Big Euro-Crisis Question Has Still to Be Answered

Date: 31-10-2011
Source: The Wall Street Journal

Euro-zone leaders inevitably proclaimed their latest summit deal a triumph—as they had after each of the previous 13 crisis meetings—but one wonders whether their hearts are truly in it any more. Gone is the idealism that inspired the creation of the single currency. Ask senior European policy makers today whether the euro can be saved and the answer is invariably yes—because the consequences of failing to do so are too dreadful to contemplate. German Chancellor Angela Merkel didn’t exaggerate when she said 60 years of peace and prosperity in Europe are at stake.

Enthusiasm for the European Project is evaporating. If there were an easy way to exit the euro, Athens would have taken it by now, with the enthusiastic encouragement of the other 16 members. The French president, Nicolas Sarkozy, now says Greece should never have been allowed to join. The Italian prime minister, Silvio Berlusconi, last week called the euro a „strange currency“ that had „convinced nobody.“ Parties hostile to the EU, such as Finland’s True Finns, are gaining electoral support across the Continent. In Germany, 30% of voters now want the return of the deutschmark. Fear of the consequences of a euro break-up is all that is holding it together.

Date: 31-10-2011
Source: Niall Ferguson
Subject: America’s ‘Oh Sh*T!’ Moment

Has the U.S. deleted the very things that made it great?
Niall Ferguson on how America can avoid imminent collapse.

Don’t call me a “declinist.” I really don’t believe the United States—or Western civilization, more generally—is in some kind of gradual, inexorable decline.

But that’s not because I am one of those incorrigible optimists who agree with Winston Churchill that the United States will always do the right thing, albeit when all other possibilities have been exhausted.

In my view, civilizations don’t rise, fall, and then gently decline, as inevitably and predictably as the four seasons or the seven ages of man. History isn’t one smooth, parabolic curve after another. Its shape is more like an exponentially steepening slope that quite suddenly drops off like a cliff.

If you don’t know what I mean, pay a visit to Machu Picchu, the lost city of the Incas. In 1530 the Incas were the masters of all they surveyed from the heights of the Peruvian Andes. Within less than a decade, foreign invaders with horses, gunpowder, and lethal diseases had smashed their empire to smithereens. Today tourists gawp at the ruins that remain.

The notion that civilizations don’t decline but collapse inspired the anthropologist Jared Diamond’s 2005 book, Collapse. But Diamond focused, fashionably, on man-made environmental disasters as the causes of collapse. As a historian, I take a broader view. My point is that when you look back on the history of past civilizations, a striking feature is the speed with which most of them collapsed, regardless of the cause.

The Roman Empire didn’t decline and fall sedately, as historians used to claim. It collapsed within a few decades in the early fifth century, tipped over the edge of chaos by barbarian invaders and internal divisions. In the space of a generation, the vast imperial metropolis of Rome fell into disrepair, the aqueducts broken, the splendid marketplaces deserted.

Illustration by Jesse Lenz

The Ming dynasty’s rule in China also fell apart with extraordinary speed in the mid–17th century, succumbing to internal strife and external invasion. Again, the transition from equipoise to anarchy took little more than a decade.

A more recent and familiar example of precipitous decline is, of course, the collapse of the Soviet Union. And, if you still doubt that collapse comes suddenly, just think of how the postcolonial dictatorships of North Africa and the Middle East imploded this year. Twelve months ago, Messrs. Ben Ali, Mubarak, and Gaddafi seemed secure in their gaudy palaces. Here yesterday, gone today.

Why France – Not Greece or Italy – Will Decide the Fate of the Euro

Date: 31-10-2011
Source: TIME

France’s own economic problems will soon make it unable to help bail out weaker European countries. When that happens, the Euro game is up.

Shares of Société Générale, a major French bank, have lost half their value since March.

Last week’s deal to save the Euro has contained the problems in Greece – at least for the moment. Now all eyes are turning to Italy as the next potential crisis hotspot. But there’s no need to go through the troubled economies of Europe one by one, trying to assess their individual prospects. In the end, there’s only one country that matters. The survival of the Euro currency – and the entire European economic system that goes with it – ultimately depends on France.

Did You Hear the One About the Bankers?

