Just a few months ago in July we were all told by the Belgian Central bank and the EU that Dexia, the Franco-Belgian had passed most recent, new and improved, much much harder EU stress test, with flying colours. Specifically the press release said,
The estimated consolidated Core Tier 1 capital ratio of Dexia would change to 10.4% under the adverse scenario in 2012 compared to 12.1% as of end of 2010.
Remember the EU had been ridiculed after its first stress test when even Greek banks were proclaimed marvelous, and so a new much more rigorou test was run. This is the test Dexia passed. And according to the press release even under the ‘stress’ scenario, Dexia would still have 10.4% Tier 1 to protect it.
So what happened? Of course the easy and true answer is that the bank and the EU officials and the EU and the ECB all lied to us. I’ll come back to that in a minute. But the question is what did they lie about?
Here’s one possibility and if I’m right it shows how our leaders’ policies to ‘save’ the banks, rather than making any attempt to cut through the knots of financial bondage in which are caught are tightening them round our necks.
Dexia was a specialist in lending to municipal borrowers such as towns, cities communes not only in Belgium but in Francs, Italy and Spain as well. I think the game that was played was that the bonds it held from all those municipal borrowers were being held at par or close to it. We know that Dexia, along with the big French banks, was refusing to mark down the Greek bonds/debt they were holding any further than the agreed 21%. Even though every other bank had marked the same bonds down by more like 50%. In other words they were lying and hiding debts on their Greek holdings.
Please understand when I say lying that doesn’t imply they were doing anything illegal. The laws have been carefully written (by bankers and their paid political help it has to be said) so that banks can routinely lie without breaking any laws. It is quite legal for banks to lie. They simply call if mark to model. But it is a lie in that it is knowingly refusing to admit a well known and accepted truth. Such is banking.
Dexia has been lying and lie has now killed Dexia and is going to maul France.
The reason that Dexia passed the ‘Stress Test’ and yet still collapsed yesterday was that it was holding bonds/debt from municipal borrowers at or close to par value. I think Dexia had refused as it had done with its Greek debt, to mark any other the municipal bonds down at all. And the reason they were allowed to get away with that lie was that Municipal borrowers are always considered virtually ‘risk free’ because, so the bankers logic goes, they have the state behind them as a guarantor. That is why municipal bonds are considered very low risk. In normal time they are because the sovereign does stand behind them to bail out municipal borrowers if they get in trouble. Only these haven’t been normal times for over three years.
So what has happened, I think, and why Dexia has imploded now is that it is no longer evident that the sovereigns can stand behind the municipalities. And worse I have long argued that sovereigns like Greece, Spain and Italy have been happy to hide a lot of debt in regions and municipalities.
There has been a dormant time bomb in Europe’s muni borrowing and when Italy started to crumble that bomb started to tick. This is what I believe the CEO of Deutsche bank, Mr Acklerman, meant when he said a few weeks ago, that European banks wouldn’t survive re-valuing their bond holddings. I wrote about it at the time under the title “Did Deutsche bank just knjife Dexia?“.
Ackerman knew that neither Greece nor Italy has enough money to bail out their banks and their regions and municipalities. And if they couldn’t bail them out, then the banks not only holding debt from those regions and muni’s but valuing it all at or near par and as AAA rated capital, were bust.
Now the downgrades are happening despite the banks’ lies. Just yesterday Moody’s downgraded Italy a whopping three notches from Aa2 to A2 with an outlook to downgrade further. And this is itself the second downgrade in as many weeks.
Italy is going down and Dexia is part of the wreak. Dexia has been trying to get out, by selling its muni funding units in Spain and Italy for months but no one will buy them. Who wants to buy a lead brick on a sinking ship? They are where all the bad debts are.
But then last night in the last half hour of NY trade the Dow Jones which had been down 200 points rocketed up 400 points to close up, up and away to la-la-land on the rumour that France and Belgium were going to ‘save’ Dexia by putting all its bad debts into a ‘bad bank’ at the good old tax payer’s expense as usual.
Our leaders will trumpet this, led by the banks of course, as the dynamic policy to save the day. The, ‘There is no alternative’ policy. Actually it is not a policy at all it is simply doing something that will kill them slowly because it is all they can think of to avoid the banks imminent death.
If the decision to ‘save’ Dexia by dumping its debts on the French Tax payer is true then Dexia will breath again but France will get mauled. France only has so much gunpowder with which to defend and bail out the big French banks. The markets will now see that waggon loads of that powder is being used to defend Dexia.
What, they will ask, is really left to defend the others? Dexia will live – in a zombie state – but France will lay itself open to more misery for the public as State debt rockets but also to downgrades for France itself and its banks. As those downgrades for the sovereigns, France and Italy, will mean the muni bonds will be downgraded in turn. Because the sovereign standing behind them have themselvs been downgraded. Those downgrades will make the banks holding those bonds, Dexia and others’ have to write down yet further the worth of those bonds. Which will require more support from the sovereigns. And round they will all go on the bank’s ‘Misery-go-round.
The knotted cords of debt are being tightened round our necks.
Bonjour mon pote
On the French munis, there’s even a little one ten minutes down the road from me, on the way to the beach .
http://labs.liberation.fr/maps/carte-emprunts-toxiques/#Communes-0036617
http://www.liberation.fr/politiques/01012361119-collectivites-dexia-s-est-paye-leur-dette
I see from the latest Guardian live thread that more and more people are waking up to what is going on —
http://www.guardian.co.uk/business/blog/2011/oct/05/european-debt-crisis-live
One commenter wrote something like ” This is the biggest econ crisis since WW2″ . No mate, this is the biggest scam in the history of the world.
I forget which one of your readers posted this one, but I’m distributing it widely —
http://www.mecpoc.org/wp-content/uploads/downloads/2011/09/Wray-paper.pdf
frog2
“Please understand when I say lying that does imply they were doing anything illegal”
I think you meant to say ‘does not’…
But I’m not so sure you’re correct. People will have put money into the bank on the premise that it had passed it’s stress tests and was a safe place for their money. If they lose their money then a good lawyer could sue for fraud I would have thought . It’s a scam as it’s gaining money through false pretences. The bank may say they were passed as safe by the authorities but if they didn’t open their books then how can they be properly appraised ? Of course the authorities are in on the scam but they will be safe as they will play the ignorance card.
Dexia’s assets are an enormous % of Belgium’s own GDP. I really cannot see how they can afford to support it, even with the French’s support.
Bob,
Oops. Thank you for the correction. Corrected now. Although I agree with your assessment.
Mathew,
You’re quite right. Dexia is a monstrous size. Far larger than Blegiums GDP.
Belgium certainly never could bail out Dexia and certainly can”t now because Belgium itself is about to dissapear as a political entity. And I feel fairly sure that the wreak of Dexia is part of that unravelling.
Can France bail Dexia. I donlt think so. They can and will buy time. This is now a tale of two time scales. There is a short term fund or die time scale and a longer one of the wreaking of entire nations. Our political class is simply doing what the short term bank emergency dictates.
They don’t have to do it, it won’t work but they are doing it anyway. In an earlier age it would have been called Treason.
Politicos lying…well I never.
Maybe the solution is to have a much smaller state?
But we were told we needed a smaller state for years – that is what neo-liberal dogma and doctrine is all about Sean. So we shrank the state in many countries. The last thirty years saw the rolling back of over two hundred pieces of financial legislation in the US alone. That is a shrinking of the state that is pretty epic. We’ve seen massive inroads into the public sector by the private sector. The privatisation of housing, parts of healthcare, local authority duties, care homes etc. And reductions in welfare in many parts of the world.
