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I don't want to blame President Obama too much on this because everyone else gave in to.

Here's the scoop:

http://www.guardian.co.uk/...

Scroll down to 7:20pm

G20 leaders have signalled that they are going to put more money into the International Monetary Fund. Although this money will not specifically be for a eurozone bailout, the move seems designed to convince the markets that money would be available to support a country like Italy if it were to run into trouble. David Cameron and George Osborne have backed the idea, and signalled that Britain is willing to increase its contribution to the IMF, although they also say that British taxpayers will not lose out. But so far no figures have emerged as to how much extra money could go into the IMF. According to one draft released to the media, the communique being issued tomorrow may just say: "States that wish to, can, from around the autumn of 2012, raise their bilateral participation in IMF resources."

This is totally unnecessary, but when a gun is being put to your head, one might give into the blackmail.

UNDER THE FOLD

The Eurozone could easily solve its problems by using the current powers of the ECB to backstop countries like Italy. Instead, the EU has resorted to blackmailing countries to take care of the problems it is unwilling to solve.

It began by going on a roadshow to China earlier this week:

http://www.irishtimes.com/...

"We all know China has a particular need to invest surpluses," he said at a news conference, referring to the country's foreign exchange reserves of $3.2 trillion - the world's biggest stockpile.

China has been a regular buyer of bonds issued by the EFSF and analysts estimate about a quarter of its reserves are held in euro-denominated assets.

And, China sent him on his way without a promise to jump in and buy in the expanded EFSM. Why? Because of Regling's logic. You have a surplus, please buy. Problem is, there are other surplus countries in the world, some of them are in the eurozone, and instead of committing their surpluses to the bailout, they are using toxic derivatives to stock the EFSM. Of course China rejected them.

Here's what the UKs Labour Party has to say about the deal (from the Guardian):

Labour has attacked Cameron and Osborne for planning to increase Britain's contribution to the IMF now. Ed Balls, the shadow chancellor, issued this statement.

    We support an increase in the IMF subscription because of the vital role that the IMF plays in the global economy. But the IMF's job is to support individual countries with solvency crises, not to solve a structural problem caused by eurozone countries being unable to agree the necessary steps to support and maintain their monetary union.

    That's why this summer we said that additional funding for the IMF should be held back until the details of the permanent eurozone bailout fund had been agreed.

    The only way to properly ensure market confidence in the eurozone is for the European Central Bank, alongside the bailout fund, to be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to.

    So instead of obfuscating and hiding behind fudged words in communiqués, David Cameron and George Osborne should be clear about what's really going on. They must clarify, as we have consistently said, that there should be no IMF funding to plug the gap in the bailout fund and do the job the ECB should be doing.

This means that Labour is now in a position to join forces with Tory Eurosceptics, many of whom would oppose an increase in Britain's contribution to the IMF if they thought they money was being used to bail out the euro.

The Eurozone has a very large GDP. Its debt to GDP is SMALLER than the USAs. Smaller than Japan's. They are fully capable of dealing with countries like Greece that makeup only 2% of the zone. Labour UK is now in the odd position of agreeing with the eurosceptics. Why doesn't the core eurozone address its problems before asking for handouts?

I believe I know the answer. Until this week, everyone has been talking about the European banks that are at risk from exposure to Greek debt. This week, it's been revealed that these banks have been recapitalized and that there is little exposure to Greek debt. See here:

http://www.fxstreet.com/...

Regarding the potential consequences for French banks, Leonetti said "we are told that French banks exposure to Greek debt is between EUR8 billion and EUR10 billion."

Here's what has been happening with Greece. Greece is being used as a distraction to pass money through to the banks. Why are they extending and pretending the farce of Greece's solvency? The longer they extend, the more money they make for their banks. Otherwise, when Greece defaults, they have to make their banks whole directly, without using Greece as a pass through. You see it in Leonetti's quote. He's essentially saying, we can cut Greece off now. We have little exposure to them. (And, I might add, the question of CDS held by American banks on Greek debt becomes much less urgent than the general health of OTHER eurozone countries and the euro economy).

