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ECB’s Draghi: Knowing Too Much About Our Big Banks Could Set Off A Panic
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
European banks, like all banks, have long been hermetically sealed black boxes. If someone managed to pry open just one tiny corner, the reek of asset putrefaction that billowed out was so strong that the corner would immediately be resealed. In cases where the corner didn’t get resealed fast enough and too much of the reek spread, the whole bank collapsed, only to be bailed out by taxpayers, often in other countries; it’s easier that way.
The only thing known about the holes in the balance sheets of these black boxes, left behind by assets that have quietly decomposed, is that they’re deep. But no one knows how deep. And no one is allowed to know – not until Eurocrats decide who is going to pay for bailing out these banks. How do we know? ECB President Mario Draghi said that on Friday in Washington.
And today, the Eurogroup of 17 finance minister had a huddle in Luxembourg to try to decide that issue.
The IMF, which can only sniff around the surface of the banks, determined that the Spanish and Italian banks alone would have to recognize an additional €230 billion ($310 billion) in losses over the next two years. As we have seen time and again, bank losses are always much larger when the truth finally seeps out, and that doesn’t happen until after the bank collapses and someone from the outside counts what’s left over.
Additional, because these banks have already written off a mountain of bad assets. In both countries, banks collapsed and were bailed out, some twice – in Spain at the expense of taxpayers in other Eurozone countries.
Next year will be a moment of truth, so to speak, when the ECB is to become the regulator of the 130 largest banks in its bailiwick. Imbued with new powers, it will subject them to a somewhat realistic evaluation, rather than the “stress tests” of yore that were nothing but banking agitprop – assuming certain banks in Italy and Spain can be kept upright until then.
A sense of urgency hung over the meeting today. Time was running out on those banks. But the European banking union, that instrument by which a collapsed bank could be unwound and restructured and its investors and depositors made whole by taxpayers in all Eurozone countries, or at least in the shrinking number of countries that by then haven’t already been bailed out – well, that noble precision instrument doesn’t exist yet! And that’s a problem for the planned bank examinations.
“The effectiveness of this exercise will depend on the availability of necessary arrangements for recapitalizing banks ... including through the provision of a public backstop,” Mario Draghi explained on Friday to set the mood for today’s meetings. “These arrangements must be in place before we conclude our assessment.”
Meaning: The truth shall not be known until after the Eurocrats decided who would have to pay for the bailouts. And the bank examinations won’t be completed until then, because if any of it seeped out – Draghi forbid – the whole house of cards would collapse, with no taxpayers willing to pick up the tap as its magnificent size would finally be out in the open!
Get taxpayers committed while they’re in the dark – that’s the finely honed strategy. The Eurogroup of 17 finance ministers was meeting in Luxembourg to kick off that process. Hence the banking union. Not every politician in Europe, particularly in Germany, Finland, and the Netherlands, is gung-ho about the prospect of raising taxes on the people and tightening their belts in other ways, in order to bail out the banks in Italy and Spain. They’re saying that each country should pay for its own bailouts.
But unless there’s an agreement as to whose taxes will be jacked up and whose belts will be tightened in order to bail out the investors of those banks, the ECB will not complete examining the banks. It can’t afford to. Because the results without bailout plan would cause a panic.
“We have to find a solution now,” urged Michel Barnier, the EU Commissioner for Internal Market and Services, the entity that deals with financial regulation. “The next financial crisis is not going to wait for us.”
Despite the urgency of the banking crisis that can’t be kept on hold much longer, German Finance Minister Wolfgang Schäuble, without whom nothing can be worked out, was tangled up in Berlin in coalition negotiations to form a government in Germany. So Jeroen Dijsselbloem, president of the Eurogroup, had to admit after the meeting today that not much had been accomplished, and conceded, “We need to provide full clarity soon.”
But there may be potentially false a glimmer of hope for taxpayers. The bailout in February SNS Real, the fourth largest bank in the Netherlands, has shown that stockholders and junior debt holders can be asked to lose money (though holders of senior debt and covered bonds were made whole). And the bank “bail-ins” of the cesspools of corruption in Cyprus have shown that deposits beyond the limits of deposit insurance can be fair game as well. These increasingly fashionable high and tight haircuts lighten the load on taxpayers.
“Taxpayers should be protected and financial stability maintained,” explained Economy and Monetary Commissioner Olli Rehn. Bailouts would be the last resort if financial markets and national governments couldn’t come up with the necessary funds, he said. Which neither Italy nor Spain can. Hence the coming bailouts. Taxpayers in other countries, get ready! This is going to be ugly.
