractive, parasitical ‘financialised’ sector – that must be stopped pronto. That shouldn’t be too hard (in a technical sense), most of the last 80yrs it’s barely existed.)

    What is most important is that we have a framework of monetary & fiscal operation that enables a primary role for the public purpose.

    I believe the best options that meet these criteria, available right now, incorporate the ‘functional finance’ princples core to such systems advocated by MMT and NEF/positivemoney.org.

    I take considerable comfort that many (possibly most) organisations & individuals, camnpaigning actively for sustainability (as NGOs & non ‘poltical’) are giving full backing to such an approach.

    If there are other ideas, then I’m all ears?

    But, well, just throwing out two paragraph posts, with no explanation, argument or links to some decent body of work by credible people, isn’t really offering much towards understanding of solutions? (Whilst I understand the frustration & anger at the utterly corrupt & dishonest systems we have.)

    And in terms of ‘solutions’ I think it’s useful to think of them as comprising two parts. Dealing with the short term mess of endemic bank insolvency & recession & what we might do once that is resolved. And how such solutions interact with measures to achieve a functional democracy.

    • Toby October 12, 2011 at 6:46 am #

      Where humanity must go now is totally new, so yes, I strongly suspect (aside from aboriginals who have ‘brutal’ ways of keeping populations viable and low) there has been no steady-state modern economy. But there were once no aeroplanes, though the challenge of transitioning to steady-state is of an order of magnitude more complex. Nevertheless, change is the only constant, and we are either going to adapt creatively and wisely to the challenges we face, or go extinct. Hardly a new situation on earth.

      Writing a comment on a blog is not the place to put down all the details of some carefully thought out plan, even if such were at all possible. In my opinion there can be no such plan, only suggestions, new thought patterns, ideas, effective criticisms, etc., which, alongside actual ‘doing,’ slowly and cumulatively lead to profound change–which is what we’ve always done anyway; no one really ‘knows.’ This is not going to be about a fixed road map we all must dutifully follow, even though there are broad road maps out there, including from MMT advocates, and Charles Eisenstein, a German/Austrian initiative called Monetative, and others. But because there is no way on earth everyone will follow one such ‘plan’, we’re going to stumble experimentally in what we feel to be roughly the right direction until some point at which we are no longer operating at like we do today. And I truly believe rebellion is a vital part of this process, and that a new mix of decentralized and centralized, which leaves behind the nation state, is vital too. This is, needless to say, quite the challenge.

      However, I share your sense of urgency and agree that chatting away the hours on the internet, while useful, is not enough. My own personal path, for what it’s worth, has been to resign from work at a large corporation (my last day will be the 31st October) and begin to redesign my life around a more local and community-based orientation. I have a wife and two children so this was not an easy decision! Nerves are frayed at home I can assure you.) What I’ve experienced repeatedly online, after having initially been very excited about the decentralized possibilities of the Internet, is that humanity is a very long way away, culturally and emotionally, from where it needs to be. There is simply no way we can all agree on some direction amidst the hubbub of noise the Internet is. So two things fall to those of us who want to make a difference. 1. change ourselves; “Be the change you want to see in the world”, and, 2. disseminate, openly and patiently, the best of your hard-earned wisdom. The rest is up to ‘fate.’

      Whatever we manage for ourselves or our group of like-minded fellow travelers, whatever we contribute to and help bring about, the outcome of our successes and failures must remain uncertain. So, rather frustratingly, we must stay humble while also having the conviction to pursue something definite. Flexibility and focus. Something viable will emerge, and the more viable it is, the more humane, the more in tune with the broader environment, the more people will want to be a part of it. That, or we wipe ourselves out in childish bickering that leads to war or ecosystem collapse.

      • Hawkeye October 12, 2011 at 8:54 am #


        I’m sure it can’t have been easy to make that change in your life, so I (and I’m sure others too) wish you well.