Why aren't they just making their banks whole directly you ask?

1. The IMF is providing 33% of the bailout
2. Eurozone countries without direct exposure to Greece are providing the majority of the bailout.

Some interesting stats here:

1. Germany has contributed 14 billion to Greece so far (all that money will be returned to Germany since the troika loans are considered primary bondholders to be paid back in full prior to private bondholders)

2. Greece pays 5.75% in interest, and has been now for 19 months

3. At the start of the crisis, German and French banks had 90 billion exposure to Greece.

4. Now, Germany and France have under 20 billion exposure.

It's a scam. Lots of blackmail and bluster to keep the money rolling in.

It's not the first time this has happened either.

Look at the craziness from 2008:

http://www.dw-world.de/...

Anger mounted in Berlin on Wednesday, Sept 17, after it emerged that German state development bank KfW transferred 300 million euros ($427 million) by mistake to Lehman Brothers hours before the US investment bank folded.

How were these German banks made whole for their idiotic decisions?

http://en.wikipedia.org/...

The Fed's Maiden Lane project used AIG as a pass through to send money to cover the German banks for their losses. $30 billion from US taxpayers.

This has been the game all along.

Right now, Germans are angry with the proposed Greek referendum. This is an odd situation. Germans are rightly angry with having to use taxpayer money on Greece. But now Germans are angry for possibly NOT having to use taxpayer money on Greece. These are totally contradictory statements. It must mean that people are generally cognizant of the fact that Greece is being used as a pass through to recapitalize banks, because otherwise, the best response to Greece is a sincere, "Good luck to you, my friends."

Some analysts have called Greece's referendum a form of blackmail on Europe. It is. Greeks can't take any more austerity. They are blackmailing Europe with the threat of default. How/Why? Because they know that the eurozone would have to take up the awful crazy decision to toss it out of the euro (because Greece would not leave on its own volition). If a country can be tossed out of the euro it drives up the risk investment in all the debtor nations, and risks bank runs and economic collapses in the periphery. In short, the end of the euro.

But, what has slid under the rug is the way that the eurozone itself turns around and uses the specter of European collapse as blackmail to grab taxpayer cash from other nations, such as the USA.

UPDATE: http://www.businessweek.com/...

Apparently, they only agreed in principle to backstop the IMF, but disagreed on exact amounts.

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Comment Preferences

  •  Tip Jar (10+ / 0-)

    There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

    by upstate NY on Thu Nov 03, 2011 at 03:31:49 PM PDT

  •  I assume that the main reason that the US (4+ / 0-)

    is willing to cough up money that it really doesn't have is because of exposure of US financial institutions to European sovereign debt. Since nothing has been done to regulate the financial sector, another bailout would be sooo embarrassing.

    Why the Chinese are willing to play is a bit more interesting. This has the look of a new Marshall Plan made in Asia. I suspect that they see this as an opportunity to buy their way into the top dog fraternity of international finance.

  •  Look, it's all rather simple IMHO (3+ / 0-)
    Recommended by:
    pot, skod, Gooserock

    The banks will not take their losses. One way or another, either taxes will be raised or services will be cut. In every country on Earth. The people and the politicians can say or do what they want, but that is a sort of supra-policy that, as we've seen in the last few days in Greece, is not subject to public input.

    •  The point, though, is countries (3+ / 0-)

      who have surpluses asking for other countries to contribute to the saving of their banks.

      Put it this way: Slovakia is the 2nd poorest country in the EU. They have contributed more to saving Germany's banks than Germany has. Germany has a surplus. Why aren't they saving the eurozone?

