Spanish Deposit Guarantee danger

Where is the European Bond and Banking crisis going next?

Well Europe has a simple problem – it can’t sell its debt, neither sovereign nor private bank debt – at an interest rate they can afford. Italy sold €7.5 billion in bonds but at rates that are completely unsustainable. To give you an idea of the dire situation Italy’s leaders and bankers have created, 3.5 billion of that debt was sold in 3 year bonds. The rate on them was a crippling 7.89%. Just a month ago the rate on Italy’s 3 year bonds was 4.93%. A jump of  nearly 3% in a month!

The markets know that the bank debt crisis is about to get a whole lot worse because as nations fail to grow at the fatuous rates they all claimed they would,  nations will have a funding crisis and that in turn will curtail the funding and guarantees they can force their people to lavish upon the banks. Thus Moody’s said this morning,

All subordinated, junior-subordinated and Tier 3 debt ratings of 87 banks in countries where the subordinated debt incorporates an assumption of government support were placed on review for downgrade, the ratings company said in a statement today. The subordinated debt may be cut on average by two levels, with the rest lowered by one grade, Moody’s said.

Lenders in Spain, Italy, Austria and France have the most ratings to be reviewed as governments in Europe face limited financial flexibility and consider reducing support to creditors, the rating company said.

That means either Erste or Raiffeisen will begin to figure in the headlines as will UniCredit, Intesa and most of the Caja’s. As those banks begin to be downgraded and have to turn to their central banks and the ECB for even more of their funding so they will cut any lending to countries further east. Hungary is already in crisis talks with the IMF.

It is worth bearing in mind how dependent eastern countries are not only on western banks for finance but also upon those same nations as export markets.  Western banks control about three quarters of banking in Eastern Europe. UniCredit via its subsidiary Bank Austria is the largest player. The Greek banks have a large presence as well as Commerzbank. Commerzbank has already said it will curtail all it operations except those in Poland.

As for the dependence on Western Europe for exports: the Czech Republic exported an amount roughly equivalent to 49% of it economy to the Euro region in the last year, Hungary’s exports to the Euro zone were about 44% of its GDP and Poland’s exports to Europe were 20% of its GDP. As Europe slows back to recession those countries will face a collapse of exports and growth, compounded by a freeze on any lending from the banks which will lead to closures and bankruptcies.

All of which will further deepen losses at Western banks such as UniCredit.

BUT the real question is who will Europe turn to to sell the debt that it MUST sell? This is where the real and present danger lies. The Italian government  has already started rather pathetically asking Italians to be patriotic and buy Italy’s debt themselves. As Belgium had already done a few days earlier. But the real danger sign, for me, was from Spain.

Spain’s new Prime Minister asked for ideas for how to fund a ‘bad bank’ into which Spain’s private banks could dump up to 100 billion euros of bad debts that they STILL had on their books. That the Caja’s are still hiding such huge amounts of bad debt is hideous, but not the real danger. The real danger, in my opinion, is that, as reported in Bloomberg,

Aristobulo de Juan, a former head of banking supervision who helped tackle an industry crisis in the 1980s that caused the collapse of more than 50 lenders, said in a Nov. 17 column in Expansion that he favored using deposit guarantee funds as a bad bank that would absorb real-estate losses with the costs shared by the Bank of Spain and lenders.

This is a confusingly written paragraph. Perhaps deliberately so or more prosaically because the writer was simply cribbing a press release and didn’t stop to think about it. So let us look at it carefully.

The flashing red light for me is “…using the deposit guarantee funds as a bad bank…”  On face value that means he is proposing to take the money which should be there to guarantee YOUR deposits, those of ordinary depositors, and to divert it to use it instead as capital for setting up a bad bank. That would mean if or when a bank or banks collapsed the money that should be used to make sure your money is still there would be gone and so would all your money. The guarantee money would have gone to set up the bad bank so that private bank debts could be guaranteed leaving ordinary depositors without ANY protection AT ALL.

Now the bankers would say that since the bad bank would have the ‘assets’ it had bought from them, which it could sell, the money would actually still be there, only tied up in assets. Sadly those would be the assets that were so rotten the banks had to get rid of them. And when the banks collapsed those assets would become even more worthless because there would be no one left standing who would ever want to buy them. Thus the experts would be lying, as they so often do, and in fact the deposit guarantee money, under this plan, would be gone, gone gone. And once more the people who would have made off with it would be the bankers and their bond holders who are….other bankers.

But am I right about this? Surely if I was, this would have been picked up by mainstream news and trumpeted from the roof tops. I thought that and waited for it to happen.It didn’t. So perhaps I am wrong and have misunderstood the suggestion. So let’s look at the confusing bit of the paragraph where it talks about the costs being absorbed by the Bank of Spain and the private banks. Isn’t that saying that the deposit money won’t be used but instead the Private banks and the Central Bank of Spain will pay? In which case what was all that about the deposit money about?

The answer, I think, is that the ‘cost’ the Bank of Spain and the Private banks will absorb are the losses the banks will have to take on the value of the assets they sell to the bad bank. Confused? They certainly hope so. It’s actually simple. The banks are still holding these ‘assets’ at ridiculous valuations. Often near face value, despite them being non-performing loans which are paying nothing or near to nothing and being backed by assets that are so worthless they simply cannot be sold. If it was otherwise the banks would be keeping the loans or would have sold the assets for the cash they so badly need.

The Caja’s and other banks have, at a conservative, ‘official’ estimate,  bad loans and worthless assets which the banks value at around 100 billion euros. The question is what will the bad bank – AKA the Spanish Tax payer pay for those assets? The figure being put about is closer to 60 billion euros. That leaves the banks with an up front loss of 40 billion euros. THAT is the cost the Bank of Spain and the Private banks will ‘absorb. NOT the larger 60 billion cost of buying them. That larger 60 billion is where the Deposit Insurance money comes in.