        I’m sure that there will be lots of potential support networks, such as the Transition Towns / Transition Culture movement.

        It will certainly be less painless for society to re-engineer the vision of “being not having” from the ground up. The last thing any of us proles need is someone like (multi-millionaire) Cameron to impose on us aspirations of “gross national happiness rather than GDP”. Let us hope we can shake off these Neo-Feudal lords of ours.

      • StevieFinn October 12, 2011 at 10:11 am #

        @Toby, Good luck for you & yours.

        • Toby October 12, 2011 at 11:31 am #

          Thank you Hawkeye, thank you Stevie.

          I live in Berlin, where we bought a flat just before my worldview was turned on its head by the financial crisis. A return to the UK is not on the cards (my wife is German/Philippino (though English mother-tongue), our kids have grown up in Germany) so we’re going to teach children (and whomever) English, thereby freeing up time to be more active in other areas. Our living costs are low, my wife has had the noble profession of motherhood 100% up till now, so we’ll share the earning side of things for the first time in our marriage and build from there. Not massively radical, but a start towards a simpler life, alternative currencies, local movements and various other things. Coming out here from the UK was hard enough (had to learn German and a totally new career simultaneously–long story). “Easy does it” is the lesson I learned.

  18. Neil October 11, 2011 at 8:45 pm #

    Good to see ActionAid getting publicity for latching on to what the Tax Justice Network have been pointing out for some time. Even the BBC have caught on to this now:

    http://www.bbc.co.uk/news/magazine-15239196 .

    However, the poster who calls himself terminalbore – an ex-city lawyer who gave up working with big business – makes this point in the comments on the Guardian webpage (at 1.17pm):

    “There is nothing that the UK can do through its tax system to affect what other countries do – political and economic pressure can be (and is) imposed on havens like the BVI and Cayman, as you mention, but if one is closed out others will pop up.”

    This gets to the nub of the problem: unless there is international agreement on closing tax havens, they will always exist, because there’s a market for them. It’s like arms or drugs.

    Tiresias comments in reply (1.51pm):

    “There is a solution that doesn’t involve gluing up the door of your local bank. It is called ‘unitary taxation’. Politicians and the Revenue don’t like it because:

    1. It would require international co-operation (including the Yanks, who don’t generally do ‘international’);

    2. Their paymasters in the City wouldn’t like it;

    3. It would reduce the scope for fiddling about with the tax system every year; and

    4. It’s a bit complicated and gives them a headache.

    However, the principle is that a multinational group makes a single, multinational tax return of its profits. These profits are then allocated to every country in which the group operates according to the level of economic activity (as defined) in each country. Each country can then decide what rate of tax it wishes to apply to its slice of the group’s profits.

    If a multinational wanted to do business in the UK it would have to pay its fair share of tax here (but no more). If it had an operation in Luxemburg, a fair share of its profits would be taxed, or not taxed, there, but only a fair share – maybe 0.1%!”

  19. Mike Hall October 11, 2011 at 10:10 pm #

    I think there was a couple of recent posts with links concerning Iceland’s progress, post crash?

    B*&^ged if I can find them now, so I’ll throw this link in here by way of adding some new info to that discussion. Piece on Iceland here:


    Do read down thru’ the comments – very interesting one from Michael Hudson who’s been working with people in Iceland. Thing’s ain’t wot they seem, to put it mildly!

    Moving on from Iceland specifically….

    Found another interesting blog by a former banker, esp this piece:


    Think Londonbanker (former regulator) has been linked here before, latest piece:


    • Neil October 11, 2011 at 10:27 pm #

      London Banker (not to be confused with Left Banker) says in the 2nd post in the comment thread on his own post:

      “it would be a seriously deranged depositor or investor that trusts a bank with cash these days. According to a recent market study, 99 per cent of UK deposit and savings accounts pay a negative real rate of interest.