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Thu Nov 03, 2011 at 04:05:05 PM PDT

      [ Parent ]

    •  Think of the absurdity of what is happening (5+ / 0-)

      in Greece ... collective bargaining is being eliminated by the Troika, pensions (above 1000 euro/month) are being cut, wages are being cut, jobs are being cut and/or people are being reduced to part-time labour, a poll tax is being levied on every household, ministries will be run by people from the EU. These policies are being introduced from the outside. They have nothing to do with saving the Greek economy; their sole purpose is to save banks (greek, european and international) exposed to the situation. Just think that even more so, this is simply a diversion from the main event to recapitalise the banking sector.

      The victims of this insanity have no government to represent them; they are out on the streets. Everyone is talking about everything but what is really going on which upstateNY has raised as this is a done deal. My only hope is that the Greeks will rise up against this so-called coalition government that represents no one but the banks ...

      "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

      by NY brit expat on Thu Nov 03, 2011 at 04:39:30 PM PDT

      [ Parent ]

      •  The one that gets me is the property tax (3+ / 0-)

        that is charged through the electric company.

        This, in a country with 85% home ownership. You have pensioners and unemployed who have homes handed down for generations getting bills that are higher than their yearly income. Electricity and heat is cut off if they don't pay. This is a death sentence. What more, the electric company is about to suffer huge losses from delinquencies.

        There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

        by upstate NY on Thu Nov 03, 2011 at 05:10:35 PM PDT

        [ Parent ]

        •  I keep on thinking that the austerity measures (1+ / 0-)
          Recommended by:
          Gooserock

          are the main event in this in that they are using the crisis to completely destroy social subsistence level and the hard-earned rights of workers and unions. How is the elimination of collective bargaining not illegal in terms of breach of contract as well as an undermining of either greek law and/or custom?

          The property tax is obscene; in the UK, they are taking 25% off the top of people's benefits to cover heating rises (benefits are not that high as an understatement), those that have metres in their houses are not heating them. The government can easily solve the problem by increasing heating allowance to the poor, but refuse to do so. In Greece, the fact that they are linking it to a property tax is exactly what you are saying, they will kill people.

          If they only wanted to recapitalise banks there is no need for austerity measures; that is why I am wondering if this is the main show not just a diversion. Bank recapitalisation doesn't need this at all. The Greeks need to stop payments of debt, demand a debt audit, default on whatever they can that will not affect pension funds and small holders of debt. If the euro requires the sacrifice of this much, they need to leave ... Spain, Ireland and Portugal will join them. I am certain that is not what is wanted by the powers that be.

          "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

          by NY brit expat on Thu Nov 03, 2011 at 05:44:43 PM PDT

          [ Parent ]

          •  Ownership Has Been Behaving Like Survivalists (1+ / 0-)
            Recommended by:
            NY brit expat

            for quite a long time now. This is hardly my expertise but just as a general proposition, they seem to me to have been planning on the whole system caving in for decades.

            I never see signs of self limiting behavior other than to limit losses at the very top end. The people and nation states don't seem to be in the big picture.

            We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

            by Gooserock on Thu Nov 03, 2011 at 06:04:57 PM PDT

            [ Parent ]

    •  All week, "An agreement has been reached!!!" (1+ / 0-)
      Recommended by:
      Euroliberal

      By whom, with who at the table?

      Yes, Pilkington, the banks, with pecking order observed, are being served by the client gov'ts in the bearing down on indebted parties to pay 100% of the bill for the banks' irrational risk accumulation.

      Eliminate the Bush tax cuts Eliminate Afghan and Iraq wars Do these things first before considering any cuts

      by kck on Thu Nov 03, 2011 at 05:02:23 PM PDT

      [ Parent ]

  •  Let the banks eat Greek and Italian debt. (1+ / 0-)
    Recommended by:
    Sandino
    Greece is being used as a pass through to recapitalize banks
    Indeed, as is the US Federal Reserve and this newly imagined IMF which used to be intended to stabilize the worlds assets to flow into developing countries.

    Each bailout of irresponsible lending, despite being framed as a "move to stabilize",  further concentrates power and risk pumping hot air into pressurized TBTFs.

    Break the ties, light up the firewalls, and let them go.