So let’s look at the deal being proposed by such a senior figure. There would be a write down of 40 billion. But the private banks wold not take even this loss. Instead the loss would be shared  with the Bank of Spain AKA the Spanish tax payers.  What the Spanish tax payers would get for their share of that  40 billion is a share in some toxic loans backed by worthless property speculation deals and half finished, now wreaked, developments which will in the end be demolished.

Then the Spanish tax payers  will ALSO find that ALL the money which should be there to guarantee their life savings in the event of a bank collapse will NOT BE THERE because it will have been used as capital for the Bad bank  to guarantee the rubbish assets the bank has bought. And that capital will disappear as the value of the assets and loans declines which they will or will simply catch fire en masse if and when the banks collapse as a group.  The upshot of all this?

If I lived in Spain and I thought for one instant that this suggestion might be taken up – and being a suggestion made by such a senior figure and one allowed to get in to the press and one so favourable to the banks, you have to think it has every chance of being taken up – if I thought that for one instant, I would remove ALL my money from the bank and keep it as cash burried beneath the floor of my house.

Because to leave it in the bank would mean leaving it completely unsecured without any deposit guarantee. In short is this idea gains any traction at all I would recommend taking your money from the bank as soon as possible. If you wait for the idea to be made law it will be too late. At that point neither the government nor the banks will not allow you to take your money.

And lastly, if this is being proposed in Spain. It WILL come to a country near you too. In my view this suggestion heralds the end game.

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63 Responses to Spanish Deposit Guarantee danger

  1. Charles Wheeler November 29, 2011 at 2:15 pm #

    “But am I right about this? Surely if I was, this would have been picked up by mainstream news and trumpeted from the roof tops.”

    It would be shocking to think that the mainstream media might be parroting official spinmeisters.

    On a slightly different note: it seems that American Airlines can file for Chapter 11, then carry on ‘as normal’ – perhaps there’s a lesson in there somewhere?

    • Jason November 29, 2011 at 3:57 pm #

      They do it so they can welch on any contractual commitments they have such as pensions they agreed too, the priority creditors still get their money back though.

      Still same thing happens here just under different guises.

      Moral of the story, don’t rely on anyone for your future salt it where they cannot get to it

  2. Kit Green November 29, 2011 at 2:16 pm #

    A few thoughts:

    Does a “Deposit Guarantee Fund” exist in Spain in the manner you imply? In the UK I believe there is no fund, there is just potential government liability.

    The EU specify the level of deposit guarantee to be provided to those who would lose out in a bank collapse. Surely the Spanish government cannot sidestep this, although they could leave the EU!?

    If there are a million empty properties then why not give the bad bank assets to the population? At least one property for every extended family!

    • Patrick Donnelly December 1, 2011 at 1:59 pm #

      Well said, Kit!

      This is all about liabilities, not assets! Too much credit/money and too few assets to cover. This is all about who gets the shaft. Look around and who is the weakest? The taxpayer!

  3. didihno November 29, 2011 at 3:09 pm #

    Anarchy is what awaits if the ordinary people, working people like you and me, have our life savings taken away from us to ensure the rich (and their banks) stay afloat.
    It will be revolution, Europe wide, and a massacre.
    By that I mean an actual massacre, with the people having lost everything they had, then having nothing left to lose, taking to the streets and hanging these criminals from lamposts.
    There will be blood in the streets of Europe if this happens.

    On another note, David, can you please use spellcheck before posting?
    The power of your words loses some of its gloss when reading ‘teh’, ‘abnk’ and ‘wreaked’ (presumably wrecked?).
    I mean this not in a mean spirited way but only to hopefully not give any chance of those who would seek to shoot you down on the grounds of ‘sure, this fool can’t even spell’, and of course expose my own pedantry(!).

    • Golem XIV November 29, 2011 at 3:16 pm #

      You’re quite right. Done now.

      • barry November 29, 2011 at 4:59 pm #

        “So let’s look at the deal being proposed by such a se=nior figure.”

      • Sublime1 November 29, 2011 at 8:00 pm #

        David,

        not to be a moaner, but there are dozens of typos still in the article, and didihno is correct that it does detract from your fine writing.

        • 24K November 29, 2011 at 8:49 pm #

          I love teh typos myself.

          Anarchy. Stateless society.

          No taxes to pay for war. No corruption as there’s nobody to corrupt. No bailouts.

          On a lighter note Max Keiser Part 2 http://www.youtube.com/watch?v=ClOcVSCL9IQ (I get cheered at the start :D )

          • Phil November 30, 2011 at 3:55 am #

            I think David’s got a lot on his plate at the moment so let’s go easy on the error correction. :)

            This article has made its way to Spain, both to Spanish and British friends.

  4. gyges01 November 29, 2011 at 3:25 pm #

    A couple of points … I get the graft, what about a plan? That is, (i) how do we withdraw our money from the banks and once we’ve done so, (ii) what do we do with it?

    To elaborate on my question, for (i) it isn’t trivial to persuade the bank to convert a chose in action worth tens of thousands of pounds into cash; whilst a transfer from savings deposit accounts to current accounts to cash point is limited by a GBP 0.25k withdrawal per day, plenty of time for anti-money laundering authorities to begin harassing you. As for (ii), well, what do you do with it?

    • Golem XIV November 29, 2011 at 5:19 pm #

      gyges01,

      First let’s see if I’m right. I explained how it seems to me but no one else has said a word so it could well be I am wrong. In which case all the better.

      If I’m correct however then getting your money out and made safe is a good idea. As for 30K I never imagined quite such amounts. I imagined the few thousand or less that most people have. As for what to do with it – hide it. I have a friend who has burried rather a lot of gold. I don’t have gold by am quite happy to hide cash in a suitably sealed box under my property. Seems odd but is it? Its dry. Its beneath a floor board which is beneath a carpet which is beneath a large peice of furniture. And unless I told someone no one would know and certainly no one would know where.

