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Growth will save us? You bet!

There are so many reasons for believing that the European ‘recovery’ plan is not working now and will continue to not work no matter how long we are forced to subsidize it. Today we can add one more reason – Mr Francois Hollande is now the favourite to beat Mr Sarkozy and become France’s next President.

For the financial class who rely on endless public bailing of the banks, and whose chosen political agenda is to cut the State, the very prospect that Mr Hollande might replace Mr Sarkozy is enough for all the European markets to head straight down. Germany and Spain are both down over 2.7%.  Why should this be so? Because Mr Hollande has made it clear he will ‘renegotiate’ France’s role in Europe’s various bail out plans. Any such renegotiation would leave Europe’s bail-out fund fiction in tatters. What then for the financial elite and their insolvent private banks?

Mr Hollande evidently does not believe the pious fiction that underpins almost the whole European and in fact global fiction of recovery, namely that there is now, or will be soon – quite soon, fairly soon, just over the next hill… some growth. Growth is what is supposed to allow Greece to become solvent, allow Spain to cope with the bursting of the dam of regional debt that is presently engulfing its banks and forcing its CDS rates to unsustainable levels. Mr Hollande is the first but will not be the last to say that the growth plan is not working. The Dutch Parliament yesterday collapsed because they too could not agree to go along with the fiction. We do not have growth. What we have are cuts in public spending while we have increases in public funds being siphoned away to pay for more and yet more bank bail outs.

Just a quick look at what we can expect in Spain is enough to clear away the fog of lies.  I and others have said for well over a year that Spain had been hiding debts in its regions. This turns ou to have been true. A recent report by Carmel Asset Management paints a very ugly picture. When you add in regional debts the total debt load in Spain rises from the official 60% of GDP to 90%. This comes ON TOP of the fact that all of Spain’s austerity cuts of last year did not reduce Spain’s’ debts not by even one single euro. They are worse off now than they were, with higher unemployment and borrowing costs shooting up.

According to the Carmel study, with which I agree [EDIT – Please see Joe R’s comment at 1.33pm for a health warning on some aspects of this report. I am mainly concerned with what is has to say about hidden debts but I think Joe’s points are important], Spain’s banks are STILL  wildly underestimating the losses they are holding and more losses to come on their huge loans to property developers and owners. Further losses on these ‘assets’ will mean yet more bad debts piling up in the banks. Those debts will be taken on by the National government and this will further corrode Spain’s ability to finance the debts it already has.  In 2012 alone Spain will have to refinance existing debts of €186 billion. And the rate of interest it will have to pay on all that debt is above what it currently pays. Spain is sinking.

The problem (one of them at least) is that while our leaders are banking on growth to save us, the banks are not. They are banking instead, on fear.  Our leaders keep thinking if they ‘save’ the banks then the banks will help save us by investing in growth. They fail to understand that ‘invest’ is really not something high up on the global bank’s ‘to do’ list. I spoke at length recently to bankers in The City who deal in investing in raising money for Small and Medium businesses. They were unequivocal – it is getting harder not easier to raise money for such investment. The big banks and big funds are looking for short term speculative returns not slow investment returns.

When you have large and growing losses from bad debts you cannot and will not recoup and recover on the basis of wise but slow investment returns. The worse your previous debt mountain is, the greater the pressure to pursue exactly the sort of high-risk speculation that got you in trouble in the first place. If it is a choice between investing in Spanish factories or buying Spanish debt  or selling CDS on that debt, the ‘smart’ bonus seeking money goes for the latter every time.

The brokerage Carmel whose study I have quoted is a good example. On page 9 of their study they say,

We began buying Spain CDS in Q4 2011…[with a coupon of] 3.5% of notional per annum –effectively an option premium on the default of Spain.

Should the Spanish crisis flare up in 2012 as we expect, we can generatea 300% return on the annual premium

300%! Investing in small and medium businesses or a potential 300% speculating on Spanish default. You choose.

Banks are banking on fear and the volatility fear causes.  They are not banking on or helping to support growth. They will do the politically necessary minimum and no more. The big banks are buying up what they call fixed income instruments (bonds and other debt backed paper) and at the same time offering CDS insurance on the same. Just like they bought and sold protection on mortgages.

The big American banks are some of the biggest insurers of European debt. According to Bloomberg,

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers,…

It turns out that,

The CDS holdings of U.S. banks are almost three times as much as their $181 billion in direct lending to the five countries at the end of June [2011. The five countries being  Portugal, Italy Ireland, Greece and Spain]

The money we have given to the big banks to bail them out via all the TARPs, EFSF’s and Bond buying programmes have not been invested in growth. They have gone into betting on failure and default.

And how stable is this betting club? Well, world wide, 20 dealer-banks trade  74% of all CDS. Of those sold in America just 5 banks control 97%. Here are some mind boggling graphic repersentations of the size of the CDS market and bank exposure.

Of course the banks themselves, the biggest and most exposed of which are Goldman and JP Morgan, will say their net exposure to loss in the event of having to pay out is small because it is itself hedged with insurance for their insurance.

But insurance doesn’t ever make the risks or the losses go away. It simply transfers them. And every time a risk is transferred it simply adds one more party to the chain of people each of whom could be the one who fails to pay. It’s what is known as counter-party risk. So as the chain of insurance grows so does the accumulated counter-party risk.

Leaving us with the same questions that arose during the mortgage crisis – who are the counter-parties? Well I spoke to one banker recently who said that he was worried because his counter-party on a large number of risky investments was… Commerzbank.

Germany’s walking dead was the counterparty he was counting on to save him if he became exposed to losses. That’s like having a lead teddy bear for comfort on a sining ship.