Jedenfalls ist interessant wie selbst in den USA bereits vom 3-fachen Pullitzer Preisträger kritisch beschrieben wird, dass kriminelle Machenschaften, für die Privatpersonen (jahrelang) in Haft gehen, bei Banken mit einer (in Relation bescheidenen) Geldstrafen „geregelt“ werden. Aber wir sollten nicht allzu kritisch sein – bei uns in Bagdad ist es doch anders …? GR)

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October 29, 2011

By THOMAS L. FRIEDMAN, NYT

CITIGROUP is lucky that Muammar el-Qaddafi was killed when he was. The Libyan leader’s death diverted attention from a lethal article involving Citigroup that deserved more attention because it helps to explain why many average Americans have expressed support for the Occupy Wall Street movement. The news was that Citigroup had to pay a $285 million fine to settle a case in which, with one hand, Citibank sold a package of toxic mortgage-backed securities to unsuspecting customers — securities that it knew were likely to go bust — and, with the other hand, shorted the same securities — that is, bet millions of dollars that they would go bust.

European Summit: A Plan with No Details

By John Mauldin | October 29, 2011

A Definite Plan (Minus Those Sticky Details)
Dear Mario
When Leverage Is the Kind-of Answer
Meanwhile Back in Portugal
Let’s Just Change the Rules
San Francisco, Kilkenny, Atlanta, DC … and the World Series Loss

Where is the peace dividend that was supposed to come after the end of the Cold War? Where are the fruits of the amazing gains in efficiency that technology has afforded? It has been eaten by the bureaucracy that manages our every move on this earth. The voracious and insatiable monster here is called the Federal Code that calls on thousands of agencies to exercise the police power to prevent us from living free lives.

It is as Bastiat said: the real cost of the state is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The state has looted us just as surely as a robber who enters our home at night and steals all that we love.

- William „Bill“ Bonner

Exactly what happened in Europe yesterday? The market reacted like it was the Second Coming of the Solution to End All Solutions. No problem here! The European debt crisis is solved! But if you look deeply (almost always dangerous when it comes to Europe) there is more to the market „melt-up“ than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us, as, sadly, I have written about in the past. The finger points to our old friends derivatives and credit default swaps. This week, as I recover from a rather nasty bug, we look at gamma and delta and other odd entities that may be behind the real reason for the market response, as we march inexorably toward the final chapters of the Endgame. Let’s see how far out on a limb I can go.

Grand European Rescue Already Starting to Come Unglued?

 

Author: Yves Smith · October 28th, 2011 · RGE EconoMonitor

This site has had plenty of company in expressing doubts about the latest episode in the continuing “save the banks, devil take the hindmost” Eurodrama. The same issues came up over and over: too small size of rescue fund, heavy reliance on smoke and gimmickry to get it even to that size, insufficient relief to the Greek economy (the haircuts will apply to only a portion of the bonds), no assurance that enough banks will go along with the “voluntary” rescue, and way way too many details left to be sorted out.

But it is a particularly bad sign to see disagreement within the officialdom about the just-annnounced deal. The Telegraph (hat tip reader Jim Haygood) reports that the Bundesbank, which has considerable influence on the ECB, is trash talking a critical part of the pact:

Hours after an all-night summit of euro governments ended, flaws began to emerge in a package that was billed as a “grand and comprehensive” solution to the European debt crisis.

The concerns were led by Germany’s powerful central bank, which expressed fears that a plan to leverage a €440 billion eurozone rescue fund to amass a “fire power” of €1 trillion, or £880 billion, resembled the risky finance methods that triggered the crisis in 2008.

Why the Euro Crisis Will Deteriorate Before It Will Get Better

 

Author: Dan Steinbock · October 28th, 2011 · RGE EconoMonitor

As the eurozone could finally agree on the deal, markets took off. The rescue fund will be multiplied. The banks will be recapitalized. Prime Minister George Papandreou said that now the Greek debt is sustainable. The euro leaders thanked each other. In the United States stocks ended up 3% up on the EU hopes, while Dow rose above 12,000.

So is everything all right? Not at all, the eurozone crisis will worsen before it will get any better.

Why the deal cannot be sustained

In order to satisfy the markets in the long term, the eurozone leaders should have achieved at least three fundamental goals:

First, the liquidity facility should have been expanded from the current EUR 440 billion ($610 billion) to EUR 1-2 trillion ($1.4-$2.8 trillion). Instead, the current deal will deploy leverage.