      Keep teh withdrawal paperwork so that should you be questions about it you can prove where the money came from and that it is yours. That is an important protection. Otherwise, you are right, they would cast doubt upon the legality of your money, and even your ownership[ of it, claiming it was proceeds from illegal activities.

      I know this seems rather extreme. And it is. But IF our governemtns do use cash that should be there to protect deposits to instead create and bad bank then we are faced with an extreme betrayal.

      They will say they have assets so that the scheme is still there as per European law. But those assets will never cover depositor losses. So in actual fact while the letter of the law may be still observed, the substance of the protection will have gone.

      • Pat November 29, 2011 at 6:49 pm #

        I have considered this, but is there any guarantee that the cash will be worth anything when you dig it up again? Gold I can understand, but my nightmare scenario is that we will enter billion-euro-notes-in-a-wheelbarrow territory, or that PIGS-numbered notes will be declared invalid in what remains of the eurozone, or something of that kind. Perhaps sterling does not have quite the same risks?

        I have always lived frugally, but I am starting to wonder whether the few thousand in life savings that I have in the local credit union is safe or whether I should just spend it on practical goods. A field or a patch of woodland would be ideal but, I fear, somewhat beyond my means.

        • Sublime1 November 29, 2011 at 8:12 pm #

          Pat,

          I share your thoughts and fears, but can provide no more insights. It feels like we’re entering very dark times, and none of us have a map to guide us. Of course, those who have money are already beginning to profit from other’s misfortune.

          Here’s hoping it will be brief and relatively pain-free!

      • Joe R November 30, 2011 at 2:04 am #

        Golem,

        This news is a month old.

        I speak some Spanish and I took a brief look through some Spanish media sites for this topic. Heres one article on the same topic with quotes from A. de Juan ( in spanish );

        http://www.cotizalia.com/noticias/aristobulo-aboga-iniciar-oleada-fusiones-intervenir-20101025-60029.html

        I also found de Juan quotes in this long El Pais piece ( on the same general topic ) from 7 weeks ago but which doesn’t mention the deposit guarantee solution for injecting liquidity.

        http://www.elpais.com/articulo/primer/plano/capital/alejar/fantasmas/elpepueconeg/20111002elpneglse_2/Tes

        Look all, my spanish isn’t specific or good enough to deal with this properly / very accurately or even quickly. Its clear this is old and it is a suggestion which hasn’t been taken on so far, hence you are not hearing it in the mainstream media.

        David I would like to pint out you seem to be lacking the presise cultural and economic context, not to mind a language difference, when you make your comments and wrote your piece. Would I be right?

        And one thing I’d like to add across what comments I have seen and skimmed through here is that to all this de Juan and all his Spanish co-commentators are pretty frank though, compared to anglophile bankers.

        I also came across a recent ethics piece by him during my search – well its from a lecture he gave at a conference – its more recent than the quote golems piece is based on. It here again in Spanish;

        http://www.compromisorse.com/rse/2011/10/27/la-falta-de-transparencia-en-el-sistema-financiero-no-es-un-tecnicismo-contable-sino-una-gran-falta-de-etica/

        His speech finishes with a very curious comment – about liquidity being the bankers opiate – a play on Marx’s “religion is the opiate of the poor”. Personally I’d like to come back to it, and the El Pais piece above, but I’m too tired and too far removed from it all tonight.

        Boa noite!

        • PhilJoMar November 30, 2011 at 2:28 am #

          Isn’t that last farewell in Portuguese?

          • Joe R November 30, 2011 at 3:38 pm #

            Sim, é português. Mas os espanholes vai entender isso também!

        • Golem XIV November 30, 2011 at 10:37 am #

          Joe R,

          You are quite right I’m afraid I don’t speak or read any Spanish. So I picked up the story from the Bloomberg piece I quoted. Which was writen because of teh Prime Minister asking for ideas. If you say this is old news in Spain, I believe you. But its new news for Bloomberg and for me.

          As for missing cultural context again you are right. I have never spent any time in Spain. But what context is it you think I am missing.

          I was not making any criticism of Spain or the Spanish people. And the criticism I level and Spain’s bankers is the same as I level at everyone else’s bankers including those of England.

          I hope I have made it crystal clear that I have nthing but contempt for those who try to characterize this debt crisis as teh fault of this nation or that people. If you felt that is what I was doing then I apologize for not making it clearer that that is NEVER my view.

          That said even someone lacking in the cultural nuances of a country can, I think, be forgiven for taking an interest and raising issues.

          As you will have noted from both the article and my comments below, I was careful to say I did not see this anywhere else and therefore might have completely misunderstood. I felt that was enough of a health warning.

          If I am wrong and this is not a serious suggestion and never happens then so much the better. I am still of the opinion that as this crisis deepens, as it is certainly going to do, the leaders of every nation will ignore prudence and the law to prop up their banks by any and all means not matter what laws they have to ignore, no mattrer what insane risks of even greater peril they expose us all to and no matter what long term damage they do to the fabric of our societies.

          Take a look at the UK and tell me I’m not right.

          • Joe R November 30, 2011 at 3:34 pm #

            David,

            I´m certainly not on the attack. It is because you said you may not have understood it or that the piece/quote that is unclear that I went looking to see if I could shed any light on it.

            And I hugely value your integrity and motives. I had to order a copy of your book especially into Dublin months ago in order to read it. I´m well familiar with your stated views.

            This kind of mistake happens with football transfer rumours/news quite a bit. Some comments/an interview is made in Spain or some place then it turns up misquoted/ quoted out of context in the British media usually a period of time ( some weeks later ) afterwards. This occurs visa versa too. The spanish media then pick up and report it too. Rumours sometimes end up being refracted back and forth for long periods…if you get me. Its like chinese whispers.

            This can happen with regular news too. It seems Bloomberg are guilty in this instance.Google translator and similar engines bear a lot of responsibility for this traffic its never been easier to speak or write somebody elses language badly than it is now.

            I have only skimmed over the pieces in Spanish but it seems de Juan also was happy to blame the bankers too.