      An interesting point in the Vickers Report was that just 3 per cent of UK high street bank assets are UK assets. The other 97 per cent are in global speculation and foreign investments. How then can any depositor in the UK be secure of a return of principal and interest? Seems to be a lot of legal risk, sovereign risk and market risk embedded in the average bank deposit these days.”


    • Neil October 11, 2011 at 10:33 pm #

      Mike, the Iceland posts were in the previous thread: http://www.golemxiv.co.uk/2011/10/belgium-versus-greece-decision-time-in-paris/#comment-6377 .

  20. Mike Hall October 11, 2011 at 11:29 pm #

    Good piece suggesting Wall St companies may be directly controlling the actions of uniformed NYPD officers policing Occupy Wall St. thru’ ‘Paid Detail Units’ where serving officers with full powers may be privately hired.


  21. Neil October 12, 2011 at 12:05 am #

    Telegraph on China’s debt spree:

  22. Neil October 12, 2011 at 10:17 am #


    “Goldman Sachs ‘escaped paying £20m National Insurance bill in HMRC deal’

    The Wall Street bank – which last year paid $15.3bn (£9.5bn) in bonuses to its employees – is understood to have made a sweetheart deal with HMRC which allowed it to avoid paying the full interest on a failed tax avoidance scheme set up in the 1990s.

    Around that time, Goldman is understood to have set up an offshore company in the British Virgin Islands called Goldman Sachs Services Ltd. This employed all of Goldman’s London bankers, who were then “seconded” to work there.

    In 2009, Judge David Williams said the Virgin Islands company seemed to be created as “a way of keeping information about the GS accounts and payroll out of the public domain and confidential”.

    But the Goldman Virgin Islands employee benefit trust (EBT) was not alone; 21 other investment banks and other firms had also created offshore EBTs, which allowed bonuses to be indirectly invested into elaborate share option schemes.

    However, in 2005 a court ruled in favour of HMRC that the EBTs were illegitimate tax avoidance devices. The 21 other firms accepted the ruling and compensated the revenue on what was owed.

    But Goldman Sachs refused to pay its £30.8m bill. By 2010, according to a public judgment, the unpaid bill with accumulated interest had mounted to £40m.”

    More here: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8821083/Goldman-Sachs-escaped-paying-20m-National-Insurance-bill-in-HMRC-deal.html

  23. Hawkeye October 12, 2011 at 11:42 am #

    Very good satire on trying to find “the market” from UMKC blog site:


  24. Neil October 12, 2011 at 12:25 pm #

    Meanwhile the Telegraph reports:

    “The Wall Street Journal reports on the ongoing impact of the Irish bailout package, with Ireland’s Fiscal Advisory Council saying this morning that the Irish government will need to cut a further €4bn (£3.5bn) and should consider going even further:

    Opinion Ireland’s Fiscal Advisory Council Wednesday said the Irish coalition government will require €4 billion euros ($5.5 billion) of budget adjustments to meet a key 2012 target demanded by its bailout lenders, adding the country ought to consider even deeper cuts to impress financial markets.

    The European Union and the International Monetary Fund lenders require the government reduce a budget deficit of about 10% of gross domestic product this year to 8.6% in 2012. To reach that target, government ministers have said it will consider “at a minimum” €3.6 billion in spending cuts and tax rises in its 2012 budget.”

  25. John Souter October 12, 2011 at 12:25 pm #

    Life -2011 style

    Lab-or-it-twa -garnia

    Crinkly doesn’t know it yet, but we’re about to launch a new ‘product’ on the vanity market that will net us billions. (I’ve got to be a bit careful here not to offend Crinkly’s finer tastes and intellect)

    The ‘product’ in question will be in the form of a pill, which claims to reduce the outward signs of ageing in a unique and spectacular way that I’m sure will be ‘recognised’ by the British – indeed the Worlds Skin Foundations. (whoever they are?) Provided we send them a leaflet and a letter to vindicate our use of the word ‘recognition’ as a substitute for recommendation when the latter may be beyond the scope of the total brain cell count of all the Foundations.