And where has this great reduction in the state and more power to the private sector led us? Right where we are now.
I would happily see less state support of the private sector though, I’m with you on that one, somehow though I doubt that’s what banksters and CEO’s and hedge fund managers mean when they say less state support. What they mean is less for US and more for THEM and their organisations. The very same people who ask for a smaller state then have the audacity to sit on Newsnight and scream about governments not doing enough. I can’t actually believe that so far the anger from the general population has been so muted in the West. I doubt that state of affairs will last forever.
It is interesting that it is the state that will force you via violence to do something.
However bad the globalist Tesco de ja vu is, they don’t beat you or lock you up if you don’t want to shop at Tesco.
Tesco do not send in predator drones.
Tesco do not send in special forces to do a cout de ta on Asda.
Tesco won’t take your children off you.
It is only the state that does this.
It is the state that allows corporations to do what they do.
JPMorgan Chase is there to make money.
The state is there to do our bidding. Seeing as none of us went to see our government today to tell them we are not happy. They must be doing the right thing.
Smaller state is similar to big state.
Public servants that serve because we actually tell them what to do maybe?
Come on Sean, having a huge state is not the solution. But neither is pretending that the state is the entire problem. You think making the state samller but leaving teh banks and their liars intact is going to work.
I don’t think you belive that. Get past the party line Tory v Labour – it’s all the state’s fault! No it’s not it’s the private sector’s fault.
They are both rotten and corrupt and owned largely by teh same chort of people. The same 1-10%. The revolving door of benefice, corruption and power.
The rubbish slogans of the last century are nothing but a hindrance to us now.
The Market is as much of a myth as The State. The system, a.k.a the state, includes market processes, and therefore banks and other private enterprise. The deeper Punch and Judy show behind the obvious left/right kabuki theatre is the false dichotomy of The Market versus The State. A great book at exposing this is David Graeber’s “Debt: The First 5,000 Years” which I have almost finished reading for a second time. I’ll read it again too. In it Graeber details how markets arose out of what he calls the slavery-coinage-war industrial complex, explaining that markets are good tools for feeding and equipping soldiers far from home, as well as good sources of tax revenue.
The state is a hierarchical extraction process designed to feed the elites at maximum cost (or minimum benefit) to the non-elite. Buying into the Market/State dichotomy gets in the way of seeing elitism itself as perhaps our chief enemy. Elitism (parasitism) is certainly at the heart of our systemic addiction to Perpetual Growth, ably supported and abetted by a usury-based money system which must grow forever if it is not to collapse.
Ha-Joon Chang’s ‘Bad Samaritans’ – of which this gives a flavour: http://www.paecon.net/PAEtexts/Chang1.htm – is very good on the myths that surround the issue of public v. private and the role of the state in sustaining and regulating markets.
One of the reasons we are in this … er … state is due to the ‘government bad’ ‘markets good’ propaganda pumped out by the right – so it’s alarming to see small government – which is exactly what the right are aiming at by destroying the public realm – proffered as a solution!
Capitalism has risen hand-in-hand with the growth of the state for a good reason – there is a symbiotic relationship between public and private. Taxes don’t disappear into a black hole – they provide the market with an educated and healthy workforce, and provide security and stability, without which markets cease to function.
Small government without re-growth of the commons has little meaning. The state is about protection of private property at root, as Locke pointed out. The degree to which we have big or little government does not affect this basic dynamic. While we operate in an infinite growth paradigm we see statism and market monopoly power both expanding into whichever realms are available. There is little difference between a huge multinational corporation ‘taking care’ of its employees according to the board’s wishes and ability to do so, and a large ‘state’ looking after its citizens according to its wishes and ability to do so. In the end the spoils are distributed in a manner which greatly favours the elites; witness state communism. As the money available ‘disappears’ for reasons of usury, debt-based money creation, declining EROEI numbers for fossil fuels, and also perhaps consumerism’s fading allure, so the ability and willingness to ‘care for the flock’ is diminishing, highly visible in unemployment numbers and falling wages and benefits for society’s ‘less useful’ members. The money and wealth are still there for the elite, far less so for the rest.
Quite a convoluted paragraph. My point, if it can be made simply at all, is that the ballooning centralization of power applies to the state, but this includes the market. Too few people/entities have too much power and wealth. Justice, and any kind of robustly healthy and sane society, are impossible in such conditions. What is called for is indeed smaller government, but smaller everything else too, including banks and other corporations. I would say a shrinking of the areas of life controlled by money. The legal person the corporation is, is deadly to environment and society alike. The growing Big Brother intrusiveness of The State is similarly detrimental to us all. Both are like cancers. Size, elitism, and the mechanisms exacerbating and driving this forward are the deeper problem, including private property, intellectual property, usury, and even the education system.
Hence re-localization and greater local autonomy is the direction that makes most sense to me, and the steps that ought to be taken to begin that process are laid out clearest in “Sacred Economics” (in my opinion). However, such regional polities as can be established should be (loosely) federated, across the planet actually, such that each can learn from the other, support the other when necessary and possible, and manage the earth as wisely as possible. Something along those lines I feel.
“What is called for is indeed smaller government, but smaller everything else too, including banks and other corporations. I would say a shrinking of the areas of life controlled by money. The legal person the corporation is, is deadly to environment and society alike.”
But who keeps the corporations in check if not the state? Who ensues universal education and healthcare – certainly not the market, or the charitable sector.
As the state withdraws from these areas, so inequality will increase.
Certainly, from an historical perspective, ‘the state’ has been an oppressive enforcer of class privilege, (though John Locke wasn’t immune from a charge of class self-interest) – but it can also be the mechanism through which democratic processes flow in a way the market cannot (unless you believe in the principle of £1=1 vote.
I accept that the fact that our current crop of politicians don’t believe in government makes this problematic, but can’t agree that a defence of the role of the state equates to communism.
But the state doesn’t keep the corporations in check; they are on the same programme. So I’m going to wheel out the old cliche now; it’s up to us to bring democracy to life. And precisely this is happening in Spain, Greece and now in the US. There are no ‘demands’ coming from the occupied public squares because the people/institutions one is typically supposed to make demands of are corrupt beyond redemption. What is needed now is a grass-roots re-build of how we want to organize ourselves. The state (which includes corporations and market in my view, and David Graeber’s, and in the eyes of many others) has fucked up, has shown itself totally incapable of dealing with or even recognising the coming challenges; peak oil, peak debt, peak consumerism, etc, a.k.a. the end of growth. Expecting the state to control the corporations’ growing power is like expecting corporations to control themselves. They are one, even though there is tension there. They are the fractious vanguard of power, growth, elitism, rigid hierarchy, vested interests…
The NEF has just published a book on money, linked to in this thread. In it, it seems, details that have been hidden in plain view for centuries are laid ‘bare’ (once again). Money is created as interest-bearing debt ‘out of thin air’. One major consequence of this system that people tend not to want to acknowledge is that the entire process is a state sanctioned pyramid (or ponzi) scheme; if it is not growing, it is collapsing. British author Michael Rowbotham does a good job of exposing this in “The Grip of Death”. It is also well explained in “The Ecology of Money”, a booklet you can read for free online. It follows therefore that we need a new money system, one happy with what ecologists call steady state growth. Economists call steady state, ‘bumping along the rocky bottom’, but ecologists know better. Steady state growth is the snaking, up and down mini-adjustments of a system in mature, dynamic balance with its supporting environment. Neither state nor corporation can deal with this until it/they joins forces with the grass roots movements bubbling up all over to seek jointly a maturer money system capable of dealing with today’s situation.