            Look I can try to read and summarise what i understand it all if I get a chance?

      • princesschipchops November 30, 2011 at 6:07 am #

        I considered doing this but I had a house fire recently. And that has put me right off keeping flammable cash at home!

        Is a post office account safe do you think?

        I was reading some thread the other day and someone asked a trader on there should they buy gold or silver. The traders answer? It’s a bit late for that, buy tinned food, water and the like!

        Even Portillo said on the TV he’d taken his money out of the banks as he didn’t think it was safe. And mines (its a paltry amount but all the more important for that) in Santander! I really need to get a move on.

        • Jamie Griffiths December 5, 2011 at 11:52 pm #

          http://www.postoffice.co.uk/finance/savings-investments

          Post Office Limited is an appointed representative of Bank of Ireland (UK) plc which is authorised and regulated by the Financial Services Authority. Bank of Ireland UK is a trading name of Bank of Ireland (UK) plc which is registered in England & Wales (No. 07022885), Bow Bells House, 1 Bread Street, London EC4M 9BE. Post Office Limited is registered in England and Wales. Registered No 2154540. Registered office is 148 Old Street, London EC1V 9HQ. Post Office and the Post Office logo are registered trademarks of Post Office Limited.

          That’ll be a resounding ‘NO!’ Princess.

      • MrShigemitsu November 30, 2011 at 11:35 am #

        “Its beneath a floor board which is beneath a carpet which is beneath a large peice of furniture. And unless I told someone no one would know and certainly no one would know where.”

        Er, David, I’d move that stash right now! It wouldn’t take much for someone reading this blog to find your home address, and how many pieces of large furniture do you have in your house?

        (Whoops – if it gets nicked over the holidays, I’m going to be the prime suspect…!)

      • Jez December 3, 2011 at 4:16 pm #

        Make sure that your box is mouse proof / rodent proof. Seriously. Otherwise you’ll end up with a hell of a lot of mice and no useable money. This has happened before.

  5. Jason November 29, 2011 at 3:59 pm #

    AML regulations are to control the masses (forget the nonsense about drug money and the like) its aim is to prevent ordinary people getting at and keeping their money out of the clutches of the ‘financial power’

  6. John Souter November 29, 2011 at 4:06 pm #

    Do you think a Deposit Guarantee Fund will work for Italy when they float a new bond issue for 30bn in January?

    Or is that an ‘end game’ too far?

  7. steviefinn November 29, 2011 at 5:08 pm #

    Hi Golem

    You talk about this from a Spanish depositors point of view, but how would this effect the millions of Santander depositors in the UK & elsewhere. Would this only apply in Spain because customers elsewhere would be protected by their own countries laws ?. I have a Santander a/c but I need not worry, the kitty is dry, to them I probably count as a toxic customer.

    • Golem XIV November 29, 2011 at 5:23 pm #

      Stevie,

      As far as I am aware any UK deposits in Santander are covered by the UK not Spain. That is precisely why Santander and others were so keen to buy UK bank assets even as the Bank crisis was unfolding. It gave them a second or even third sovereign from whom they could seek protection and bail out. Look at Dexia. Three sovereigns.

      But it would be worth consulting someone more expert on bank law than me.

  8. Charles Wheeler November 29, 2011 at 6:42 pm #

    Maybe I’m missing something but 85% of stocks/shares and 90% of bonds are held by the top 5%; 50% of the UK population own less than 5% of the wealth; most of us are already debt slaves; were there to be a run on the banks the flow would be plugged by more taxpayers’ future earnings via bailouts. The idea that ‘the people’ have any … er … ‘leverage’ seems fanciful.

    The light at the end of the tunnel is that the slow implosion of the finance sector is beginning to hit the ‘insiders’: the laid off brokers, the MFGlobal investors who’ve seen their accounts disappear into the black hole.

    On a wider scale, the ‘squeezed’ middle is beginning to feel like a lemon: it’s when those that have supported the current system begin to realise they’re being fleeced that the political winds might change.

    Gran – a dyed-in-the-wool Tory – can’t understand why her grand-daughter’s SureStart is closing; the grandson can’t afford uni; her single-parent nursing daughter is struggling to pay the mortgage on a house underwater; her husband has been told he must wait for his eyesight to go before they will operate; her severely disabled son-in-law is losing his benefits; or why the local library is closing. She’s all for cuts and small government . . . in theory.

    • Phil November 30, 2011 at 4:02 am #

      Is your Gran friends with my Gran?! :)

  9. Cait November 29, 2011 at 6:55 pm #

    “…..What the Spanish tax payers would get for their share of that 40 billion is a share in some toxic loans backed by worthless property speculation deals and half finished, now wreaked, developments which will in the end be demolished”

    Sounds weirdly like NAMA …..Welcome to the fun, Spain :)

  10. inthemix96 November 29, 2011 at 8:20 pm #

    These bastards will get exactly what they deserve when this whole filthy sceme collapses.
    Then and only then. You can run as they say. But you cannot. And I repeat. Cannot hide.

    • Patrick Donnelly December 1, 2011 at 2:52 pm #

      But who is to be your first target? Japan went in 1989. The USA in 1999, then came 9/11, ZIRP and credit bubble in earnest.

  11. Charles Wheeler November 29, 2011 at 8:36 pm #

    David Graeber interview:
    ——————————
    Q: Nowadays, in times of austerity packages coupled with inflation, most people react against the “plastic” money and personal credit in day to day life. Even personal financial pundits – a kind of personal trainers for family finance – advocate the return to 100% flows based in physical coins and the ban of credit and debit plastic money. Are they a kind of financial Luddites, or this means a new trend?
    A: Oh I don’t think there’s really any going back. Rather, I think people haven’t come to fully embrace what sort of money system we’re moving into – as I just suggested. But in a way 2008 let the cat out of the bag. We realize now that if money is owed by really important players, even trillions in debts can be made to disappear or renegotiated away. Money is just a social arrangement, a set of promises or IOUs. Hence, if democracy is to mean anything, it’ll have to mean that everyone gets to weigh in on how these promises are made and renegotiated.
    http://goo.gl/zmFCn

  12. Neil (the original one) November 29, 2011 at 9:30 pm #

    Before everybody panics, isn’t the fear based on one man’s opinion (and I don’t mean Golem’s)?