So it turns out there is growth in Europe after all  – its growth in counterparty risk.



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62 Responses to Growth will save us? You bet!

  1. DANIEL April 23, 2012 at 3:17 pm #

    This fiasco cannot go on much longer, it is a complete corruption of Capitalism. The Real economy is starved of investment,leading to unemployment ,while the bubble pretend economy of the Financial sector is consuming itself slowly but surely. There is an almighty reckoning coming down the pike.
    Bring it on and lets get the pain over with. I cannot wait to see these ‘Too Big to Fail’ sociopaths come crashing down.
    Then we can build a real industrial banking system from the ashes.

    • graveltongue April 24, 2012 at 2:38 pm #

      …and this time when we say we’ll regulate, we’ll mean it, ok?

      • graveltongue April 24, 2012 at 2:47 pm #

        Sorry, I meant we WON’T regulate at all, you’ll be able to enjoy the run of the mill, no government interference, pure free market stuff, that should do it.

        Until any of you get too big that is, then we might have to step in, just a bit, just to stop things getting out of hand, you know, monopolies forming and all that sort of thing.

        Up until that point, fill your boots, but not too much.

  2. Hawkeye April 23, 2012 at 3:54 pm #

    Sounds like Andy Haldane of the BoE isn’t pulling any punches. As ZH says “Some Central Bankers really get it”:


    So we have financial, political and social systems breaking down. The fractures and stresses are slowly rising to the surface.

    I’ve been amazed that the system has held together for as long as it has.

    • Charles Wheeler April 23, 2012 at 7:52 pm #

      One of the few bankers that doesn’t seem to feel the need to talk in code:


      • John Souter April 24, 2012 at 10:20 am #

        Charles – Yes, I was impressed by his overview. Especially his exposure of the markets ability to manipulate by the use of its inherent ‘speed’ to flood and block with ‘offers’ which have no relationship, in fact could distort any semblance of real market appetite towards buy’s.

        Cracking concept -so good in fact I’ve just put my neighbours house on the market. I’ll let him know and do a deal with him once a few offers have been made.

        As they say – nothing ventured can lead to a lot of gain -or is my memory playing tricks with me?

  3. Alan UK April 23, 2012 at 5:14 pm #

    And as we speak the Dutch PM offers his resignation…http://www.guardian.co.uk/business/2012/apr/23/eurozone-crisis-austerity-dutch-government

    • Mike Hall April 23, 2012 at 6:00 pm #

      Getting interesting isn’t it?

      Robert Peston (BBC, no fan here, in general) blogs that he thinks M. Hollande may not deliver on his rhetoric, if elected.

      I don’t suppose that a politician so blatantly reneging on promises, post election, would come as much of a shock to many, esp readers of this blog.

      I just hope Peston is wrong & hope that Hollande gets elected & we at least get a chance to find out.

      Marine Le Pen’s FN platform was Euro exit, so whilst it might be supposed her voters would vote for Sarkozy in the 2nd round on the basis of his not being a ‘socialist’, reality may play out differently. Unless, that is, some quiet ‘deal’ is done by Sarko to get Le Pen’s endorsement. (Melanchon’s transfers to Hollande not being as potentially numerous to counter Le Pen’s to Sarko)

      I think it’s going to be close either way.

      • Gordon April 24, 2012 at 2:06 pm #

        But as I understand it many of Le Pen’s supporters are white working class folk who feel thoroughly betrayed by the established parties (now why does that sound so strangely familiar?) so why should there be any presumption that they are fundamentally right wingers who will default to Sarkozy in the second round? Their parents’ generation most likely voted socialist and so might they – that is if their disillusion is not so deep that they don’t vote at all.

        • Wirplit April 25, 2012 at 1:23 pm #

          Hollande’s idea too… he is appealing directly to them

      • Penny Bloater April 25, 2012 at 9:45 pm #

        La Pen’s first round support will not entirely migrate to Sarkozy. Part of the ‘newly cleasned’ Front National’s appeal to disaffected working classes was based on her opposition to the EU and neoliberalism. In this case, some of their voters – particularly if they protesting against a failed incumbent – are actually more likely to switch to Hollande rather than Sarkozy.

        Unfortunately, friends that know France very well believe that despite his promising rhetoric, Hollande’s policies will only turn out to be marginally to the left of centre, and that Melenchon will have no leverage in this formulation – it is rumoured that he will be offered a key cabinet post but will refuse because it will obviously destroy his credibility – and the Left Front.

        I really hope Hollande does turn out to be more radical than expected and begins a seismic shift in political ideas – we desperately need it.

  4. MacB April 23, 2012 at 6:00 pm #

    It’s a weird one, both the idea of growth during austerity and the idea that perpetual growth is possible or desirable.

    But are The Netherlands about to get some puppet interim government imposed on them? Unthinkable before but as it’s been done already elsewhere the unthinkable is fast becoming a first choice option. I would recommend the indomitable Richard Murphy for reading here and his book The Courageous State. I don’t agree with him on everything but his underlying meme of a lack of courage in political circles rings true.

    The whole crisis could be described in terms of some bizarre game of chicken with all the varied vested interests trying to avoid being first to blink. Has the Dutch leadership just been cowardly or were they acting on some sort of plan B? Was that to resign and let some caretaker crowd make the nasty decisions and direct blame away from Dutch politicians?

    I still end up back at the same place, TPTB know there will be a need for a system reset but the interim period is providing fantastic opportunity for ideological furtherance.

    • Jim M. April 24, 2012 at 12:36 am #

      It’s a weird one, both the idea of growth during austerity and the idea that perpetual growth is possible or desirable.

      Should we perhaps celebrate that we are currently limping our way to rack & ruin instead of running full-tilt?