(Communism is one of those words. I meant state communism as the world experienced it. When we study the history of the state form, particularly its emergence, it is clear that it is about hierarchical extraction by the ‘elite’ of the ‘non-elite’. I think what you’re referring to when you say state is the commons and their management. The ‘reciprocity’ of welfare, roads, security, stability, etc., appear in this light as the bare minimum the powers that be are prepared to do to keep the basic dynamic–extraction–alive and kicking. The years of plenty the west enjoyed after the second world war were possible not because states are inherently just or fair, but because fossil fuels and various manufacturing technologies, plus hygiene and sanitation, made such ‘generosity’ or ‘reciprocity’ possible (not to mention multiple social movements which each had bloody battles with the state). Now that the EROEI of oil is at around 15 and falling (at the beginning of the 1900s it was at 100) such ‘reciprocity’ is not possible. Hence austerity, hence money too tight to mention. Capitalism, communism, fascism etc., is window dressing in comparison with what the environment can maintain.)
@ Toby
The concept of the commons is a good one, but I think what Charles is getting at here is that the only protector of the commons & the interests of ordinary citizens needs to be government – a properly functioning democratic one for sure. Whichever way you look at it, there needs to be something of that ilk.
Given the onslaught of neo liberal dogma against government of much any kind, bar one (less highlighted) giving handouts to the wealthy, I think any talk of ‘small government’ is merely playing into their hands regardless of whether something quite different to that ideology is meant.
The author of ‘Ecology of Money’, Richard Douthwaite has great interest in innovative money systems. I’ve met him a number of times where various possibilities involving 2, 3 or 4 parallel currencies have been (privately) discussed, each one with different characteristics and purpose. But all require sensible reform of the system we have now as a starting point.
I don’t know if you’re aware of this but Richard is one of the founding members of Feasta – foundation for the economics of sustainability.?One of the spin-offs is Smarttaxes network – very much a Feasta project, run by co-founder Emer O’Sucrui. They are both highly supportive of MMT & ‘functional finance’. Regardless of what innovative money systems may be possible in future, there’s no doubt that MMT is seen as a highly suitable economic framework as regards sustainability.
Government as the state is about the protection of private property and the enclosure of the commons into private property. History is very clear on this.
Government (or governance) by the people of the commons is something quite different, it is in fact the opposite of the state. Direct democracy and re-localization are the major characteristics of that particular model, one which is being tentatively explored in public squares across the world.
So when I say small state I mean large commons and democratic governance, because the state, as stated (ha ha), is protection of private property. Managing the commons via direct democracy is therefore the antithesis of the state, but the epitome of democratic governance. I am not for the neoliberal free market in any way, unless we have a money system that can facilitate and foster steady state growth and cooperation. Arabic medieval economic theory, to throw a different light on the market, was for ‘free’ markets, and against state interference, but believed markets promoted and were about cooperation, not competition. Their Invisible Hand was the Will of Allah. And this 6 centuries before Adam Smith! For me though, the Internet offers humanity its first real glimpse of what a free market might look like. It is a democratic market in which 1 vote really is 1 vote. At least it is this potentially.
MMT interests me IF we also acknowledge that the economic sphere has to shrink, that usury-based, debt-based commercial bank money creation is anathema to steady state or de-growth economics, and if we likewise acknowledge that the quantity theory of money is at its most democratic when the distribution of that money is as healthy and sustainable as can be. That is, distribution mechanisms are key.
MMT battle cries like full employment are unhelpful, since that just means continuing with this current model and tweaking at the edges. Must we really earn a living? I prefer guaranteed income funded by ecological taxes and negative interest (demurrage) to keep money flowing to ALL people. In terms of what people are then freed to contribute to the healthy operating of society, that should be decided by their passions and interests. Only then can we be sure of genuine engagement and participation, and therefore societal health. If we insist everyone has a job, we’ll be paying people to dig holes just to fill them again. Of course there is much work to be done, and there always will be, but why motivate or reward this work only with a wage? Sometimes that’s necessary, but often it is not. A guaranteed income frees us up to be flexible in this area, not be stuck with the binary: employed=good, unemployed=bad. There’s automation for tedious and unfulfilling work anyway, and, as behavioural economics has been proving recently, creative and cooperative work suffers if money is used as a reward for it. So we don’t need full employment, we need full and meaningful participation, some of which can be employed, some not. As we are increasingly recognizing, money is not wealth, and accumulation of property is not happiness.
I enjoyed “The Ecology of Money” and often recommend it as a decent intro, but feel Douthwaite does not entertain sufficiently profound change. Again, Charles Eisenstein (along with some German economists I have been reading) are doing that best, as far as I can tell. There’s a forward in The Ecology of Money by Bernard Lietaer. He’s very much for demurrage currency, but also for a variety of money types to cover different aspects of our economic lives. I find that an appealing idea too, since monopolies are not really part of nature’s way.
@ Toby
I don’t have any signignificant disagreements with what you say.
But I think you need to think of MMT much more as an enabling framework.
The Job Guarantee proposal is a somewhat optional element of it, but it is important to realise that the scheme advocated by MMT proponents is primarily an enhanced (over unemployment benefits) ‘automatic stabiliser’ mechanism. Ehanced in both the quality & quantity of (debt free) gov spending, as a counter cyclical measure, & from the viewpoint of those made redundant from (likely better paid) private sector jobs.
So it highlights two things. One, that gov is not constrained in debt free spending to pay the unemployed and two, the actual work they do can be focused toward the wider public, community purpose.
To me, it opens up a way of thinking that would enable serious consideration of the kinds of basic income etc. you advocate.
MMT provides the conceptual basis for all that – it’s very important to realise that taxation does +not+ constrain gov spending. I think you have not understood this key MMT concept? I say this because you seem to be suggesting that, for example, provision of a basic income must be ‘financed’ in some way by taxation. It does not – providing the conditions of the currency type are met, fiat, free floating etc. This is in fact the case right now with such currencies as US, UK & many others – the truth being carefully hidden by the combination of banking elite interests & intellectual capture.
Taxation then has only two functions, neither of which is to ‘fund’ anything – distributive use of resource preference & regulation of aggregate demand to avoid inflation.
Do you see how much clarity this can offer to public policy decisions & how easily the considerations you talk about can be incorporated?
So, I see MMT & functional finance as an enabling system. Key parts of it are simply a proper recognition of what is in fact possible right now, once the conceptual barriers are overcome.
Crack that & it opens up the space for what you would like to see for serious democratic consideration. (Providing, as ever, we can get a functioning democracy – but if we can’t get that, we’re f*%*d anyway.)
Kind of one step at a time? Please don’t underestimate how important MMT could be.
Technically the government is not constrained, but it is practically. Warren Mosler uses the analogy of a football stadium putting up points on the score board. Where do those points come from? A bucket in the basement? Of course not. Hence the stadium is not constrained by some finite amount of points they must be constantly aware of.