    “Aristobulo de Juan, a former head of banking supervision who helped tackle an industry crisis in the 1980s that caused the collapse of more than 50 lenders, said in a Nov. 17 column in Expansion that he favored using deposit guarantee funds as a bad bank that would absorb real-estate losses with the costs shared by the Bank of Spain and lenders.”

    This is someone whose supposed authority is based on events 20-30 years ago, in a very different situation, expressing their view in some publication. Is there any hard evidence to suggest that his views have the ear of the new Spanish government? Or – if they did – that similar options are being considered elsewhere?

    • Neil (the original one) November 29, 2011 at 9:46 pm #

      Something a bit more concrete is that the Office of Budget Responsibility has upped its forecast for the loss of UK public-sector jobs as a result of government cuts from 400,000 to 710,000 (http://www.telegraph.co.uk/finance/budget/8923696/Public-sector-job-losses-to-hit-710000.html )

      Meanwhile, public sector workers with a job are estimated to be facing a real loss of pay of 15-16% over the coming years, due to pay freezes and caps. Pay losses at the top of the private sector, including banks, apparently didn’t come into Boy George’s calculations in the measures he announced today.

      Remember “we’re all in this together”.

      Except the rich.

  13. backwardsevolution November 30, 2011 at 7:53 am #

    Short, but excellent video entitled “The Gathering Storm” re Europe, democracy, dictators.

    “As a consequence, what we have now in Europe is the worst of all possible worlds, a kind of mutant, statist, corporate socialism imposed from above by an unaccountable, dogma-obsessed, political priesthood. The more power they get, the more they want, and the more they take.

    So far we’ve seen two democratically-elected prime ministers removed from office for not doing what they’re told. The Greek prime minister committed the ultimate sin of threatening to consult the people in a referendum, and he was removed so quick that you can still see the dust settling.

    The Italian prime minister, a man with a barnacle-like ability to cling to office, no matter what, was brushed aside like a piece of straw, and now both Italy and Greece are run by puppet governments that have been installed by a foreign power and can no longer be regarded as sovereign nations by any honest measure of that term.

    What part of the word “empire” do you people in Europe not understand? [...]

    It seems the soft totalitarianism that we had almost become used to in Europe is now openly hardening into the more familiar Soviet-style dictatorship, which people are belatedly realizing has been the goal all along. [...]

    How will you be voting next time around? Same again? Same as usual? If you do, you’ll be guaranteeing that it’s emperors all the way from here on in and you’ll also be enacting something of a political paradox. You’ll be using your democratic franchise to vote against democracy – a bit like using one leg to kick the other from under you – because ultimately you will be voting against your own freedom, so you might as well be voting against water or air.”

    http://www.youtube.com/watch?v=vGQIxYfKKtc&feature=player_embedded

  14. Hawkeye November 30, 2011 at 10:10 am #

    Some good big picture stuff on the global currency war that is unfolding:

    http://jessescrossroadscafe.blogspot.com/2011/11/currency-wars-why-financial-engineers.html

    Be aware of the Nominal GDP targetting (to disguise deteriorating growth prospects), rising Middle East tensions (to create distractions) and the Russia / China plan to retaliate against the Anglo-American efforts for global banking domination.

    • Charles Wheeler November 30, 2011 at 12:03 pm #

      Apparently, Iran is ‘on the warpath’ (presumably intent on taking on the US military-industrial-complex): http://goo.gl/SnEq9

      Orwell would be in his element.

    • richard in norway November 30, 2011 at 12:46 pm #

      That nominal GDP targeting has been cropping up a lot lately. Most troubling especially when they quote a figure of 5%

  15. Neil (the original one) November 30, 2011 at 10:39 am #

    S&P downgrades British and US banks

    Royal Bank of Scotland, Barclays and HSBC were among a slew of global banks that had their credit ratings cut by ratings agency Standard & Poor’s late last night.

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8924859/SandP-downgrades-British-and-US-banks.html

    Pensions apartheid: get ready to work until you are 75 as State Ponzi scheme unravels

    http://blogs.telegraph.co.uk/finance/ianmcowie/100013523/get-ready-to-work-until-you-are-75-as-state-ponzi-scheme-unravels/

  16. Charles Wheeler November 30, 2011 at 12:53 pm #

    The circus moves on: Iceland > Ireland > Greece > Italy > Spain > Portugal > Belgium > France > UK > Germany > da capo . . .

    This constant shift in focus – more OCD than ECD – distracts attention from the underlying cause of the debacle. ‘Sovereign debt’, ‘sovereign debt’, ‘sovereign debt’ – the mantra is repeated ad infinitum. Gordon Brown;s ‘profligacy’, ‘lazy’ Greeks, ‘greedy’ Irish . . . etc, etc.

    The common factor underlying the shambles is the collapse of the private banking system due to the relaxation of regulations and consequent leveraging x40, x50 fuelling a derivative bonanza – all given the seal of approval by S&P/Moody/Fitch – who all saw exponential growth in profits as they took their percentage. It got to the stage when even ceos like Chuck ‘while the music’s playing, you’ve got to keep dancing’ Prince were pleading with Paulson to save them from themselves. As Hobhouse has argued, what is permissible becomes necessary: if your competitors are leveraging 50:1, you must match them, or be swallowed up in the process. As the losses start to pile up, the Martingale strategy cuts in – keep doubling up until your luck returns.