    Eliminate the Bush tax cuts Eliminate Afghan and Iraq wars Do these things first before considering any cuts

    by kck on Thu Nov 03, 2011 at 04:01:46 PM PDT

  •  Oh? Really? (3+ / 0-)
    Recommended by:
    jalenth, doroma, BarackStarObama
    I don't want to blame President Obama too much on this...

    But you thought you'd just put the most anti-Obama slant in your headline that you could think of? I'd say you want to blame him plenty.

    At least be honest, eh?

    "Back off, man. I'm a scientist."
    -- Dr. Peter Venkman


    Yeah, yeah, I tweet

    by Eclectablog on Thu Nov 03, 2011 at 04:08:18 PM PDT

    •  Uh, the statement is factual (5+ / 0-)

      What do you want me to say.

      The eurozone blackmailed and the USA caved.

      The deal hammered out last week did not change one iota. Instead, the G20 pumped money into the IMF to be used on eurozone countries.

      He shouldn't have caved.

      I understand, however, that he was being blackmailed.

      That's my point.

      Is it really so difficult to understand?

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Thu Nov 03, 2011 at 04:22:12 PM PDT

      [ Parent ]

  •  please do not cite Bild (2+ / 0-)
    Recommended by:
    gerald 1969, Euroliberal

    it´s the equivalent of the New York Post - only with a much more widespread reach. It´s a right wing mass publication smear & attack paper. It is not representative of political thinking in Germany. If you want to cite what German right wing establishment thinks, take the Frankfurter Allgemeine, or the Welt if need be.  

    about the poll I don´t know. If its true then I am in the four percent, heh, thats a popular way to position oneself lately :)

    the best response to Greece is a sincere, "Good luck to you, my friends."

    yes thats about what I think :)
    And you are fully correct that the Germans, as Europeans everywhere, should get angry about the siphoning off of public money to the banks. Actually, in my circles (paneuropean expat worker community at an international suffering harshly from the bankers´ shenanigans) that is also the generally prevalent view.

    •  Good point, and actually I'll remove that (2+ / 0-)
      Recommended by:
      NY brit expat, marsanges

      totally.

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Thu Nov 03, 2011 at 04:18:55 PM PDT

      [ Parent ]

      •  huh (2+ / 0-)
        Recommended by:
        NY brit expat, highacidity

        surprise!
        I will try to return you the favour by translating the comment in the FAZ. Translating is original artwork, so I can do it in full. (God, I hate this american copyright neurosis). Here goes, remember the FAZ is solidly Conservative.

        000000000000000000000

        A Taboo is broken

        Commentator: Klaus-Dieter Frankenberger, Translator: m.
        03.11.2011

        The great project Europe is undergoing a crisis of trust.

        Since begin of the sovereign debt crisis there were more than a dozen summits, sequentially larger bailout packets were bundled, for Greece, for Ireland and Portugal. The European treaties have been interpreted very loosely to do this, the ECB has been pushed to buy italian and spanish government bonds. The countries that took recourse to such help have been directed to undergo a painful therapy, they habe been put under curatele, their fiscal sovereignty has been practically suspended.

        But, up to now, one thing has not been put in question, with one exception, which actually occurred in the Bundestag [German parliament]: that the debt ridden members of the Euro zone would be in the future members of the monetary union as well, regardless of what happens. leaving or being kicked out - that was a Taboo. That the Treaties don´t provide for either the one or the other actually was the least of all obstacles to such ideas.  

        This Taboo is now defunct. The Chancellor, the french President and the luxemburgian Chef of the Euro groep do not rule out any longer what not long ago wasn´t even supposed to be thought of: that Greece leaves the monetary union if it can not, or does not want to, keep the agreements for solving its fiscal crisis. Mrs Merkel, Sarkozy and Junker are at the end of their patience. They understand the straightjackets in which the Greek government finds itself, they also do not underestimate what is beink asked from the Greek populace. But they have their own electorates to think of. Above all they have committed themselves more than once with great rhetorical fanfare to keeping the Euro stable, and to safeguard the Euro zone from damage and keep it together. The Greek crisis-without-end id on its way to make hollow shells out of these promises.