But I find this analogy disingenuous. The stadium is constrained by the game of football and what is happening on the pitch. What no MMT advocate would ever suggest, for example, is that we give everyone, debt free, say $10 million, because there are indeed constraints in the economy, in the ability of our eco-systems to cope with our rapacious consumption habits, and things like the necessity of employment in the first place, and other core properties of money such as rich and poor. So when I say ‘finance’ I’m thinking along MMT lines, of money as a flow of spending power that corresponds to economic activity. We don’t just pump in endless amounts of money, even though we can ‘create’ and ‘destroy’ money as appropriate (though whose, out of which pockets and how?). Also, what attracts me about ‘funding’ or perhaps ‘balancing’ a guaranteed income from negative interest and taxes on environmentally damaging economic behaviour is that we need no income tax should we follow this path. This is an MMT principal but with minimal Big Government and maximum direct democracy. It’s about flow and distribution before quantity, societal health before the size of the economy. Money isn’t everything, but while we still believe we need it as a so-called medium of exchange, it has rules and costs and constraints. And they are legion. 😉
And MMT, from what I have seen, would continue to allow commercial bank money creation, claiming their private sphere activities “net to zero”. Of course each loan nets to zero because it, alone, does not change the amount of high powered money (or bank reserves) in existence, but seeing as credit money represents 97% of the money in action out there in the economy, this “nets to zero” position is dangerously wrong in my opinion. If all credit money were to disappear from the economy, there would be chaos. And, as Steve Keen, the NEF and others have pointed out, the real power is with the commercial banks, whose activities lead central bank money injections and drainings. It is not the other way around, as MMT seems to imply.
As I say, chartalists have an interesting position (one the Chinese have held for centuries actually), one I think far more helpful than metalists or any other position which asserts commodities have ‘intrinsic’ value. I was attracted to MMT from the start, but find it cowardly in its application generally (and it seems to be all about Growth). It lacks the courage to follow through on its deeper implications. What is happening now in the Occupy movement is a revolution, or the early beginnings of one, in which Big Government, Big Business, Perpetual Growth and other insanities are being challenged. What comes of it only time will tell, but I am with them in spirit.
Simple question; can we afford this money game?
Seems to me its getting awfully, possibly fatally expensive.
Sir, that is exactly the right question!
Can we afford money?
Money, as everything, tows costs and consequences in its wake, inescapably. One is the perpetuation of manufactured scarcity, another is elitism, another is entrenched divisions of wealth, health and power. The list goes on and on.
A subtler question to ask, and a perhaps more helpful one, is; what sort of money system can the planet afford?
I think the answers set out in Charles Eisenstein’s “Sacred Economics” come closest to answering it.
http://charleseisenstein.com/online-text/
Telegraph on imminent credit crunch:
“Figures from the European Central Bank show eurozone banks are increasingly reluctant to lend to each other.
Overnight deposits at the ECB rose to €213bn today, from €209bn yesterday, which is the highest volume since July 2010.
Banks are leaving their money at the ECB rather than lending it, despite the central bank paying a lower rate of interest, as they become more nervous about the security of the banking system.”
Is Dexia our Creditanstalt?
On CreditAnstalt, see: http://www.businessweek.com/magazine/content/11_18/b4226012481756.htm (2 pages, from April this year).
From The Slog yesterday an addition to your story David
A Dexia crash – now thought in most financial quarters to be inevitable without a massive bailout from Paris – will affect cities and towns in every region of the United States. Dexia is a major player in the $2.9 trillion market for municipal debt
As he said…that T word!!
Paul ire,
thanks. Yes indeed. Which is why yesterday the REITs in america, the companies which buy up such debt were all dropping like stones until the Dexia bail out story broke.
The link Here
Golem what do mean that Belgium will cease to exist as a political entity? Can you explain this. What would happen? Its always been shakey but its lasted a long time and Brussells is the very heart of the EEC.
But Trichet is about to go… apres moi le deluge style
Wirplit,
Belgium hasn’t had a full functioning government for months now and during that time the various factions have been discussing splitting Belgium up. Part would go to France the other part to Holland.
The north shouth division is an old one. The bank collapses have, I think, merely been the spur. I think it is a real possibility.
BBC report on Cameron’s speech:
“The speech was re-written slightly, after a passage released to the media on Tuesday apparently urged the public to make paying off debts a priority.
It read: “The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills.”
Instead, Mr Cameron said: “The only way out of a debt crisis is to deal with your debts. That’s why households are paying down the credit card and store card bills”.
Newspaper headlines on Wednesday morning were dominated by the now-abandoned passage.
‘Struggling’
The prime minister’s aides said it had been included due to “sloppy drafting” and the briefing of an unfinished speech to the media.
BBC political editor Nick Robinson said it was easy to understand the “sensitivity” of appearing to tell people to stop spending at a time of austerity and falling consumer confidence.”
Perhaps someone in govt. has read up on the paradox of thrift?
Uh oh.
Cameron has just said that “the UK is NOT on a path of certain decline”:
http://uk.finance.yahoo.com/news/Cameron-UK-Not-On-Path-Of-skynews-3673969695.html?x=0
Which can probably get added to the list of other erroneous prophecies, such as:
– Greece will not default
– European banks are in fine shape
– Growth will return
– Spain is not Greece
– Italy is not Spain, or Greece etc.
Well, you get the message.
Shut up and get with the program
We should all love our dear leader, our strong and caring leader, our big daddy.
Otherwise it’s room 101 for you
Bunker mentality.
Greek general strike: http://www.bbc.co.uk/news/world-europe-15177457 .
Paul Mason’s useful summary of where we are at:
http://www.bbc.co.uk/news/business-15185692
– including a frightening timechart of credit insurance costs for major European banks.
The thing is really about power and control through the use (and abuse) of a monetary system. By controlling wages and keeping them low, by offering debt (referred to as credit) and inducing people into servitude. Its gone on for centuries and todays version is just a refined version of it. Individually we may strive to avoid debt, but we live in societies and countries that have been pushed into it, and as a result our individual efforts are mostly wasted.
These actions are coming to a head. Most normal people wouldn’t dream of doing this to others, but many of those in the ruling elite do not consider us to be part of the same race as themselves. Many are sociopaths and have a profound lack of empathy for others. Difficult though it is, we need to collectively deal with this situation, put aside any political differences and wrest control back of our democracy and monetary systems.
You are too kind James – I would brand them psychopaths with socio-pathic tendencies.
Some new research has indicated, psychopaths are heavily represented amongst the CEO’s of large conglomerates, but those who utilise this tendency when their results as CEO’s are analysed the results they produce are fairly mediocre. In simple terms, they can talk the talk but not walk the walk
Egan & Jones ratings agency were certain France & Germany would bail out their banks in 2012, so the starting pistol has been fired a bit early.
E&J were also uncertain on whether the UK would follow suit with its failing banks. I haven’t been able to find out why they singled out the UK, but it will be interesting to watch over the next 12 months.
@John I think you’re right, if I try to moderate how I describe those people, it’s only as I’ve tried to learn to focus on their actions rather than ‘them’. The problem is that they operate in a business environment that rarely/never challenges their actions, and even profits (in a monetary sense only) from them.
All of this has only been successful in a short term sense. It was obvious that “infinite” growth based on the finite resources of the planet was impossible, the whole thing was a pyramid scheme. The chickens are starting to come home to roost, as many more people are affected, lose their jobs or see their wages and pensions savaged.
The fact that it is completely unnecessary makes it all the more painful. Hopefully it is the start of a transition to a credible, sustainable and democratic future. An old saying springs to mind. You can fool some of the people.. etc.
I watched Cameron this afternoon and wondered what made me so disinterested. It’s the lies. Millibore makes me feel the same. The same kind of people write their speeches. I’ve done the same in finding the right buzz-words for research bids. We’re all at it almost daily and its ham. I could provide better non-technical teaching for a tenth of university fees based on distance programmes and social networking, but the universities plough on.saddling kids with big debt.