    The really galling thing is that – contrary to the ‘nobody could have foreseen this mess’ defence, it was entirely predictable – and predicted. As Robert Sherrill’s 1990 article on ‘The Looting Decade’ details, the Savings and Loan crisis in the US acted as a dress rehearsal for the main event (see also: Inside Job: http://goo.gl/sIL91) with the same deregulatory zeal, incestuous relationship between politicians (of both hues) and ‘financiers’, the same recourse to public bailouts, and the same pillaging by the elite. Yet, instead of applying the brakes, Greenspan et al souped up the engines and waved the chequered flag. The collapse of Long-Term Capital Management was a precursor, and yet the same black-box risk management models (the brainchild of yet more not-really-Nobel-Prize-Nobel-Prize-winning economists) were employed – effectively steering the IndyCars at full speed by looking in the rear-view mirror.

    As Sherrill comments:
    “If anyone still had faith in the system, the savings and loan adventure surely must have brought him to his senses and to his knees. The gambling debt of $500 billion ($150 billion plus interest and other incidentals)–or will it be, as some economists predict, a trillion four?–that the S&L industry left with the taxpayers has prompted even that deadpan Tory, George Will, to remark in wonderment, “We seem to have a capitalism here in which profits are private and we socialize the losses. Why are we, in effect–if you’re big enough, if you’re a huge bank or a savings and loan–why, in effect, are we guaranteeing everything? … What I’m asking is isn’t there a way to reform the system so that the taxpayers don’t get stuck with what happens when you have deregulation and risk taking that goes wrong?”

    The answer to his question is: No, there is no way to reform the present system, because the system is owned and controlled by those who are ruining it. Voters, ordinary taxpayers, have nothing to say about it.

    Martin Mayer, a conservative economic historian, has seen his world crumble and become meaningless. The capitalism he set his watch by has stopped ticking. He finds the thrift mess almost unbelievable: “Players entered the game through a government charter and continued to play, however severe their losses, in violation of all capitalist principle–courtesy of a government that continued to insure their borrowings. This was not an accident: it was public policy.”

    When he talks about “players,” he makes it sound like customers at a casino. And that in fact is what it has become. Capitalism has become the Big Casino, with players guaranteed against loss, because in effect they have bought the house managers. That is public policy.

    Mayer predicts plaintively that “future sociologists…will study the irruption of criminality into what had been conservative, even beneficent, organizations….They will seek to learn why the fiduciary ties that had set the unspoken, self-dignifying rules of a competitive society had been so grievously weakened in the late years of the twentieth.

    Nevertheless, though it is obvious that the tottering commercial banking world needs tighter regulations than ever, the industry and the Administration push on pell-mell for deregulation. In fact, the dismal condition of the industry is being used by the deregulating claque as their strongest, and weirdest, argument. Just as St. Germain, Garn, Pratt and Wall argued that the best way to help zombie thrifts recover was to remove all regulations so that they could “grow out” of their problems, now Bush, Fed chair Greenspan, Treasury Secretary Nicholas Brady, Seidman and others demand that the government dismantle what Seidman calls the “archaic laws” that for many years have controlled commercial banking. They, too, want to “grow out” of their perilous condition. What these laws do is protect the banking industry from its worst instincts by insisting that banks remain banks, and not become gamblers, hucksters and hustlers in other lines as well.

    The deregulators will probably make their big power-play next spring, when, under mandate from Congress, the Treasury Department must come up with its “reform” plans for the banks. You can expect the other side to try to sell some blind horses to us, like offering to swap a lower ceiling on deposit insurance for wholesale abandonment of regulations–as if the rotters wouldn’t be just as happy engaging in risky activity under a lower ceiling as they have been gambling under the present one. If there is a double agent to be on guard against, it will be Donald Riegle, chair of the Senate Banking Committee. He and the moneylenders are–could any old saw be more apt?–thick as thieves. Riegle is recorded as receiving $200,900 from S&L officials and PACs between January 1981 and May 1990–second only to California’s Senator Pete Wilson ($243,334). Now that S&L money is seen to be tainted, Riegle has scrambled to redeem his reputation by returning $120,000 of it. But the commercial banks have stuffed his pockets too, and there is no record of his having returned any of that money.

    Recently Greenspan–that trustworthy fellow who guaranteed the morality of Keating and was one of the chief boosters of junk-bond purchases by S&Ls–guided his Fed colleagues into a disastrous decision. They ruled that J.P. Morgan (Morgan Guaranty Trust) could trade and sell corporate stocks. With this cloven hoof in the door, other banks will follow, and that will be the death of the Glass-Steagall Act, which Congress passed in 1933 to separate commercial banks from investment banks and thereby control some of the outlawry that had caused thousands of banks to fail. Next they will probably be targeting the Bank Holding Act of 1956, which was intended to keep banking out of commerce, and the McFadden Act, which limits interstate banking.

    What Greenspan, Seidman and their gang say to critics is, Oh, we want banks to be banks, too, but we want them to be universal banks. Which can be translated to mean uncontrolled banks, banks completely unfettered by regulations that restrict their operations–in short, pretty much a return to the reckless and lawless 1920s and early 1930s, which, if measured by the drama and excitement of collapsing financial structures, had it all over the 1980s.

    Brumbaugh, for one, is dumbfounded by what he’s seeing. “The administration and Congress just don’t want to acknowledge the problem,” he says with a sigh. “This is déjà vu all over again. You can’t believe it’s happening, but there it is.”
    Robert Sherrill, November 19, 1990
    ——————————————–

    The real Tragedy of this disaster is that it was not only predictable, but inevitable – largely because it enriched those with economic and political power at the expense of the rest.

    And who are we drafting in to clear it all up? The same Goldman Sachs/Wall St. alumni that have presided over the system for the last thirty years, along with politicians who have probably already lined up sinecures alongside Tony Blair at JP Morgan, John Major at the Carlyle Group, William Hague at McKinsey (currently embroiled in an insider dealing scandal: http://goo.gl/PlP35), or some Koch Bros-funded ‘Think-Tank’.

    As a result, the taxpayer has been put on the line for billions into the future, disability benefits are being slashed, public sector workers are facing real-terms cuts of 15-20% and slashed pensions (current average £5,500k) – and that’s just for starters.