    Any way, SHIT-A-WRINKLE will be portrayed as having the capability of removing at least one wrinkle per month over a five month cycle when combined with the natural constitutional use of the lower digestive track for at least five out of every seven days of that five month period.

    Of course the details; indeed the ingredients, have all to be finessed. (Depending mainly on the chalk market) And there is some pressure to up the ante with a catchy ditty along the lines of, – Dump a wrinkle a month and get rid of the slump – or; the slightly upmarket when accompanied in a sexy pseudo French accent – A merde a dui etc… But we think when combined with the usual soft focus alchemy and cartoon graphics the suggestion will be enough to create the form of the promise, and we will be well on our way to joining the Nought Cons bubble.

    Of course it pricks the philosopher aspect of conscience to degrade its ultimate purpose – the exercise and belief in intellect. Or that the aspirations of that intellect to transform and blossom into common sense should be lost for the sake of common coin. Yet it seems self evident that while insight can appear in milliseconds it cannot now breach the defences of a 20 second attention span so assiduously served out for our consumption by the Masters of the Conglomerate, Governance and Media Markets (the order of the last two may be swapped) Who, having stumbled onto the formula through washing powder ads, have refined it to the extent where it’s gluttonously devoured by endemic consumers satiated to the slough of apathy.

    So if you believe the grief of politicians over eighteen year life-spans for a ‘war’, scripted, produced and marketed for the benefits of the conglomerates; or the financial alchemists regret at the misery their greedy incompetence has generated; or that justice is blind to the pressures of the executive; or that there is any truth in the spin you’re kept in – then please don’t forget to get ‘SHIT-A –WRINKLE’ into your shopping basket.

    You may be pleasantly surprised. It, at least, is halfway honest

    • Roger Lewis October 12, 2011 at 4:11 pm #

      I just posted this link in a comment on Toby’s blog, I went over there to wish him well with his new beginning!

      A philosopher friend of mine tells me this guy is a bit of a show boater for his tastes I found it amusing but in the spirit of Shit a Wrinkle.!


  26. James October 12, 2011 at 1:47 pm #

    Protests #occupywallstreet continue to grow. Every action has an equal opposite reaction?


  27. StevieFinn October 12, 2011 at 1:59 pm #

    Don’t you just feel sorry for these guys ? It must be really tough for these people when they just can’t get it up anymore. Things get slack, confidence falters, future looks uncertain & everybody hates you. Such a shame.


    Occupy Wall St. Journal, 1st edition.


  28. Neil October 12, 2011 at 2:32 pm #

    I’ve just had a reply from the Financial Secretary to the Treasury via my MP to a letter I wrote about the Asset Protection Scheme (APS – ie the big bail-out) for RBS and Lloyds.

    He referred me to the APS annual report from July at http://www.hm-treasury.gov.uk/d/apa_annual_report_and_accounts.pdf .

    I’m not competent to assess what it says, but if somebody else is and has the time, they might care to have a look. After all, we are talking about billions of taxpayers’ money here, and exposure to substantial further risk.

  29. The Dork of Cork October 12, 2011 at 7:47 pm #

    Non productive debt built on more non productive debt on top of more non productive debt…………………
    And they did not see it coming………………..jesus go figure.
    Banks must have a real productive base from which they can lend before you can call it leveraging.
    Once their base moved from domestic goverment debt post 1960s to the formalisation of the Ponzi under Basel the game was over.
    Keep it fucking simple stupid.