This form of lying where we are ‘doing our jobs, playing the game’ and the rest is endemic. We can tell it’s lying only be looking at history and seeing the same inane promises made, the same patterns of wealth and deprivation. If we had a truth machine that could spot normal lying, I’m not sure this stuff would show the same way. Everyone knows and also knows you can’t stand against it.
In a way, all we’re talking about is the old ‘pig in a poke’ story – I mean to detract nothing from our efforts. Even Wall Street people admit to 15% unemployment and say more people should be protesting more vigorously. We need a clean break from all of it. We lack the ‘how’.
The way we’ve shoved our kids into universities that are so expensive is an example of ‘how not to’ as bad as what’s happened on adoption. The lying extends beyond the banks. And if we claim its lying we are dismissed.
You will love this then, Ian Frasers efforts to figure out whether Cameron is lying or simply doesn’t know what he is talking about, Gives some good info on the lying of the banks & the FSA.
http://www.ianfraser.org/on-banking-david-cameron-is-either-an-ignoramus-or-a-liar/
Personally I tend to blame marketing for a lot of it, that everywhere plastic smile. I think the late great bill Hicks got it right on the subject. It is a big part of the reason the pottery/giftware industry died in Stoke-on-Trent.
From Theodore Dalrymple
http://www.theaustralian.com.au/news/opinion/euros-troubles-an-anglo-saxon-plot/story-e6frg6zo-1226146014846
Euro’s troubles an Anglo-Saxon plot
NO ONE who has read the French press for any length of time will have failed to notice that the term Anglo-Saxon is not one of praise or endearment, to say the least. For many contemporary Frenchmen, including, but not, only journalists, the Anglo-Saxons are what the freemasons were for their predecessors in the 19th century: participants in a vague but sinister plot to control the world and destroy French civilisation.
It doesn’t matter, of course, that the so-called Anglo-Saxon countries differ considerably among themselves, in their societies, policies and interests. Roughly speaking, Anglo-Saxon means a combination of lack of savoir vivre, terrible food, ultra-liberalisme (a term of art meaning lawless capitalism red in tooth and claw) and sexual hypocrisy, that is to say a mixture of prudery and prurience.
The “markets” — a typically Anglo-Saxon invention — are taken as being both wildly irrational and at present engaged on a concerted attempt to destroy the Euro as a common currency. For believers in the Anglo-Saxons as the secret movers of the world, it could not be that the whole idea of the common currency was flawed in the first place and was bound to lead either to financial catastrophe or to a completely undemocratic and authoritarian central control of the economic life of the continent, or to both. Not a sparrow, or a French bank share, falls, but the Anglo-Saxons are behind it.
The French banks have lost nearly two thirds of their share value since July 1 this year. Why? Could it be that, exposed to Greek foreign debt, of which they hold about a half, at a time when Hellenic default is l’air du temps and the European finance ministers cannot agree among themselves what to do about it, the banks are in a somewhat fragile condition? Not according to the head of the French employers’ federation, Laurence Parisot, for whom Wall Street and the City of London, aided by their journalistic accomplice The Financial Times, are responsible for an organised drumbeat. For her, euroscepticism, the lack of transcendental belief in the European project (though no one will say exactly what it is), is a kind of mental disorder rather than a rational assessment of the chances of 27 European countries coming together peacefully in a kind of giant latter-day Yugoslavia.
For the French economist Shahin Vallee, the Anglo-Saxons “have always regarded the Euro as an intellectual crime and have looked on its success with a certain bitterness”. What exactly that success consists of, other than its survival until now, is not explained. It certainly allowed several countries, Greece, Ireland and Portugal among them, to run up unsustainable debts, believed from the first to be guaranteed by Germany. Who would have lent the Greeks so much money if they thought they were going to be repaid in drachmas?
An economist at the French bank Natixis (which, incidentally, lost $US450 million [$460m] in Bernie Madoff’s scheme), Patrick Artus, claimed that the US was in desperate need of a loss of credibility of the Euro, because it did not want a viable alternative to the dollar: otherwise it would not be able to finance its own enormous deficits. The implication of this was that a giant plan had been concocted, presumably involving not only Wall Street but the government of the US, to depress and then destroy the Euro.
Contrary facts hardly matter for believers in such conspiracies. The Anglo-Saxon banks that, for Vallee, “will see in the difficulties of the Eurozone an opportunity to gain market share” as if they were a bloc like the Warsaw pact, vary greatly among themselves. The Canadian and Australian banks, for example, are not much exposed to fragile European debt, but the British banks have lent a total of something like $US135 billion in Ireland alone, that is to say approximately $US30,000 per man, woman, child and baby in the country. That German banks have lent the same amount, and Belgian banks almost half as much, suggests that in reality there is more convergence between Britain and Europe than between Britain and the healthier parts of Anglo-Saxonia.
Is there going to be a War?
http://www.defensenews.com/story.php?i=4616433
France and Germany, while publicly urging Greece to make harsh public spending cuts, bullied its government to confirm billions of euros in arms deals, a leading Euro-MP alleged Friday.
Franco-German lawmaker Daniel Cohn-Bendit said that Paris and Berlin are seeking to force Prime Minister George Papandreou to spend Greece’s scarce cash on submarines, a fleet of warships, helicopters and war planes.
I wouldn’t have thought so, but you never know – there is a current dispute with Turkey over gas exploration off Cyprus (http://www.reuters.com/article/2011/09/26/greece-turkey-cyprus-idUSL5E7KQ1YW20110926 ).
However, I think it’s more likely that France and Germany simply want to hold Greece to existing arms contracts.
Here’s an interesting chart, though: http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures .
Greece (no. 23) spends 3.2% of GDP on its defence budget, as compared with France’s 2.5% (no. 3) and Germany’s 1.4% (no. 7). Greece’s old enemy Turkey (no. 15) spends 2.7%.
I have not heard that much about Spain in the media recently since early protests all the talk has been about other areas of Europe.
So looked around and I came across this about their bank recapitalizations. They have been quietly getting to grips it seems with their own banking problem. Some positive news for once perhaps if this is to be believed?
That leaves the huge unemployment problem of course as bad as ever….
http://www.bde.es/webbde/en/secciones/prensa/intervenpub/gobernador/mfo300911e.pdf
Yeah, thats an interesting link Wirplit, i’d like to see some more about that. Obviously they had a ridiculously vast housing boom, can they really have dealt with the effects by lots of mergers and a (fairly quiet) re-capitalisation ?
It would be great news if they have, but it almost seems too good to be true.
France makes emergency contingency plans to nationalize some of its biggest banks: http://www.zerohedge.com/news/le-figaro-discloses-france-has-prepared-emergency-just-case-nationalization-plan-2-or-3-banks .
I wonder which banks those might be… No, it’s too easy to guess. BNP Paribas, Credit Agricole and…
Meanwhile, Greece produces a rabbit out of the hat. Remember that it was said that they wouldn’t be able to pay state employees and pensions from mid-October?
Think again: “Evangelos Venizelos, Finance Minister of Greece, […] announced that his government had suddenly found €1.5 billion in a bank stabilization fund that was set up during the crisis of 2008. Enough to keep Greece liquid until mid November.” (http://www.zerohedge.com/contributed/greece-finds-treasure-stays-solvent-another-month ).
Which is exactly when, if all goes to plan (some hope), the next instalment of the bailout package is now supposed to be paid.
I guess it shows that when it comes to stealthy negotiations the Greeks are not to be underestimated. Yes Greece has the gun to its head but then strangely so does the rest of Euroland. Its a kind of Mexican standoff. Some countries are up close to the barrel of the Greek gun. The ones at the back of the room like Finland think they can afford to be tough of course but the ones closer are very nervous… they know once the bullets start flying they might be going down with Greece.