  5. backwardsevolution April 23, 2012 at 7:09 pm #

    David – another excellent article! Thank you for the great work.

    Here’s the latest scheme circling around in bank-infested waters: Obama’s new JOBS Act.

    “Boy, do I feel like an idiot. I’ve been out there on radio and TV in the last few months saying that I thought there was a chance Barack Obama was listening to the popular anger against Wall Street that drove the Occupy movement….. […]

    Sometimes the companies themselves were the victims in the fraud scams, and sometimes the company executives were beneficiaries of fraud. But in virtually all of these schemes, the casual investor was the big dupe in the con. When the dot-com bubble finally collapsed, costing the world about $5 trillion in losses, the major victims were ordinary people. We can expect a replay of the same thing now, only on a much bigger scale.

    The finance world is buzzing over this bill. The reactions I’ve heard so far range from minutes-long guffaws of dark laughter to bloodcurdling, I-can’t-freaking-believe-they-went-this-far outrage. “I thought I had lost the ability to be shocked,” one friend of mine, a former regulator, told me this weekend, chuckling at the sheer stones it took to push the law. “But this thing is just inspired. They broke the mold with this one.” […]

    In the meantime, let’s just say this is a dramatic step taken by Barack Obama. Nobody should have any illusions about where he stands on Wall Street corruption after this thing.”

    This new act exempts start-up companies from independent accounting requirements for up to five years after they first begin selling shares in the stock market. FIVE YEARS!

    Just think of the fraud to come and, just like in the dot.com bubble, investors will lose big time.


  6. John Souter April 23, 2012 at 7:30 pm #

    The paradox is anything that hints at giving any credence to the general well being of society automatically creates a nervous negative response from the financial markets.

    What does that tell us?

    Could it be they have no confidence in their own products, unless they control both the prices and the markets and have no responsibility towards the rest of society?

    Anybody seen a manifesto from the Global Oligopoly?

  7. backwardsevolution April 23, 2012 at 7:49 pm #

    The second Matt Taibbi article re JOBS Act:

    “It’s not even bringing us back to the nineties,” says a former regulator and Washington-based lawyer. “It’s bringing us back to the Twenties. It’s bringing us back to the penny stock era.”

    One Senate staffer put it to me this way: “Even the people who are rabid supporters of this thing are saying, ‘Wow, I didn’t expect it to come out this extreme.'”

    But the worst thing about this law is the way it got passed. It was herded into the books with great speed by key figures in both parties, sidestepping the usual process of having the more dangerous and idiotic provisions stripped out through congressional negotiations.”


    And do watch the great two-minute video segment from the movie “Boiler Room” at the bottom of the article to see all the slimy snakes in suits.

    They buy up blocks of stock, suck in investors, which keeps escalating the price, and then they dump their stocks, leaving the investors destitute. Classic pump and dump operation. I can hear their hands rubbing together from here.

    Banks don’t want to lend to small businesses and start-ups (of course, they should be made to, at an appropriate interest rate that reflects risk, considering all of the bailout monies they received). But this way is sweeter, there’s no risk for the bankers: gullible investors will lend the money, the Wall Street banks will make a fortune off of IPO fees. The investors will lose their money, but Wall Street will keep their’s.

  8. JayD April 23, 2012 at 10:34 pm #

    Golem, doesn’t the way you start this item where you concur that the market fall today (supposedly bad news) is due to the Hollande result (therefore by association,socialist=bad news) fall into a MSM narrative trap.Couldn’t it just be that the market (whatever that is!) realises that it’s fooked and has had one of it’s occasional passing moments of sanity. The growth game,hopefully,is going to continue it’s spluttering demise.
    Or maybe I missed something and the American definition of Socialist i.e an unquestionable head-case has gone global.
    All of the gumf that I admittedly only skim-read about fiat-v-gold standard seemed to miss what has seemed the central issue to me for decades already that the perpetual growth/wealth accumulation model itself is the problem irrespective of the intracacies of the mechanics of how it funds itself.
    (P.s. Newsnight is right now devoting itself to the above narrative)

    • Golem XIV April 24, 2012 at 9:11 am #


      I’ve just re-read the start and I think you’re right. I assume the reader will understand that it is the financial class not everyone else who fears Mr Hollande but I don’t say it. I will tinker with it now.

      Thank you for the close reading.

  9. Charles Wheeler April 23, 2012 at 10:41 pm #

    Useful round up of recent ‘Just Banking’ lectures:


  10. patma2003 April 24, 2012 at 2:17 am #


    Just want to say yet another great article, but more a big thanks for this gem of a blog. It is your site and it’s contributors that I will choose to be influenced by in the foreseeable future – and without doubt is my chosen viewing platform for the oncoming and epic disintegration up ahead. So many fingers on the pulse in here it’s fantastic.

    Most ideologies preaching from outside the mainstream have been foretelling the subsequent and larger crash that will come after the 2008 bomb, and I would concur with the poster MacB above: ‘the interim period is providing fantastic opportunity for ideological furtherance.’

    And so, I do hope everything folds in on itself in spectacular fashion, however I have an even greater hope that it does not turn out to be a case of ‘trial and error’ come the time for reset.

    The Blogoshere and in it blogs such as this one are the key as the masses hopefully come to turn their back on the MSM in their thirst for truth – because it’s easy and because they can.

    And they will have a catalogue of information ready at hand to quench that thirst.

    Keep fighting the good fight.

    • Golem XIV April 24, 2012 at 10:43 am #

      We get knocked down. But we get up again.
      Thanks Patma

  11. Gary April 24, 2012 at 9:50 am #

    Another timely article.