But Europe is also involved, along with the rest of the world, in a broader battle: The US has abused its phenomenal privileges – including the control of the only reserve currency – to put global financial stability at risk, “like a truck full of dynamite heading right toward us,” said the chairman of the International Advisory Board of the Universal Credit Rating Group. A “new financial order” is forming. And there’s a timeframe. Read.... Next Step In Dismantling The Dollar And US Credit Hegemony.
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Anybody in a position to choose Hitler over Wall Street was an oligarch, and preferring that the people remain ignorant about a money and banking system that was and is a weapon used against them is further proof of this, no matter how good a man he might otherwise have been.
This isn't to say he wasn't a brilliant industrialist; he was. It's to say, rather, that supporting a system by which the prosper at the expense of the many is the very essence of oligarchy, regardless of what form it takes.
Statism is statism, in other words, and Henry Ford was but another in a long line of those who have prospered from it.
"If the present faulty system is more profitable to a financier than a more perfect system would be, and if that
financier values his few remaining years of personal profits more highly than he would value the honour of
making a contribution to the life of the world by helping to erect a better system, then there is no way of
preventing a clash of interests. But it is fair to say to the selfish financial interests that, if their fight is waged
to perpetuate a system just because it profits them, then their fight is already lost. Why should finance fear?
The world will still be here. Men will do business with one another. There will be money and there will be
need of masters of the mechanism of money. Nothing is going to depart but the knots and tangles. There will
be some readjustments, of course. Banks will no longer be the masters of industry. They will be the servants
of industry. Business will control money instead of money controlling business. The ruinous interest system
will be greatly modified. Banking will not be a risk, but a service. Banks will begin to do much more for the
people than they do now, and instead of being the most expensive businesses in the world to manage, and the
most highly profitable in the matter of dividends, they will become less costly, and the profits of their
operation will go to the community which they serve.
Two facts of the old order are fundamental. First: that within the nation itself the tendency of financial control
is toward its largest centralized banking institutions--either a government bank or a closely allied group of
private financiers. There is always in every nation a definite control of credit by private or semi-public
interests. Second: in the world as a whole the same centralizing tendency is operative. An American credit is
under control of New York interests, as before the war world credit was controlled in London--the British
pound sterling was the standard of exchange for the world's trade.
Two methods of reform are open to us, one beginning at the bottom and one beginning at the top. The latter is
the more orderly way, the former is being tried in Russia. If our reform should begin at the top it will require a
social vision and an altruistic fervour of a sincerity and intensity which is wholly inconsistent with selfish
shrewdness.
The wealth of the world neither consists in nor is adequately represented by the money of the world. Gold
itself is not a valuable commodity. It is no more wealth than hat checks are hats. But it can be so manipulated,
as the sign of wealth, as to give its owners or controllers the whip-hand over the credit which producers of real
wealth require. Dealing in money, the commodity of exchange, is a very lucrative business. When money
itself becomes an article of commerce to be bought and sold before real wealth can be moved or exchanged,
the usurers and speculators are thereby permitted to lay a tax on production. The hold which controllers of
money are able to maintain on productive forces is seen to be more powerful when it is remembered that,
although money is supposed to represent the real wealth of the world, there is always much more wealth than
there is money, and real wealth is often compelled to wait upon money, thus leading to that most paradoxical
situation--a world filled with wealth but suffering want.
These facts are not merely fiscal, to be cast into figures and left there. They are instinct with human destiny
and they bleed. The poverty of the world is seldom caused by lack of goods but by a "money stringency."
Commercial competition between nations, which leads to international rivalry and ill-will, which in their turn
breed wars-- these are some of the human significations of these facts. Thus poverty and war, two great
preventable evils, grow on a single stem.
Let us see if a beginning toward a better method cannot be made."
Henry Ford, 1922
"Let us see if a beginning toward a better method cannot be made."
Still waiting.
Could it be because banking and industry have perpetuated their unholy alliance at all cost and will continue to do so until this inherently "faulty system" collapse in a heap and that Henry Ford was naive at best, if not simply Machiavellian, in suggesting that its "centralizing tendency" could possibly be reversed "beginning at the top"?
When has "the top" every done anything such thing? And when will the bottom ever have a chance as long as the state — which is inherently an antisocial entity — is there there for the top's exclusive use?
The answer to both questions is never, and musings like Henry Ford's are therefore laughable in the extreme.
Or would be if they weren't so pathetic.
also Hitler was Wall Street's bitch. I don't think he knew that until the end. His mission was to clear the communist bolshevik rabble from Europe and take diwn the old world Jewish banking system that was collecting tribute off the new world robber barons. They let him clean house and then squashed him like the bug that he was.
His country I mean. Hitler himself retired to the South Pacific and died of old age. Always wished he had written his memoirs from there but probably didn't have much else to say.