        Or was it all just tactics? Presumably, Merkel and Sarkozy have talked up the supposed consequences of a Greek referendum in sharpened form against the Greek prime minister as a threat to yet again make unabiguously clear to Athens what is at stake here. In any case, their input was dramatically high. Because the economical and political consequences, if a country would leave the Euro zone, would be unpredictable and incalculable. The costs would be high for the remaining members of the Eurogroup too, including the dangers of contagion and the hunt of the markets for further prey.

        Regardless of which shenanigans the Greek politics will yet play, and regardless if the (unavoidable) breaking of the taboo was more meant to deter, in any case the European politics has entered new territory. From now on, it will probably not just be: always more members, always more competences for the EU. From now on, the disassembling of Institutions and Tasks is no longer excluded, either because the voters want it, or because there are factual inconsistencies and dissonances that can not be resolved with the currently used methods.

        The danger thats lying in this is obvious. If something begins to slide, then it is difficult to stop the impetus. In any case, the great project Europe, this unique attempt to organize peace and prosperity under collective exertion of sovereignty, undergoes a crisis of trust. Maybe therefore now is the time to take radical measures, with the aim to preserve the greather whole against still more extensive damage.

        0000000000

        Intersting isnt it his comment? It´s a fine piece illustrating the way in which the European establishment right wing (+) works to undermine and deconstruct Europe.

        (+) There´s also a non establishment right wing. That ranges from Frances Le Pen to German NPD-ers or Spanish falangists and those are openly horrible in a way the UMP or the CDU are not.

        •  And yet, the crisis in Europe is minor (3+ / 0-)
          Recommended by:
          marsanges, NY brit expat, Euroliberal

          Debt in the eurozone is low. They have surpluses. Italy looks better than Japan. And everyone is freaking out about Greece defaulting on an actual 50% of their debt when they represent just 2% of the eurozone.

          This doesn't even rise to the level of Savings & Loans Scandal, yet the focus is on Greece. And no one mentions that fact.

          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

          by upstate NY on Thu Nov 03, 2011 at 05:26:35 PM PDT

          [ Parent ]

  •  This is not the first international financial (5+ / 0-)

    crisis. The world has seen similar global financial upheavals in the 1920s, the 1980s and the late 1990s. They have all involved banks and bond holders gorging themselves on high risk debt and having to be bailed out. The only fairly stable period was from the end of WW II to 1970. That was characterized by a very high level of regulation in the wake of the depression and the war.

    This is really a matter of history repeating itself.

     

  •  Thanks for this diary ... I have spent (5+ / 0-)

    the day reading stuff from the left on debt and they are all talking about recapitalisation; yet this is not addressed at all by the mainstream media. Here are some excellent pieces that address the situation in greece and what is really going on:

    1) http://www.cadtm.org/...
    2) http://www.cadtm.org/...
    3) http://www.cadtm.org/...
    I am sharing these less out of relevance to this diary but to let people know what it going on. I am not well enough to write a diary today (abscessed gum) but am hoping that the diarist will have some patience for the links irrespective the irrelevance to his important diary. tipped, rec'd and shared

    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

    by NY brit expat on Thu Nov 03, 2011 at 04:27:09 PM PDT

  •  A friend commented on the link (0+ / 0-)

    for your diary and said this (he gave me permission to share the comment):

    Problem is that ECB would need funds from EU countries to do this. The countries would have to issue sovereign bonds which would be difficult to shift and be costly to financer or make tax rises and cuts in their domestic economy effectively transferring auesterity from southern Europe to Northern Europe. ECB cannot unilaterally undertake such an action like the Fed can.

    He also has given me two links that he has said are relevant, one being his blog:

    http://www.leftbanker.net/...

    and a debate on the left:

    http://socialistresistance.org/...