    These banks with their huge derivative bets will never get paid out for winning the bets, the counterparty will be hopelessly insolvent(or more hopelessly insolvent than they already are). The bets are so huge that they are more than 10 times global GDP. The banks are leveraged more than 60 times in many cases and a 1.6% move in the bet against them wipes out their equity. What is happening, as these bets move one way and the other like a giant wrecking ball, the central banks step in and make good the losses by printing up the difference. And each time they do this for one party and then the counterparty, the savers and pensioners pay through monetary inflation generated. Most of this inflation is only presently seen in US treasury bond inflation and other sovereigns as the money rushes to perceived safety. The resulting low rates are where the savers are being robbed. The central banks are making up the banks loss of equity by taking equity from the prudent and handing it over to the banks. The banks have every reason to keep raising the stakes, because the bigger their obligations the easier they can make the case that they are too big to fail, and the people will be cowed into believing them.

    These actions contains the seeds of revolution. At some point the people will break, and then they will take a “France 1789” solution to the problem.

    • Golem XIV April 24, 2012 at 10:25 am #

      Thanks Gary.

      • Gary April 24, 2012 at 10:40 am #

        At the risk of pandering, I do want to thank you and apologise for the somewhat disruptive diatribe I initiated on the last thread. Sometimes hard to maintain an even keel. I can only justify it by what I see as the imminent economic danger that we are in and urgent debate is required. In these matters , the more urgent the debate, the more uncouth we all are. For all our sakes, I hope we are spared the ultimate insult : economic collapse, although I cannot see how that can be avoided now no matter whose solutions are applied…

        • Golem XIV April 24, 2012 at 10:58 am #

          I think we all share your sense of urgency.

          You and Mike were certainly going at it. I would ask you both – and I have spoken to Mike about this before – to take a step back when you feel the red mist descending. It does neither of you any credit to insult each other.

          I feel I can speak for most people on the blog when I say that it would be better if you both simply acknowledged that you don’t agree and probably never will and therefore cease trying to convice each other.

          Simply note that that was the MMT view and here is a completely different one.

          No need for you two to lock horns. There is no need for either of you to convince the other. Nor for you to decry each other. Each of you offer your view and acknowledge that they are very different.

          The rest of us are adults too. We are quite capable of reading your differing views, and pondering for ourselves what strengths and merits we think each argument has.

          That way you both enrich this blog. Concentrate on putting your case positively and honestly – setting out what you think your view has to offer and being honest about where it differs from other views. Point out for people those critical assumptions that separate your views from others.

          I for one am glad to have people, like you and Mike and the many others who enrich this place, who are capable of putting forth clearly very different world views. If we cannot sustain a broad debate and an inclusive, permissive one at this stage, in this place, then what dismal prospect awaits us when we come to try building a new order.

          Surely no one wants a future where some ideas are already marked as too dangerous, too ‘wrong’ to be allowed.

  12. John Souter April 24, 2012 at 11:06 am #

    Stevie posted a great link on Vulturecrats exposing the derivatives bubble -I’ll repeat it here for convenience:

    To my mind this is the Achilles Casino where all the financial alchemy ends up and where its excrement is recycled as infinitely resourced nourishment.

    It’s a construct of spin, hype and style with no substance and, as such any figures either attached to it or claimed by it are devoid of relevance beyond fantasy.

    As such, other than those who rely on its fiction for their well being, this ‘market’ could disappear from the world without any negative effect on the real markets – in fact it could force the ‘real’ money to concentrate on productive gambles instead of the fantasy lottery where everyone’s a winner in some virtual horizon’d eventually.

  13. graveltongue April 24, 2012 at 3:01 pm #

    I don’t know if any of you guys have read this:


    • Hawkeye April 24, 2012 at 4:31 pm #


      I’ve been following Tom Murphy’s blog for a few months now. His work is refreshingly practical and honest. I found the debate between him and the economist very intriguing. But also no different to about 90 years ago when Nobel Chemist Frederick Soddy ripped into the economic canon of his time. Murphy is hitting the same walls that Soddy (and later in the 1970s, Georgescu-Roegen), had.

      What a difference the world would be if we listened to genuine scientists like Physicists, rather than politicians and economists (who are just political pawns in disguise).

    • backwardsevolution April 24, 2012 at 7:41 pm #

      graveltongue – really enjoyed the article you posted. Thanks! Everywhere I seem to read, “We’ll be okay as soon as we can return to growth.” Perhaps people have difficulty standing far enough back? Are they so focused on the present that they cannot see the future?

      Anyway, good article.

    • graveltongue April 25, 2012 at 6:39 pm #

      I’ve pondered the infinite ideas angle that is ‘oft referred to, the ‘we’ll never run out of ideas’ sort of thing. The problem with an idea is it has to be original for it to make any ‘new’ money. The courts are clotted with copyright cases as companies try to protect their ideas from being plagiarised. Clive Anderson dedicated an entire half an hour on Radio 4 last year in discussing this topic. His guests, all practicing copyright lawyers, expressed their concern with regards the choking of the creative ebb and flow that so drives innovation and invention. Patents are shrinking month after month due to rampant litigation. Even the lawyers can see that this is leading down an ever narrowing path. Have economists even considered copyright?

      • John Souter April 26, 2012 at 12:30 pm #

        graveltongue – it costs around £300k to register a patent world wide, followed by the likely hood of 20 to 100 times that to defend it from the challenges of the big commercial vultures.

        Few ‘inventors’ can afford this litigation so in the end one of the vultures succeed to the innovation by either acquiring the licence or through legal challenge. Either way its a recourse by means of legalised attrition. To him that hath more shall he have.