The “systemically critical” euro banks should be recapitalized by EUR 100-110 billion ($140-$155 billion). Now 70 major euro banks will raise EUR 106 billion ($150 billion) by mid-2012.

Third, the Greek debt reductions should be increased from the current 21% to 60-75%. Now, after two years of denial and friction, the consensus is 50%.

The Problem with Godvernment

Casey Research, 29/10

While I haven’t made a scientific study of the topic, I suspect the leading genre for popular entertainment – and for popular delusions of crowds, for that matter – revolves around magical worlds. As illustration, the Harry Potter series will serve.

The problem is that there is no such thing as magic, at least not in the mystical sense (versus sleight-of-hand variety). Rather, the physical world, and even the metaphysical world constructed by humans in their ancient and long-running quest for protection from the physical world, operates within the boundaries of certain irrefutable truths.

In the first instance, the laws of physics are only rarely found wanting; in the second, basic principles of economies are inviolate, or should be if you actually want an economy to succeed for any length of time.

This unblinking faith in an all-caring, omnipotent Godvernment is terrifyingly misplaced: it not only runs contrary to many of those truths but runs contrary to nearly every important lesson history has to teach. Look no further than the debts and deficits of Godvernments around the world to see the consequences of trying to keep this myth alive.

That this faith is on the increase, versus the opposite, should be very concerning… both to those who believe in the rights of individuals and to those trying to build and maintain a reasonable standard of living in this age of deep uncertainty.

Especially in that most, if not all, of that uncertainty, as well as active threats to the general well-being, emanates from the very Godvernments people look to for salvation and sustenance.

I had planned on running the graphic shown here in today’s Friday Funnies, but because it seems so apropos to this discussion, I’m running it here.

Now, I am sure that some of you view these remarks as just another libertarian tirade, and I guess to some degree, they are.

Yet, I think there is an important underlying point that requires serious reflection. Namely, with people the world over trapped in a delusional and self-destructive cycle of believing that the Godvernments can solve all that ails – even though almost all that ails is caused or made worse by those very same institutions – then things can only get worse from here.

It’s like all but the tiniest minority of the world’s population have been brainwashed into joining a dangerous cult. A cult whose leaders are unscrupulous about stripping their followers of their wealth, their dignity (see cartoon above) and their sense of individuality, while rewarding their most ardent supporters with pensions, tax breaks, a leg up over competitors and, if push comes to shove, hard cash in the form of bailouts.

Viewed through this lens, the thinking individual – you, for instance – should see the need to take certain self-protective measures. And since few things are as useful as a high net worth when it comes to protecting your independence, there are opportunities to chase down as well.

Some suggestions, a number of which you have heard before.

1. Expect the latest Eurozone patch-up job to come unglued.

Soviel zur „Unschuld der Banken“

z.B. Vergabe von Fremdwährungskrediten in Ungarn, 2007.

 

Raiffeisen Bank TV-Ad: Easy (sub-prime) loans in Hungary, 2007   http://www.youtube.com/watch?v=OjXl61uKq8c&feature=youtu.be

Die Traummännlein

Wem glauben Sie mehr?(hfk)

orf.on 28/10

In einer gemeinsamen Stellungnahme mit der FMA sagte OeNB-Gouverneur Ewald Nowotny am Donnerstag, Österreichs Banken seien von den Problemen öffentlicher Schuldtitel nur in geringem Maß betroffen, sie würden aber „an den allgemeinen Maßnahmen zur Kapitalstärkung teilnehmen“. Dabei werde es wichtig sein, die Stabilität der Kreditversorgung zu sichern. Ettl erwartet dabei keine gröberen Probleme. 

 

„Die österreichischen Banken sind stark aufgestellt„. Ettl im orf.radio 28/19

diepresse.com, 28/10

Warum brauchen Österreichs Banken gleich 2,9 Milliarden Euro?

 

Abgesehen von der Kommunalkredit-Gruppe hat der Kapitalbedarf bei Österreichs Banken aber nichts mit der Griechenland-Krise zu tun. Denn im Vergleich zur Konkurrenz in Frankreich und in Deutschland besitzen die Wiener Institute kaum griechische Anleihen. Sie haben ein ganz anderes Problem: Ihre Eigenkapitalausstattung ist seit Jahren viel zu niedrig.