A grand example of Keynes little proverb…
When a man owes a hundred pounds to a bank,
he has a problem.
When he owes a million quid,
the bank does.
Slightly OT, but don’t you just love those Zerohedge commenters who they think it’ll all work out fine in the end because they have….guns!!!!
I watched Newsnight tonight (a rare event) and found the usual primitive discussion. My ex-cop-creative-writing mind springs readily to conspiracy in all this – from (say) Churchill and Blair as bag men for JP Morgan long-term stuff to more mundane comparisons with scams I saw people sent down for. What I can’t see in any of this from a company doctor perspective is how it could be fixed. If we strip the banks down to what they should be, then they are utilities with little competitive advantage other than in low costs – the rest of what they do is parasitic fantasy and criminal. They remind me of jeweler’s shops fronting for rackets money and loan sharking.
If there was ‘real honest business’ for them to do (I broadly know what investment banking is) without restricted practices we’d see margins collapse because they’d have to compete on price, quality and the rest. I suspect the metaphor is that of a typewriter manufacturer.
Money going in to the banks as ‘investment’ can only come back if they get back to doing what they were doing and that (whether criminal or not) is being a cost to the rest of us.
From Spain from a week ago or so the spanish regional debt is currently tallying 50bn euros.
http://www.elpais.com/static/misc/portada20110929.pdf ( in Spanish )
The article, and the 3/4 pages inside that edition of the paper reported a wave of cuts and job losses and cuts in salaries and services across Spain. Its says too that providers of services and government have been badly hit.
The PP ( right wing ) took control of many of Spains regions earlier this year and they have managed to put a figure on their total debts. And their big solution – “las tijeras” (the sissors!) – job losses, salary reductions, reduction of services and taxes on domestic businesses.
Mr Bean has called an early general election perhaps he saw what happened to that other clown called Mr Cowen in Ireland. I think he is asking the Spanish people to chose – and given the events following M-11 2004 I don’t think Spanish politicans “no van a joder la gente” ( er, – will not mess with the Spanish population ) with the public spotlight on them.
I’m hoping that Spain can put the euro to the sword. I think it will take a brave united political moment from a large European country to kill it – after all its just a cabal of interdependant politicans – not economics nor the will of the people that is keeping it all alive at the moment.
The residents of Madrid were once famous for their stubborn principled resistance to Franco with the slogan ‘No pasaran!’ ( they shall not pass ). Perhaps the Spanish generally can make a stand here too and stop ( some of ) this nonsense.
We know what is going to happen, but we know the timing less well.
FIRE will contract to 10% of value then rebound, slowly, over possibly two decades. 80% of FIRE jobs will have disappeared.
Repayments will or will not be made and debts will eventually disappear, hastening a resolution. Favours will be sought and given so taxes will be wasted on jobs that are on-productive and this will delay resolution. There are some limits on the ability to delay the resolution: money can be printed, but this creates debt! If it doesn’t then, there will be food price increases! The MOB, the MOB!
In time the Gordian knot may be cut, unlike in Japan, where they lie about how many will die from radiation poisoning. Europe is corrupt, but not that corrupt?
We all know the Problem.
Many American Presidents have warned us about the dangers of interposing private banking between us and the creation of money.Even some BoE governors have said the same thing even as recently as Mervyn KIng who I think said this was the least best system,somewhat mealie mouthed I know but he hadn’t retired yet. We have been catuloging the iniqities which I gues is all that can be done until we reach that point, the Tahrir sq moment and then when we protest we need to have the list of demands absolutely clear.
.
Until we wrest control of the money back from the banking families who are making the world in their own image we are doomed to schizophrenia. I prefer to put the pschopaths behind bars than become mentally unstable myself.
MMt appears to be what we need although I’m unsure how the theory takes account of entropy or a resource constrained world
I am sure that nothing less will do than the removal of Private interest between us and the creation and managment of money.
The impending resource & ecological constraints are going to be a problem to some extent now no matter what monetary/fiscal system is chosen. Sustainable energy is the key that unlocks all else we need to do in the way of recycling of resources. And transforming our energy infrastructure is going to take time. We need to focus on how much fossil energy resource remains, bearing in mind the Hubbert peak production curve, together with how much we dare use if we are to avoid the worst effects of climate change.
The importance of MMT & ‘functional finance’ in achieving this, is the framework it offers to transform the role of governments (assuming we can replace the current tossers & corrupt system). We have only so much fossil energy ‘capital’ remaining that we can use to build ‘sustainable’ infrastructure. We need to use it wisely & the longer we wait the more difficult it becomes. Just as in WWII, governments (UK in particular) had to direct key resources toward the war effort, the transformation to sustainable energy needs now to considered in the same way. Waiting for the long process of the private sector to research, prove, pilot & establish technologies on a purely ‘monetary return on investment’ basis, whilst appeasing the ever more short term interests of the stock markets is simply not going to work in the timescales we need. Every year of slow or no progress fritters away our remaining fossil energy budget.
So how does MMT help?
The core of MMT says that money creation, debt free finance, by sovereign governments (of fiat, free etc currencies) is +not+ the key constraining element. Period, end of story. BUT…..RESOURCES ARE. If we try to create money to buy resources that are +not+ there, we +will+ create inflation & just as importantly not achieve the primary goal of increasing the desired quantity of real, useful goods.
Do you see how well this fits? The focus shifts to +resources+ (correctly) as the key constraining factor.
This means that the kind of ‘cost benefit’ analysis that a household or business would use – because, unlike governments (with the conditions etc), ‘money’ +is+ the key constraint – is +not+ appropriate.
Once we realise that governments can create all the money we need, the correct approach is +resource+ benefit analysis. The key question becomes – ‘…do we have sufficient available capacity in labour, energy & materials to do this?..’ If the answer is ‘yes’, & as long as it remains ‘yes’, the government +can+ monetarily subsidise it +for ever+.
I know this concept is really hard for people to accept – most economists who’ve built their careers on the kool aid of ‘private bankster only money creation’ don’t get it. (Or refuse to get it.)
But, if we want a sustainable future, we need a framework that places appropriate use of available resources at the centre of decision making. And we need to be looking at least 2 or 3 decades into the future. Herman Daly tried to get the World Bank economists (then headed by one Larry Summers) to recognise we live on a finite planet some 20 years ago – his notion was dismissed out of hand. The constraints of our planet are even more urgent now.
Does this mean we need a more centrally planned economy? Yes, it does, but only as far as pragmatism demands, and there’s no reason it cannot be done within a well functioning democracy. We have the technology as never before for properly informed public debate. But we need a framework, particularly an economic/monetary one that both defines & enables us to work with the actual problem. This is why the ‘resource’ centred approach of MMT & ‘functional finance’ makes it so important. It’s no accident. The proponents & supporters of it are well aware of this aspect.
BTW, leading proponent Prof Randall Wray was featured in a Reuters piece recently, linked here:
http://neweconomicperspectives.blogspot.com/2011/10/great-haircut.html
(A rare moment of MSM exposure.)
allcoppedout, petending
As far as I can see the banking system has become a cancerous growth that is killing its host, i.e. the economy. One of my favourite books is the Dying of Money by Jens O Parsons. He makes it clear that the banking system should only be a utility to the wider economy, and if it becomes too large its simply making the economy less efficient. The book was written in the early 70s, nothing has been learnt.
keekster, just d/led that – thx – looks like a good read.
Just picked up a copy of NEF’s recent publication “Where does money come from”:
http://www.neweconomics.org/publications/where-does-money-come-from
Highly recommended reading.