        Undeniably, many applications for patent have none or little significance to society, while those submitted by the R&D of global enterprises are better targeted in relation to their commercial viability. As such they have the armoury to balance the strategies they will invest in order to protect their rights and investments. I have no or little argument with that.

        However there are patentable developments that are initiated by individuals or through research undertaken by universities where the only option is to sell the innovation to the commercial sector in order to further the research and develop the proof. And often the price they pay is to forgo any future return in order to gain the funding to continue their research.

        It’s my contention this is a potentially lucrative asset which should be considered for government intervention by backing the registration of patent while awarding a fee to the inventor or research establishment which would then be balanced and set off by a pre-agreed licence fee.

        Innovation is the oxygen of production and the blood of commerce and as such we need to encourage its freedom and, as a society increase our well-being. Perhaps the commercial moguls will end up by being the highest bidder owning it, but the ‘inventor’ and society should get a return that is compatible with their input and sustains their inventiveness.

        • graveltongue April 26, 2012 at 5:50 pm #

          Thanks for setting it out like that, much appreciated.

          I still can’t shake this image of armies of Omni-present cancerous blob like creatures roaming the planet, sucking all the great ideas into the void that is ‘the market’. The brilliance of our creative juices ends up feeding an ever shrinking number of people as we approach some sort end game duality, with two uber-blobs shooting each other’s ideas out of the big blue yonder.

          Or am I just being a tad dramatic?

          • Hawkeye April 26, 2012 at 6:05 pm #

            gt / John

            What we are witnessing is the diminishing returns to complexity.

            Complexity has risen dramatically in how we interact, in knowledge, in business operations, in law, in politics etc.

            It was the motive force for innovation & development, but this needn’t mean that more complexity will always lead to better outcomes.

            Joseph Tainter asserts that the return on complexity is non linear and can start to turn downwards (see Fig 4.1):


  14. Charles Wheeler April 24, 2012 at 3:26 pm #

    Adam Curtis on the sunset of democracy: http://youtu.be/sd5KyWT2nH8?t=10m51s

    • StevieFinn April 24, 2012 at 11:14 pm #

      Thanks for that Charles, just finished watching.

      I suppose if you are only capable of looking at other people in terms of what you can get out of them, you might then conclude that everybody else operates in the same way. Love, empathy & self sacrifice in the interest of others must truly be mysteries to some people, some of whom I suspect have come up with these theories & I don’t think it’s a coincidence that many of their followers also tend to be pretty heartless creatures.

      It is said that psychopaths are incapable of feeling empathy, so to them it would be just a concept, like sight would be to someone blind from birth. I only gained some sort of idea how impossible it is to imagine a state of being, that has never been or could be experienced by myself, when I read about the blind man who got very annoyed when people asked him if he saw black, as sighted people do when they close their eyes in the dark. He said that he saw simply nothing, in other words he did not see. A simple enough concept, but one I still cannot get my head around. It must be also almost impossible to imagine love if you have never felt it.

      • Charles Wheeler April 25, 2012 at 1:45 pm #

        “I suppose if you are only capable of looking at other people in terms of what you can get out of them, you might then conclude that everybody else operates in the same way.”

        Classic case of projection. Particularly chilling was ‘public choice’ guru James Buchanan’s dismissal of public service ethos in favour of exclusive incentive-driven self-interest – ‘You don’t want too many zealots’, he said, with a gleam in his eye.

        [also worth watching from Curtis: ‘The Century of the Self’ on Bernays: http://goo.gl/fd3Q6 ]

  15. MacB April 24, 2012 at 4:49 pm #

    Picking up on the start of your article I was watching Newsnight last night and they were discussing the French results, potential outcomes, and the market reaction. At one point we were treated to the combined talking heads of George Magnus from UBS, Nigel Farage UKIP and Peter Altmaier chief whip for Merkel. Farage and Magnus performed as you would expect but I found Altmaier truly shocking. In response to ideas about what Hollande may do if elected in France he effectively said:-

    Hollande will have to toe the line and work within the agreements already in existence.

    What I find shocking is the technocratic approach and the idea that, regardless of the will of the people or decisions of national politicians, any and all governments can be held to the agreements made by previous states. Oh, I get the arguments around trust and stability but this really is pig ignorance of the highest order. It’s the same sort of attitude that says that economic models show a crash as vanishingly unlikely so it can’t happen. Then trying to claim, when the crash does happen, that the contributing factors couldn’t have been foreseen. It’s like headlines today warning that the Greek recession is going to be worse than predicted, as if anyone actually believed any of those predictions.

    I can only conclude that they are either ideologically wedded to a certain view or just too plain scared to have the courage to try anything different.

    • JayD April 24, 2012 at 6:01 pm #

      The German chief-whip fella was truely scary especially when he suggested that Hollande would be knocked back into shape if he tried seeing his anti-market ideas through because…’he will be fined by the financial markets’…money talks!

    • StevieFinn April 24, 2012 at 8:49 pm #


      More of the same: from: The Telegraph.

      “The decision by Mr Wilders, whose anti-Islam party has switched its focus to campaign against the EU, came as Dutch opinion polls on Sunday found that 57 per cent of voters are opposed to the cuts.

      The European Commission repeated its demand for the Dutch government to submit measures to balance the budget in line with euro spending rules to Brussels within nine days.

      “The commission trusts that the Dutch government will continue to seek a budget solution,” said a spokesman. “Governments commit on behalf of states. Therefore commitments are not linked to one government. Governments change but commitments on behalf of states cannot be changed without discussion with European partners”

      I think they will break, because they refuse to bend. I was reading a pro-EU blog earlier which was seemingly shocked about the level of what they referred to as Extremist parties support in France. I think they had better get used to it, more & more people are realising that to vote for any of the main parties is a waste of time, & as for extreme, isn’t it extreme what Pasok a supposedly mainstream party have forced on their electorate?. I do not like extremism but unfortunately something extreme needs to happen to instil some reality into these smug assholes before they completely screw it up. I am hoping it will be the unexpected in a financial sense.