    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

    by NY brit expat on Thu Nov 03, 2011 at 04:57:59 PM PDT

    •  This is part of the problem with the way (1+ / 0-)
      Recommended by:
      NY brit expat

      that the EMU was rigged together as a political project without regard to the realities of finance. Central banks have always performed a lender of last resort function when push comes to shove. The Bank of England did it without the necessary statutory authority. That is what they need the ECB to be able to do. One part of fixing this mess is to give them that authority.

      •  They have that authority (0+ / 0-)

        according to the Keynesian conclave in Austin Texas today.

        There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

        by upstate NY on Thu Nov 03, 2011 at 05:27:59 PM PDT

        [ Parent ]

        •  There is huge debate. (0+ / 0-)

          This may come as a great shock to you but.....

          economists have a tendency not to listen to each other.

          •  They consulted with EU legislators and (0+ / 0-)

            legal teams.

            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

            by upstate NY on Thu Nov 03, 2011 at 05:55:28 PM PDT

            [ Parent ]

            •  I've been following this as best I could from a (1+ / 0-)
              Recommended by:
              NY brit expat

              distance and with only English. My impression is that you could go and find another bunch of European legislators and lawyers who would give you an opposite interpretation. The issues related to this are regularly having to be sent to the top level national court for interpretation. This is why the EU is such a rat's nest.

              •  The thing is, as far as Germany is concerned, (3+ / 0-)
                Recommended by:
                NY brit expat, Sandino, Euroliberal

                the Bundestag explicitly states, that there are to be no fiscal transfers.

                That is poorly worded. The ECB issuing its own bonds under its own authority (as say, the Irish authority did) does not require a fiscal transfer.

                This is an end around.

                All it requires is political will.

                The people touting this proposal say that were this question required to be ratified, the eurozone would be done prior to the ratification. So, all it requires is political will.

                What's the downside for Germany?

                Once the ECB acts like a real treasury, the ECB becomes the most powerful entity in the eurozone, and it would require political power and oversight. It means countries would lose sovereignty.

                Now, if this can be done without legislation and ratification, does this seem like an oversight to you? Or is it rather a feature of how the eurozone was designed? Did some devious bastard think this up precisely to override sovereign (and indeed democratic) concerns?

                There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                by upstate NY on Thu Nov 03, 2011 at 06:10:22 PM PDT

                [ Parent ]

                •  Paul Krugman has been making a lot of critical (1+ / 0-)
                  Recommended by:
                  upstate NY

                  comments about this in his blog.

                  I think that the basic problem is that the euro zone was conceived in backroom deals with the lights out. All they were focused on was making deals and nobody thought about the consequences, particularly not in the context of a prolonged economic crisis. It was all a very bad idea from the beginning.

                  The Germans because of their own history are obsessed with work, saving and doing anything possible to avoid the least breath of inflation.

                   

          •  By the way, Verhofstadt came out (0+ / 0-)

            in the FT and endorsed what these particular economists were saying, among other EU luminaries.

            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

            by upstate NY on Thu Nov 03, 2011 at 05:56:16 PM PDT

            [ Parent ]

    •  I have watche the conference on the (2+ / 0-)
      Recommended by:
      NY brit expat, Euroliberal

      eurozone at the U. of Texas. I was watching it all day (while correcting papers). First-rate economists from all over the world will assure you that the ECB can indeed issue bonds without monetizing debt or fiscal transfers or any accounts assigned to individual countries. The ECB, shockingly, is already allowed to operate in such fashion.

      Here is the link with video (in particular, the Varoufakis speech that begins sometime around 1:30 pm today):

      http://realaudio.cc.utexas.edu:8080/...

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Thu Nov 03, 2011 at 05:07:52 PM PDT

      [ Parent ]

      •  I'll share it with him ... thanks! (0+ / 0-)

        "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

        by NY brit expat on Thu Nov 03, 2011 at 05:31:01 PM PDT

        [ Parent ]

  •  a potentially naive question (1+ / 0-)
    Recommended by:
    NY brit expat

    (I am a novice in these matters).