    Meanwhile top ceos have ‘never had it so good’, with massive increases in salaries and bonuses – not to mention ‘off-shore’ benefits and reduced taxes.

    I’ve used this quote before, but it’s apt: “Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever . . . “

    • Roger Glyndwr Lewis November 30, 2011 at 2:03 pm #

      I hope you don’t mind Charles but I have cut and pasted you over to the linked in Economist site where I have had an ongoing exchange with an interesting person from the Philippines ( apparently?) quite bizarre but its a route into the mainstream for awareness raising.

      http://lnkd.in/_i32ee

    • Patrick Donnelly December 1, 2011 at 2:55 pm #

      Excellent points! Predicted and contingency plans were and still are in place, the PNAC New Pearl Harbor being one.

  17. keekster November 30, 2011 at 1:02 pm #

    http://www.zerohedge.com/news/chris-martenson-lecture-why-next-20-years-will-be-marked-collapse-exponential-function
    Our problems are so much more than just a financial one. This Chris Martenson lecture explains why the economic growth model has reached the end of the road. The financial problems are simply a reflection of the fact that economic growth is coming to an end.

  18. Neil (the original one) November 30, 2011 at 1:53 pm #

    Telegraph, from the Commons debate on Boy George’s autumn statement: Labour MP Owen Smith asked why the Government is taking £300m from banks but £1.3bn from working families.

    The answer is not recorded.

  19. princesschipchops November 30, 2011 at 2:38 pm #

    We’re saved! The worlds central banks have acted in co-ordination to ease liquidity problems!! Phew!

    Err – except haven’t I seen this headline before? Haven’t they been doing this anyway? Is this really a new move? If so how is it different from what they’ve been doing anyhow?

    • Neil (the original one) November 30, 2011 at 2:51 pm #

      According to the Telegraph, the Insititute of Fiscal Studies says the real cut in public spending over 7 yrs will now be 16.2pc, the biggest since WW2. Last biggest squeeze was less than 10pc in 70s.

      So a rough estimate of the impact = Thatcher x >1.62…

      The IFS also says median household income in 15/16 will be “no higher” than in 02/03. ie: 13 lost years.

  20. Charles Wheeler November 30, 2011 at 3:00 pm #

    “It is . . . wrong, in [Dean] Baker’s view, to blame the current economic downturn mainly on the financial crisis. The financial meltdown made things much worse must faster, but the underlying problem was the upward redistribution of income, which began decades earlier and laid the basis for the bubble economy.”
    http://goo.gl/sYCF6

  21. Charles Wheeler November 30, 2011 at 3:03 pm #

    “Britain (and the Eurozone) are not facing a sovereign debt crisis. We are not facing a crisis of the public finances. Instead: we are facing the biggest ever crisis of the private financial system.

    Why? Because the “greatest expansion in debt of all the world’s economies” is not going to be paid back.

    “The greatest expansion of debt in all the world’s economies” must first be written off, ‘de-leveraged’ or paid down.

    As this process grinds relentlessly forward, the banks that lent “the greatest expansion of debt in all the world’s economies” face bankruptcy – if not now, in the near future.

    That is the crisis we all face. The bankruptcy of the global private banking system – based in our backyard.

    The mobilising of finance for the Eurozone is to bail out private banks that engaged “in the greatest expansion of debt.” Although you would not believe this from media reporting, its purpose is not to bail out sovereign governments. The stubborn refusal of German politicians (with whom I have some sympathy) to agree to further taxpayer-backed bailouts of the private finance sector means that private banks face imminent bankruptcy.”
    http://goo.gl/Ct47O

  22. martin November 30, 2011 at 3:21 pm #

    Just back to the theme of rmoving your money/effort from the system, dont forget about insurance.
    Glasses insurance, mobile insurance, boiler insurance, travel insurance, rip-off car insurance – reassuring as it is, it is all about debt creation.

    As for me and removing money from banks, alternative suggestions are;
    Put it in co-op/ethical bank.
    Invest in property/land – not as a double your money in 5 yrs thing, but as a stable backstop
    Buy physical gold
    Invest in renewable energy – £10k sitting on my roof giving me a good return, not in a bank, and insulating me from energy price increases.
    Invest in some kind of business – the more control you have the better, obviously more risk here, but if you can use that £20k in the bank to set up as self employed, all the better.

    Of course all things vulnerable if the shit seriously hits the fan.

  23. John Souter November 30, 2011 at 4:12 pm #

    Lad’s and Lassie’s, I’ve a bit of an conundrum that perhaps you can help me with.

    It has come to a head because of Osborne’s autumn statement.

    It’s pretty obvious he’s failed to grasp the nettle (or the thistle for that matter) and, as a result has run out of wriggle room to the extent he’s left with a one trick pony that is itself tied to to a carousel going nowhere. That ‘pony’ he’s relying on is the current average interest payable on UK bonds remaining, and subsequent issue’s being marketable, on a 2.3% interest yield? By my way of thinking that’s a pretty tenuous belief to base any assumption on.

    My problem is I’ve 30 units of investments (for clarity a ‘unit’ is £100 million) to look after.

    Around a third of these are in land and property (city centre’s and malls; and where the land is owned and not leased -unless leased by me.)

    The second third is invested in PFI projects. There the return annually is around 17%, is -off the books since it’s paid from the service providers budget and ring-fenced to match inflation. So the 17% return is a pretty fair hedge against any currency devaluation.

    The problems in the last the last ten units. Usually that billion is in the belt and braces hedge of sovereign, or as near as damn-it, bonds; conservative returns but instantly marketable at face value. Unfortunately this stability no longer applies as is indicated by the tepid response to the last German bond issue. More than the 5 to 7% demanded from the PIIGs inclines me towards the belief that, no matter the solvency of bond issuers, investors are pushing for higher returns on their investments.