      Germany is petrified by the possible return of conditions ripe for another Weimar republic & the monster that came from that. Somebody should tell them that the monster doesn’t just thrive on inflation & can sneak up behind you, while you are busy guarding it’s previous entry point.

      What the above paragraph from the Telegraph outlines it seems to me, is the death of Democracy & a new serfdom to the likes of the unelected technocrats & Eurocrats, like Rompuy, Barrosa, Rehn etc, not to mention a perpetual European elite who wearing slightly different clothes would take it in turn to saddle us up as they share out the spoils delivered to them by their financial Sugar Daddies. It should be causing outrage, but isn’t.

      Chris Hedges :


    • Charles Wheeler April 25, 2012 at 2:22 pm #

      Unless austerity is just the pretext for the end-game an elite have been working towards for 40 years: wiping out the welfare state, privatising heathcare, education and welfare and crushing the aspirations of working people who, in the immediate post-war period, had been taking a greater share of profits, by lowering expectations, such that the prospect for many is to receive poor quality education, minimal healthcare and a long working life of low-wage, insecure employment (if they’re lucky) up to the age of 70, dropping dead before they can receive eve the pittance of a state pension – and little chance of ever owning their own home – or even decent, affordable social housing.

      Compare that with those growing up in the 50s-80s who could expect a decent state education with a tax-funded, debt-free university place; comprehensive, universal healthcare, a decently paid job with some rights that would enable them to own a home, run a car, have a holiday and see their children well educated without taking on a mountain of debt.

      Meanwhile, the rentier class have never had it so good, with a growing, captive rental sector creating a feedback loop that accelerates concentrations of wealth and property, and an indebted workforce repaying any meagre income with interest.

      From their point of view – it’s all going according to plan.

      [p.s. for ‘markets’ read: JP Morgan, Goldman Sachs, Citi, Barclays, etc.; for ‘govt’ read: JP Morgan, Goldman Sachs, Citi, Barclays, etc.]

  16. MacB April 25, 2012 at 12:42 am #

    JayD, I’m glad someone else found Altmaier menacing, I took more than just a hint of a threat from his responses.

    Stevie, it’s certainly making some strange bedfellows and will make for some interesting alliances. Surely they can’t get away with installing more technocrats especially with prior links to the likes of GS?

    I’m not sure I buy the German passion for averting war and fear of inflation any more, it’s wearing a bit thin. They now seem to be approaching austerity etc with an almost religious fervour. I was originally very much pro the Euro idea and I’m still not convinced that it couldn’t have been made to work with improved central policies, particularly via the ECB. But I think it’s too late for that now and the opportunity has been lost.

    • Charles Wheeler April 25, 2012 at 2:43 pm #

      Interesting post on Germany here: http://goo.gl/0meA0

      • MacB April 26, 2012 at 12:46 am #

        Very interesting Charles, thank you

      • Mike Hall April 26, 2012 at 1:29 am #

        Yes, I’ve just read this too. Adding to Heiner Flassbeck’s presentations on a German based mercantilist agenda. (No link to hand, but linked in the piece I think? Or easily found by google.)

        Of course, most of the German people are as oblivious to this as most citizens everywhere. As always it’s about financial elites who happen to be dominated by German based interests in this case vs the rest of us.

        Not that Charles or any of our regulars here need to be reminded of this, I’m sure.

        Has everyone here seen this youtube on the breathtakingly sinister ESM structure? It surely must be the intention for it to be controlled by the current elites dominating the ECB & associated EU ‘tecnocrats’ ?


  17. Joe R April 25, 2012 at 1:33 pm #


    Your general thrust about these vultures betting government money on default is probably correct – but the report you linked above and it’s points about Spain don’t stand up. There may well be problems in Spain but that presentation or report, due to its basic inaccuracy, isn’t getting close to identifying what they are.

    It is easy to contradict its assertations of misleading figures with links from the Spanish media ( in Spanish );

    On GDP ( PIB in Spanish ) vs National Debt ( la dueda nacional ) a figure of 82% is mentioned –

    On the fall ( cayó ) of prices of dwellings ( viviendas ) the view from BBVA and Barclays a fall of 35-40% is mentioned –

    There are many articles, and many older ones on these topics published in prominent websites.

    There are other big falling down points with the report. What it presents as ‘facts’ are at best cherry-picked facts – to me thay are deliberately misleading . Take the comment about constructing one dwelling per head of population added. This correct if count Spanish citizens only but the Spanish immigrant population stands at 5.5 million ( registered only – it is probably higher ) most of whom arrived in the last 10 years and all of whom have to live somewhere. There are 400,000 registered British alone, not including those who are unregistered or have weekend holiday homes from where do you think they got mortgages?

    Look at the report again in general – the diagrams presented in support of ‘facts’ don’t actually support the ‘facts’.

    The central thesis those guys are using is that Spain is the same as the US.

    Well – Spain isn’t the same as the US. It is Spain. The laws are different, the language is different, the culture is different, the dwellings are different too for example; a lot of people live in apartments and own a second one somewhere else.

    Spanish property prices aren’t dropping like a stone, I think there is more to it and I’d like to know what is going on.

    This report isn’t worth refering to for answers though – of that I’m sure.

    There is an article on Wiki ( linked below in Spanish ) looks comphrensive and backed up so I’m gonna have a read of it later;


  18. Golem XIV April 25, 2012 at 2:50 pm #

    Joe R,

    Had a closer look at think you are correct on a lot of the points you raise. It is always wise to take these reports with a large pinch of salt. I should have looked more closely.