The UK house-price bubble – chart of average UK house price to average earnings ratio:
http://i.telegraph.co.uk/multimedia/archive/02019/houseprice-to-earn_2019430c.jpg
Still around 4.4x average earnings, down from around 5.8.
I have seen other stuff putting the ratio much higher but I can’t remember where. But it might be the difference between mean average and median average. It still scary anyway
Robert Reich on the tangled web of Greek debt: http://goo.gl/4nCc4
Thanks for that – adds another dimension to the problem.
I wonder, though, what Reich’s proposed solution would be if he were back in a government role.
Shares in Dexia suspended, DT reporting.
More QE I see. What’s that saying? About the definition of insanity?
Telegraph:
“A tax agreement between Britain and Switzerland was signed by Swiss finance minister, Eveline Widmer-Schlumpf, and British Treasury minister, David Gauke, in London today, after being agreed in August. [ED. – I reported on the dodgy aspects of the deal at the time]
It will allow funds that were previously hidden from the UK Government to be taxed, and will come into effect in 2013.
Estimates put the amount of funds hidden by British residents in Switzerland at £125 billion.”
Hey, that’d pay for QE2 and leave £50 billion change…
Run your very own interactive DIY stress test on European banks (though as Zerohedge points out, it seems to be a tad optimistic):
http://www.zerohedge.com/news/interactive-diy-euro-bank-stress-test .
Just spotted that there are six banks *above* Dexia in the chart showing the amount of recapitalisation needed in the event of a 100% PIIGS haircut: BBVA, La Caixa, Monte dei Paschi, Intesa Sanpaolo, Bankia and Unicredit.
Well, they are all Italian and Spanish…
According to the Telegraph, Mervyn King, governor of the Bank of England, has said this could be the worst financial crisis ever, worse than the 1930s.
Meanwhile European stock exchanges have closed up over 3%…
The lunatics have taken over the asylum (or is it the algorithms?).
http://news.sky.com/home/article/16084217
5:43pm UK, Thursday October 06, 2011
Britain could be in the grip of the “most serious financial crisis ever”, the governor of the Bank of England has exclusively told Sky News.
Sir Mervyn King said the global and UK economies had been turned on their heads in the past three months alone and said: “The world has changed.”
His warning comes after the bank’s Monetary Policy Committee (MPC) voted to extend its programme of quantitative easing (QE) to boost economic growth.
The move has prompted fresh fears that the UK is on the brink of another recession.
It will mean effectively printing an extra £75bn of cash to stimulate the economy.
The decision marks the first time the Bank of England has extended QE since November 2009, and suggests the MPC is growing more pessimistic about the UK’s economic prospects.
But Sir Mervyn admitted that it was impossible to tell for sure whether previous cash injections worth £200bn had actually worked.
In an exclusive interview on Sky News, he conceded that inflation was likely to rise above 5% in the coming months – and he said it was impossible to rule out more cash injections in the future.
He said: “We’re creating money because there’s not enough money in the economy.
“That may seem unfamiliar to people… but that’s because this is the most serious financial crisis at least since the 1930s if not ever.
“We’re having to deal with very unusual circumstances but react calmly to this and do the right thing.”
He said that for many decades there had been “too much” money printed, which had led to inflation being pushed up.
All I can say is fair play Mr. King. Another shock for the MSM believers, I sincerely hope.
MSM? Forgive my ignorance but what does this mean
MainStreamMedia I believe . Anyways close to that .frog
Ah I thought it might be another economic theory like MMT
I have bet a friend a bottle of Irish whiskey that inflation would be 6% at year end
I think my chances are good!!
A little light relief from the Telegraph live coverage of the financial crisis:
‘Asked if he [Mervyn King] feared a world collapse, he said: “I think the word coplllapse [sic] is not a well-defined phrase”. ‘
Avaaz have now got on to the Occupy Wall Street movement: http://www.avaaz.org/en/the_world_vs_wall_st/?cl=1308603555&v=10607 .
…while the BBC does it again, this time with an IMF adviser on Newsnight:
http://www.zerohedge.com/news/bbc-does-it-again-absence-credible-plan-we-will-have-global-financial-meltdown-two-three-weeks- .
Again we are told that British banks are well capitalized. But we know that not true, don’t we? Ok Greek default might not take them out but then again the credit default swaps, who knows? But then you have the American muni bonds which could blow at any time, the China hard landing and even if they survive those they still have a problem with British mortgages which will be defaulting and in negative equity when we go deep into recession, and that will certainly kill them. Given the huge range of potential problems how can anyone say that the banks are strong, more to the point how can they expect to be believed
Reggie says that Barclays needs to roll over 68% of its debt over the next 12 months, good luck with that. And HSBC has one of the largest derivatives book in the world, so that should be fun
I know that they have to talk up the banks because of confidence but who are they kidding.
And another thing that gets my goat is this insistence that if Germany and France don’t do the big money printing then everything will go its up and it will be their fault. This is annoying me for lots of reasons
1) it going to crash anyway, any rescue plan is just delaying the inevitable
2)I don’t know what France and Germany are up to but at least they are not jumping in and piling more debt and leverage on without thinking. Maybe they are going slow but its their show(not just theirs but it definitely not ours) we should let them get on with it.
3) a lot of this is about reserve currency status, the US is desparate not to lose it reserve status and wants Germany to print so that the euro doesn’t become a viable alternative reserve. And no one mentions this. Most of the downgrades of euro debt have been politically motivated as far as I can see. American ratings firms doing the dirty on Europe at the behest of the fed. The only rating agency that downgraded the US is under investigation now.
4) its totaling ignoring the role of the banks in all of this, it all those silly Greeks and stubborn Germans and flighty French, and nothing to do with the banks or the money system
That’s enough for now, I just had to get it off my chest
Hi all
I’ve just discovered this site and am delighted to put a name and a face to what was just an extraordinarily well informed and informative Guardian blogger. Delighted to find a place where I can read Golem’s considered views in some depth at last. Sadly, it seems little has changed in the world since I last blogged consistently on the crisis in 2008/9. Today’s QE announcement just crystallised my view that established economics and economists are beyond their expertise. They cannot compute the depths of the system’s wretchedness, the extent to which it is broken. You cannot successfully provide CPR to a corpse, it may vibrate a little but it will not breath again! QE3 should ease the flow of credit and it would if the system wasn’t dead… rather it will provide the zombies with a little more blood to drink and encourage a brief orgy of phoney wealth generation. Yes the ftse will climb – probably to 5500 tomorrow – yes the pound will dip a little and improve our ability to sell what we don’t produce to those who cannot afford to buy and yes, our long term gilts will dip briefly but I guarantee no money will find its way to the real economy. It didn’t for QE1 or QE2, so why now?
QE3 will allow the establishment one more chance to extract itself from a crisis of its own making, that is all. We would rise up if it were just explained to us…
Keep up the good work.
Hello Richardsoutandabout,
Nice to hear from you! Welcome. How have you been keeping? You’ll find quite a few olds friend are here.
Hi all, I don’t know if anyone here follows George Monbiot on twitter. He posted some unsurprising but disturbing tweets yesterday about the scale of the economic problems. I’ve copied them below if anyone is interested.
GeorgeMonbiot: 1/n: Just attended a terrifying macro-economics lecture by Prof Steve Keen. Here’s some of what I understood.