    If I’m correct and irrespective of whether Germany succumbs or not, there’s little chance of Osborne selling his next tranche on a 2.3% return. Which leads to the real dilemma. If he tries and demand falls short the probability is they will try to camouflage it by quantitive easing to an equal amount -ergo devaluation – the real anathema to any bond investor, and in that respect, for all its woes the Euro is still a better bet than the Pound.

    So all in all, do I go for a PIIG and 5-6-7% or wait for 3.5% from Germany or take a flutter on France at 4.5%? Or split the third into thirds and invest one in Argentina (Who have already done the cutting exercise and having dished the dirt are now keen to highlight the rewards) With perhaps the second third invested in Osborne’s PFI Mark 2 (provided the terms are as, if not more, beneficial than mark 1 in indirect benefits. (desperation should help achieve these ) With the last third, split between the PIIGs provided they index link them to inflation. (I’m not too worried about haircuts; in the belief that if the threat had been genuine they would have happened by now.)

    So what do you think Lad’s and Lassie’s?

    All contributions, opinions, advice will be carefully considered – begging letters will not -except where they contain pleas of such originality and persuasion that the can be incorporated in mine.

    • Roger Glyndwr Lewis November 30, 2011 at 6:19 pm #

      John,
      on PFI’s I’d be worried about being stung on the odious Debt card.
      where ever you have the money invested frankly its all Alice in Wonderland and wizard of OZ smoke and mirrors.
      Personally I would go Ethical all the way put the house on all things green and ethical
      anything else is odious and I don’t mean the lip service spin Carbon credit cons that abound. Personally I would say looking at protecting value rather than looking for growth and income is sensible as well anything tainted by the existing crop of banks and financial institutions is suspect until due diligence of the most thorough kind proves otherwise.
      My 5 cents as they say never easy to show a moral lead but that’s what is needed otherwise we are all loading cattle trucks to Auschwitz 8 following orders you understand?).
      Glad I’m not in your shoes, good luck.

      Roger

    • Wirplit December 1, 2011 at 2:45 am #

      Not sure if you are joking…but if you are not then 17% on the PFI which is how hospitals and other capital projects were financed under the master stewardship of Brown is a bloody disgrace.
      I knew it was bad because Ken Livingstone fought so hard to prevent it in the Tube financing but had no idea it was that bad!

    • steviefinn December 1, 2011 at 12:50 pm #

      John.

      I feel for you, it must be very tough, I can sense that these problems of yours are eating away at you, probably causing ulcers, sleepless nights, loss of libido & setting off triggers to other long term health problems. In light of the coming apocalypse, of which the financial aspect is but the start of policy to substantially reduce the world population by starting a world war between China & the West, therefore making the world a better place for bankers spawn, I suggest the following:-

      Sell everything, give it all up, buy a plot of land on some remote Scottish island, build a cottage, but underneath construct a nuclear bunker with enough supplies to last you for say 30 years & then in the near future, you & your loved ones can lock yourselves in & be safe. It would be best if your whereabouts were kept secret, but you would need someone trustworthy on the outside to let you know when it was safe for you to come out & also to look after any funds that you might have left after the construction work.

      I funnily enough do not have anything much on the horizon, I suppose I could spare a few hours a week, if the missus was agreeable. I suppose the best thing would be to stay in the cottage above the bunker, that way we would be in a position to pass on the joyous news, that you could come out, in say, 2042.

      • steviefinn December 1, 2011 at 2:34 pm #

        The missus is happy enough with my proposal, with one proviso. She strongly suggests a Greek island, as it wouldn’t be so damp for you & she suggests you build the bunker in a big cistern & disguise the top of it with a swimming pool.

        • John Souter December 1, 2011 at 5:58 pm #

          Steve – no problem. And, whether in Ant Paxos or Gometra, I’ll invest in a large library, sensors and a periscope so we can wile away the years before emerging as the font of all wisdom.

  24. Neil (the original one) November 30, 2011 at 4:56 pm #

    No offence, John, but many people wouldn’t mind having problems like yours rather than the ones they face.

    The Telegraph has this:

    “Here’s a chart ( http://i.telegraph.co.uk/multimedia/archive/02071/income-ifs_2071151c.jpg ) from the Institute for Fiscal Studies which makes life pretty hard for the Government as it tries to argue the spending cuts and investments outlined yesterday will be fair for everyone.

    In this graph, the blue bits represent changes made in yesterday’s Autumn Statement and how they will impact the incomes of people from the poorest and richest groups, moving from poorest on the left and richest on the right.

    The poorest 10pc will see no benefit and the next poorest will be the worst hit.

  25. John Souter December 1, 2011 at 2:59 pm #

    No offence taken on any of the replies – but the post was heavy on satire and leaden with irony -see the final paragraph – and the claim of £3 billion in investments was meaningly used to emphasise the point.

    Nevertheless – Westminster’s reliance on the shoogly nail of interest on the debts continuing at 2.3% is on par with wishful thinking when even modest 1% increase will wipe all of their projections into the dustbin of dreams.

    In essence, while their horse may be bolting it’s still the financial shamans who are holding the reins and their political allies are still refusing to gate them in. This proves exposure doesn’t concern them while any threat of reparation can be doused in the confusions of apathy.

    • steviefinn December 1, 2011 at 10:25 pm #

      John

      No offence meant, I know you from your posts, just messing around, it made the wife laugh, which was good, she has been singing the blues lately.

  26. Patrick Donnelly December 1, 2011 at 3:07 pm #

    John Souter
    Invest in items that cannot be identified, but you can prove were purchased. Steadily sell them off and place into silver ingots.

    Await disaster in items you bought! Buy some to show auditors out of proceeds of silver ingots. Buy a few Greek islands for the readers of the site.

    Anyone who invest $$ in these times, clearly deserves to lose it. It is your karma to take the wealth and redistribute it!

  27. Joe | Pool Pump Motors April 25, 2012 at 2:12 pm #

    A round of applause for your post.Thanks Again. Cool.

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