    I was mainly interested in the support for the idea that further losses, unrecognized by the banks or the governemtn, have been and still are hidden in the regions. I obvioulsy didn’t pay enough attention to what it was saying about houses and housing.

    I have edited the article to point readers to your comment.

    • Joe R April 25, 2012 at 5:34 pm #


      Your level of honesty shocks me sometimes!

      Listen – if you like I can post here in summary on what I find. I’m happy to share. I don’t mean to be a total bollix!

      There is obviously something big going on in Spain but it has its own dimension and this should affect how it pans out.

      Generally – I’d reiterate that I find the British media to be often very inaccurate on anything Hispanic. I find the Hispanic media are much more accurate about British events. The back and forth about the Falklands of the last few months was particularly ridculous and really showed the difference up for me.

      I don’t know why this is exactly – I think its a mixture of pandering to stereotypes, general foreign language ignorance in Britian, non-interest in getting it right because of the absence of a legal threat or just because they can. Also I think they don’t wish to pay for decent translations. Certainly it is easier to just go with the prevaling bullshit and write what ever crap suits!

      • Charles Wheeler April 25, 2012 at 6:41 pm #

        “I’d reiterate that I find the British media to be often very inaccurate on anything Hispanic.”

        The British media have been lamentable on the crisis full-stop. Particularly sad to see BBC hobbled by Cameron’s open threat to licence fee. As far as media is concerned GFC the result of profligate govt, over-generous welfare; inequality, debt and banks airbrushed out. TINA austerity mantra largely unchallenged.

      • Joe R April 27, 2012 at 4:57 pm #


        I did a bit of looking but I am getting a bit lost to be honest and I don’t have any clear conclusions to offer on what I did find.

        Issues that did surface were arrears ( in all types of payments ) in the economy, ‘black’ money as an unknown in the property market ( it is believed to play a big role) and I was coming to the conclusion spanish mortgages given out at the peak 2006-2008 were at a lower portions of debt to price and were far lower than Ireland ( the only clear comparison i had ) about €100,000 less on average per unit. Perhaps its not as leveraged as people may asume.

        Inhabitation patterns ( cultural ) and dwelling types ( mainly apartments ) , internal migration ( for work ) particularly to Madrid really make it difficult to apply rules of thumb from other countries to Spain about vacancy numbers in the market too. There are really big regional differences in price and vacancy rates. There always have been.

        I did notice a bit of inaccurate Spain bashing going on in the western financial media, in a similar vein to the report above. Perhaps that’s one real story thats been stumbled on here.

        Thats it.

      • Wirplit May 2, 2012 at 1:34 am #

        For a more informed but in its way equally disturbing analysis of the Spanish debt problem try Edward Hugh
        I think a lot of these “reports” use sources like his but misrepresent the particular context for their own hyped up purposes. The reality is quite bad enough.

  19. Mike Hall April 25, 2012 at 4:39 pm #

    Just watched Bernard Lietaer’s recent youtube talking about his new book ‘New Money For a New World’.

    Lietaer is a phenominally interesting man with a career at the heart of the financial system as a central banker & Prof of Finance academic & much more besides. He speaks in the youtube of his philosophical approach from both Taoism & the sustainability of ecological systems. He gives a stark warning about continuing on the current trajectory.

    I highly recommend watching.


    More info on Lietaer here:


  20. backwardsevolution April 26, 2012 at 6:50 am #

    Four-page interview of Janet Tavakoli, derivatives expert: “Finding the Culprits of the Crisis”.

    “But the fact is we’ve bailed people out and had no consequences for them. So it emboldened them to turn around and behave in the same way. Look at banks like JP Morgan: Shortly after the crisis, they thumbed their nose at the idea of trying to separate speculation from the rest of the bank. So if you don’t have restraints on behavior, you’ll see it repeated. And now we’ve made it worse. It’s like handing a drunk driver who got into a crash the keys to a bigger, faster car together with a bottle of vodka.

    In every area of finance where we bailed people out, you see the same wrongdoers volunteering to help fix the situation. That’s pretty funny: They weren’t trustworthy before, and they’re not trustworthy now.

    But what about the investigations that already have been held?

    They’re all for show, and people end up with a slap on the wrist for minor issues. Investigators should be looking instead at the interconnected fraud that infected the mortgage lending market. And there is still a lot today, especially fraud on borrowers. If you go to the root of the problem and choke off the money supply, you stop the fraud in its tracks.”


    • Roger April 26, 2012 at 7:26 am #

      There was an excellent documentary on Elliot Spitzer on the BBC I Player a few weeks back. Its worth a watch or a look into the Spitzer falll from grace will tell us all something of what we need to know abut how the culprits operate and how they are shielded by the revolving door of Big FInance and Business and Governement.

    • Gary April 26, 2012 at 9:46 am #

      “There is no means of avoiding the final collapse of a boom brought about
      by credit expansion. The alternative is only whether the crisis should
      come sooner as the result of a voluntary abandonment of further credit
      expansion, or later as a final and total catastrophe of the currency
      system involved.” – Mises

      We have chosen the latter course, as evidenced by where the BoE members have put their own pensions. Once you go down the route of inflation, there is no easy way to stop without a deflationary crash. So, instead it will be an inflationary currency collapse. There is no free lunch or perpetual motion machine.

      • Hawkeye April 26, 2012 at 12:50 pm #


        Yes, the system needs (has) to de-leverage some how.