  30. Phil October 12, 2011 at 8:49 pm #

    Good evening friends

    I read a comment a few days ago which noted that a member of the public had asked on BBC Question Time if £75bn of QE was going to be a good thing given that it was likely to end up on bank balance sheets. The poster obviously saw this as a positive development because bit by bit the receievd wisdom is starting to be challenged. S/he is right. I’m happy to say that I was in the Question Time audience last week and I am pleased to report that it wasn’t only that particular member of the public who was expressing distrust of the banks – there were many murmours of agreement in the audience and a few of us did our best to shout our views in the hope they would be picked up by the microphones. I thought Billy Bragg did very well in pointing out that the current paradigm is broken and that the latest QE was throwing good money after bad. Baroness Warzi then had the front to tell him he was spreading myths that this was ‘another bank bailout’! Check out her lovely levers explanation of government fiscal policy…


    Elsewhere I managed to get the following letter published in the Independent and Metro newspapers:

    “The amount of invective being heaped on European countries in debt is worrying. It is true that the euro project was flawed from the start but the root of the crisis lies in America. US banks created the debt time-bombs, the securities and derivatives sold across Europe.

    In 2008, when banks began to implode under their own debts, we the public bailed them out. In the US, Britain and Europe, governments of every stripe had to borrow money to bail them out.

    Now, owing to the recession, it is harder to service those borrowings and the duplicitous credit-rating agencies castigate our governments for doing what was demanded of them by the banks in 2008. (It should also be remembered that there are major legal moves being made against the banks claiming massive fraud in selling investments they knew to be worthless).

    Blaming this country or that or castigating the EU is utterly wrong-headed and dangerous. This remains the crisis of fraudulent private banking debts being taken on to the public books.”


    I must say I would not have been able to write that only a few months ago and it was largely born out of a very neat summary written by Charles Wheeler on here last week. So many thanks to him and Golem.

    Thus… we can and we must do our best to get our view into the media. Only today I heard UKIP MEP Nigel Farage telliing Russia Today that the Euro bailout for Greece will not go to Athens but to the French and German banks who lent them the money. Given that Golem has had comments from UKIP members on here I think he can pat himself on the back. And didn’t Michael Portillo tell Andrew Neil the same thing on last week’s Politics Show?

    Even our dimwitted media can understand this – how long can they keep reporting the same story over and over without getting bored or asking questions themselves? Matthew Wright on the awful Wright Stuff programme was full of support this morning for the upcoming protest in the City of London. Sadly his ignorant viewers were not. Time to change that me thinks.

    Having originally proposed a greater presence on Facebook I wonder if we might have a concerted letter writing campaign? Many of the posters on here write on the comments sections of the broadsheets – why not push the message to their actual pages?

    When I write a letter I bcc it to the following:

    Daily Telegraph: dtletters@telegraph.co.uk

    Sunday Telegraph: stletters@telegraph.co.uk

    The Times: letters@thetimes.co.uk

    The Sunday Times: letters@sunday-times.co.uk
    (for publication only; please include postal address and daytime telephone number)

    The Independent and Independent on Sunday: letters@independent.co.uk

    The Guardian: letters@guardian.co.uk

    The Observer: letters@observer.co.uk

    The Daily Mail: letters@dailymail.co.uk

    The Mail on Sunday: letters@mailonsunday.co.uk

    The Daily Express and The Sunday Express: expressletters@express.co.uk

    The Mirror and The Sunday Mirror: mailbox@mirror.co.uk

    I think Mike Hall, Charles Wheeler, Bill, Princesschipchops, Neil, the Dork of Cork and all the other fantastic commentators here could acheive a lot.

    Any thoughts?

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  35. OOOВалок_Фёдор February 11, 2017 at 12:04 pm #

    RE:Hungary’s default – the first victim, Erste bank. – Golem XIV – Thoughts НПП Валок Наплавка рабочих валков


  1. Links 10/12/11 « naked capitalism - October 12, 2011

    […] Hungary’s default – the first victim, Erste bank Golem XIV (hat tip reader Crocodile Chuck) […]

  2. Hungary’s default – the first victim, Erste bank. « A Lord of the Night is Wandering – CARPE NOCTEM - October 12, 2011

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