: 2/n: Key indicators, such as change in level of private debt, suggest that a #GreatDepression is all but inevitable. : 3/n: Unless there’s a major write-off of private debt, we’ll be stuck in #GreatDepression for a long time to come. 4/n: If governments don’t do it, mass bankruptcy will, causing disastrous chain reactions: 5/n: Governments should take banks into receivership to reorganise (ie write off) much of the debt.
6/n: The longer they seek to protect creditors and maintain fiction that it’s real money they’re saving, more stuffed we’ll be.
Keen uses an ‘accounting methodology’ (in contrast to mainstream economists) and was one of very few to predict the beginning of the whole crisis. What he’s saying should be taken very seriously.
Incidentally I wrote to Monbiot some weeks ago suggesting he look at economics issues, particularly the intellectual bankruptcy of the mainstream, mentioning Keen & MMT proponents as good places to start looking for some reality.
Never got a reply, but I wonder….?
I saw Steve Keen at UCL on Tuesday evening. A well attended event (250+) perhaps.
Some of the usual money reform suspects were around (e.g. NEF, Positive Money and Renegade Economist anchorman Ross Ashcroft).
Hopefully Steve will post a video on this soon, or at least the slides (which had some excellent charts):
http://www.debtdeflation.com/blogs/
NIce to see some in the mainstream venturing to listen to the “deep thinkers” that until now only reside in the blogosphere.
Keen made the fundamental point (oft raised on here) that we should focus on the “Irresponsible Lending” that has happened, not just the “Irresponsible borrowers”.
Let’s hope that message gets hammered home to Monbiot and the world !!
UK financial firms downgraded by Moody’s rating agency
Moody’s has downgraded the credit rating of 12 UK financial firms including Lloyds TSB, RBS, Nationwide and Santander UK.
Moody’s said it now believed the UK government was less likely to support some firms if they got into trouble.
However, the firm emphasised that the downgrades did not “reflect a deterioration in the financial strength of the banking system”.
The news sent bank shares lower, with RBS 3.8% off and Lloyds 3.4% down.
http://www.bbc.co.uk/news/business-15211230
Two notches down for RBS and Nationwide…
Full details here: http://www.moodys.com/researchandratings/research-type/issuer-research/ratings-news/003004005/-/-/0/0/-/0/-/-/en/global/rr
I thought that nationwide as a building society would be pretty safe
Wrong again!?
Richard
Building Societies can still engage in credit creation (they can leverage their deposit base), just like banks.
If run as a mutual the membership strcuture should prevent them from being too reckless, but in effect there is no formal “speed limiter”.
I believe that only credit unions (and perhaps Islamic Banking) are totally non-credit creating and therefore are indeed genuine “banking intermediators”.
Two questions, one facetious, the other deadly serious:
1. Who rates the rating agencies?
2. How long before panic hits: a) the stockmarket(s); b) customers of the banks?
The stock markets are already panicked. Pull down the charts and you will see that it looks like a seismigraph of a 8.2 earthquake
Not this morning they’re not – so far at least none of the major ones are in the red.
Look at the last two months since the mini plunge. The market races up and then crashes down, up down up down. Just like corporal Jones in dads army running around shouting don’t panic, he couldn’t make up his mind which way he should run to. When the panic stops the markets will capitulate and go straight down
Neil
“Who rates the rating agencies?”
Well, it depends on what you rate them for.
The public assumes that they are there to rate the likely level of default risk. In this respect their predictive capabilities are dreadful. Reinhert & Rogoff prove how there is little or no relationship between (sovereign) credit ratings and actual default risk.
So on that basis, they deserve an F-
But, if you understand that what they actually rate is the extent to which a country / company can be sucked dry covertly, then they are very accurate.
I’d give them triple A for that.
(But the caveat is that it only works in the short run!).
Apologies, but slightly off-topic.
Last week I attended a conference in Winchester on Banking (affectionately known as ECOBATE!) organised by Richard Werner.
I’m due to write up my notes soon, but so far Charles Bazlington has done an excellent job summarising some of the key points:
http://the-free-lunch.blogspot.com/
Lord Turner’s speech was fascinating, in it’s diagnosis: (see slides here)
http://www.fsa.gov.uk/pubs/speeches/at_29sep11.pdf
He perfectly gets the cause of the crisis (excess credit creation) as exemplified by the first 15-16 slides.
The chart on Japan (17) is worrying, as it shows that not only did they have a “lost two decades”, but the net result after such protracted stagnation was a trebling of Gvt debt to GDP (from about 70% to 210%). Familiar territory for the West no, doubt??
But if you read his policy prescriptions, Lord Turner reverted to a well scripted “steady as she goes, don’t want to rock the boat” set of bland and potentially ineffective (nay, soon to be redundant) policy proposals:
http://www.mondovisione.com/_assets/files/Credit-Creation-Social-Optimality-Southampton-Uni-20110929.pdf
I don’t know whether to be pleased that at least to some degree Lord Turner “gets it”, or frightened that policy makers are just too chicken to do anything to properly stop the rot!
Another bailout for RBS ? surely if they tried it would be a wake up call. I can’t believe it could be sold as another great investment opportunity for the British taxpayer, but then again……….
http://www.ft.com/cms/s/0/5af4075c-f048-11e0-96d2-00144feab49a.html#axzz1a5MsMYAd
Just wait until China gets back off holiday. (None for me, damn retail) There are two modes of thought at the moment. One is that China should offer financial support now so that it can reclaim assets when Europe crashes and another that says just let it crash and buy at firesale prices.
Everybody seems remarkably relaxed about events in Europe and America and quite convinced this will not affect them. I’m not so sure they are right. but one thing is certain, the end game is nigh. There is nothing legal the EU can do to help itself, I predict an emergency power grab this month. And all that will do is… all together now…. “kick the can down the alley”.
I think the offical CCP line is that as Europe and the USA weaken, Chinas’ ability to purchase resouces becomes cheaper. The guy off newsnight is right. the shit is going to hit the fan this month. Stock up on andrex.
Stevie
Paul Mason has just tweeted that Osborne’s aid are briefing that there is “no way” the UK treasury will recapitalise a UK bank again.
Could all be bluff and counter bluff though.
They won’t ‘capitalise’ it – they’ll invent another word.
I suppose it’s at least a good illustration of, as Golem has often stated the heap of crap RBS is, when they are already talking about a bailout, even before a Greek default & EU banking collapse. Surely it would be political suicide anyway.
Here’s a graphic you might like showing the evolution of ” Too big to fail ” in the US.
http://dailybail.com/storage/banks-monopoly-graphic.JPG
I wonder if its time to revisit the concept of good banks and bad banks again. Split the banks not into retail and investment banks but into solvent and insolvent, hiving all the debt into the “bad” bank and slowly letting it unwind to inevitable bankruptcy. To my knowledge – limited – this hasn’t yet happened in the banking sector but there is a precedent. Punch Taverns was a massively indebted – 2.5bn – pub company consisting of both managed and leased pubs…it is now 2 companies. Spirit includes all the profitable managed houses and a number of prime leased properties, which it will convert to managed houses in time. Meanwhile, Punch continues to hold all the unprofitable and small pub sites on leasehold terms…oh and all the 2.5bn in debt! Punch is committed to selling its sites but cannot possible sell at a sufficient level to service its debt and surely will eventually fold or be bought out…
Incidentally, the CEO who masterminded this demerger – Ian Dyson – is happily ensconced at Spirit.
Peston on recapitalisation: http://www.bbc.co.uk/news/business-15212476 .
Begins and ends with RBS, but also includes discussion of an analysis by Natixis of what various European banks might need to bolster them up.
Meanwhile nine of Portugal’s banks have also been downgraded by Moody’s this morning.