        Options are:

        Prolonged stagnation (i.e. turning Japanese – doesn’t really solve the problem but tries to postpone it)
        Depression (1930s style proper debt deflation / deleveraging)
        Financial repression (low interest rates, but moderate inflation)
        Hyperinflationary depression

        Gregor MacDonald envisages “Hot inflation” which in some ways is a bit of all the above:


        Either way, we’re witnessing the death-throes of the dollar global reserve status.

  21. johnm33 April 26, 2012 at 12:35 pm #

    Good critique of Drahgi’s speech [last night] with bankiing report attached here
    2nd commenters blog worth a look too
    @backardsevolution since the banks have colonised the political class and indoctrinated them into their dog eat dog ethical code i honestly believe it’s hard for the pols to see a crime scene i think what they see is an attack on their favoured business model. We had two decades of overlapping mis-selling ‘scandals’ in the build up to this, where no one was properly held to account. It’s very difficult to discern any sign of benevolence or even insight in any of their acts or policies at home or abroad. The game is just about up and they don’t get it.

  22. Gary April 26, 2012 at 12:51 pm #

    Law of Diminishing Marginal Utility of Debt (Pushing on a string)

    In 1980, the Hunt brothers thought that the fiat gig was up and cornered the silver market. Turns out that it wasn’t and Volcker’s actions basically ended up buying an additional 30 years. Those actions could never be repeated today because the system and more specifically the debtload couldn’t handle it (the amount needed to be paid annually based on interest rates).

    Then Greenspan came along and started to blow bubbles, got some pretty good mileage that eventually peaked with the dot-com top.

    Next injection came in 2001 after 9/11…..bought 6-7 years only and peaked with the real estate top.

    Next came 2008, with the shock and awe of Paulson and the ‘end of the financial world’…and with all the hoopla, the fiat injection only bought less than 4 years.

    See the pattern?

    Law of diminishing returns. No matter how big the QE3 is this year, it will either fail completely or at best buy only one year or so before the failure arrives. The system is requiring increasingly larger injections for smaller returns.


  23. Roger April 26, 2012 at 2:13 pm #

    The Austerity Spin Machine at work this time misrepresenting the swedish Banking Crisis of 1992 and how it was resolved.

    John A. Missell AIA •
    1 hour ago• Like

    Roger Lewis • John that article is spinning the Swedish solution to its banking crisis as an example of how austerity can work the Swedes held those resposible for it to account the banks they guaranteed the banks who’s own shareholders had to recapitalise with their own money they were not bailed out on a no questions asked your too big to fail way. That is the Swedish lesson a curious type of Jante lagen, tall poppies are kind of rarer in Sweden certainly they are not mythologised.



    Abstract: This study presents the main features of the Swedish approach for resolving the
    banking crisis of 1991-93 by condensing them into seven policy lessons. These concern (1)
    the importance of political unity behind the resolution policy, (2) a government blanket
    guarantee of the financial obligations of the banking system, (3) swift policy action where
    acting early was more important than acting in exactly the right manner, (4) an adequate legal
    and institutional framework for the resolution procedures including open-ended public
    funding, (5) full disclosure of information by the parties involved, (6) a differentiated
    resolution policy minimizing moral hazard by forcing private sector participants to absorb
    losses before government financial intervention, and (7) the proper design of macroeconomic
    policies to simultaneously end the crisis in both the real economy and the financial sector.

    points 5 and 6 are paramount those are the elements the austerity narrative wants us to miss Austerity for the bankers.

    This is from a discussion over in the economist Linked in Group I often link back to here or to Econosophy and other musings and post links of posts from comments here. The mainstream delusional spin machine has many cheerleaders and a bit of socratic enquiry done politely and gently can’t do any harm as far as I can tell.

    I know one shouldn’t laugh at ones own jokes but I really do quite like this one.

    summing up the American dream versus the societal reality in short America has Plastic Tits and has convinced herself that they are real and every one else needs a pair just like hers.

  24. Don April 26, 2012 at 11:34 pm #

    A couple of months ago, Edward Hugh [Mar. 05, 2012, “Homeric Similes and Spanish Debt”] wrote what many consider to be the definitive analysis of Spanish Debt levels, and it comes more closely to agreeing with Carmel’s conclusions than disagreeing with them. I would urge people to read this report from someone who lives in Spain, and who follows the Spanish economic situation more closely than just about anyone else.

  25. patma2003 April 27, 2012 at 2:11 am #

    The following article by Eric J. Weiner of INET made me smile. Appears some of the occupy guys studied during the winter and turned their nose up at a standard Economic intro class at Harvard.

    I often wonder like some of the posters in here: where is the face of this movement? Occupy was maybe a bit too wild and disjointed to really draw in a giant crowd of intellectual faithful to the cause, although it did kind of represent the perpetually mind shagged state of a people who have had the truth hidden from them for a time – and it did leave a scar or two.

    In all likelihood the movement has a face we’ve never seen before. Where people do not come together to learn from the one book, from the one voice – but educate themselves, coming together en masse to share what they have learnt. An almost pure form of education, though bohemian in shape.


    For those as curious as I about Weiner’s previous article for the L.A. Times that kicked it all off.


    Good to see the kids demanding better service though.

    I also wonder how much of a role censorship will play in the attempt to curtail the intellectual revolution.

  26. CArratiaM April 27, 2012 at 4:25 am #

    Now that there are voices in the Greek campaign proposing privatisations, it’s probably a good idea to review what has happened in similar processes…

    Here is a link to an eloquent documentary on the looting of the Argentinean state around the 90s


    A remarkable quote at about minute 48:

    “We’ve elaborated our Ten Commandments, the “Menemist” [after the president Menem] Ten Commandments for the reform of the state. Commandment number 1… Nothing of what should belong to the state will remain in its hands”

  27. Anonymous July 22, 2013 at 2:55 am #

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