    Are these banks using this money to actually recapitalize? Or are they simply using it to make even bigger, riskier bets and stretching themselves even thinner?

    "In America, the law is king." --Thomas Paine

    by limpidglass on Thu Nov 03, 2011 at 05:06:57 PM PDT

    •  To the extent that banks have to eat bad (1+ / 0-)
      Recommended by:
      NY brit expat

      debt in excess of their capital reserves then they must be recapitalized by somebody. The alternative to that is that they go under and depositors lose their money. The problems come when this is done without putting regulations in place to stop them from making the same mistakes all over.

      •  so let me rephrase the question (2+ / 0-)
        Recommended by:
        marsanges, NY brit expat

        since they're being bailed out for their previous mistakes, are they going to use this new capital to make even bigger and riskier bets, instead of keeping sufficient amounts of capital on hand like they should?

        My amateur understanding is this: the banks are like a gambler who lost a lot of money in Vegas betting way too big. But this particular gambler is a powerful man, so he arranges to shake down someone else (Greece) for the money.

        Now chances are, given the success of his shakedown, he'll promptly continue the pattern of big and risky bets in Vegas that got him into this mess in the first place.

        Is this a reasonable summary of the situation?

        "In America, the law is king." --Thomas Paine

        by limpidglass on Thu Nov 03, 2011 at 05:21:38 PM PDT

        [ Parent ]

        •  That depends on whether the new capital (2+ / 0-)
          Recommended by:
          limpidglass, NY brit expat

          comes with the strings of new regulations attached. In the US is has not.

        •  I suspect German banks will not make the same (1+ / 0-)
          Recommended by:
          limpidglass

          mistakes but there were some incredible doozies, which makes you wonder.

          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

          by upstate NY on Thu Nov 03, 2011 at 05:29:12 PM PDT

          [ Parent ]

          •  Maybe not the same ones. (0+ / 0-)

            They do have a claim to originality in mistake making.

             

          •  let me attempt to sum up (2+ / 0-)
            Recommended by:
            NY brit expat, katiec

            what you've said in this diary:

            This "crisis" is really a stealth recapitalization that is being carried out under the pretense of demanding ever more pounds of flesh from a supposedly profligate Greece.

            The ECB is going around begging for spare cash from China, from the IMF, from everyone with two cents to rub together. They are holding the entire world economy hostage and threatening to blow up the whole eurozone and precipitate a worldwide economic crisis if they're not bailed out.

            Then instead of using this money to save Greece and stabilize the eurozone, they will funnel it to French and German banks via secretive programs (the prototype of which was Maiden Lane), filling those banks' coffers.

            Then what happens after that? We all live happily ever after? Surely this isn't the end of it.

            If a few banks in Germany and France can successfully blackmail the entire world into covering their mistakes to the tune of hundreds of billions, perhaps trillions, of dollars, then we really are up shit creek. They'll be even more audacious next time, sure that they can demand even more cash from all of us--and get away with it. Successful stick-up artists don't usually stop with the first heist.

            Thanks for yours and Richard Lyon's patience; I want to be sure I have the gist of what's going on.

            "In America, the law is king." --Thomas Paine

            by limpidglass on Thu Nov 03, 2011 at 06:06:34 PM PDT

            [ Parent ]

            •  The banks in Germany and France (2+ / 0-)
              Recommended by:
              limpidglass, NY brit expat

              are doing what their counterparts in the US did in 2008. I don't seem any basic difference.

            •  the money was never meant for Greece (2+ / 0-)
              Recommended by:
              limpidglass, Richard Lyon

              or to save Greece's economy (or the earlier or next in the line); it has never been about that. If they wanted to actually enable Greece to save its economy they would not be demanding the austerity measures as these will make economic growth and recovery impossible as they are impoverishing the Greek majority. Growth and recovery in the absence of effective demand are impossible historically.

              It is clear that bank recapitalisation is their main and only goal.

              "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

              by NY brit expat on Thu Nov 03, 2011 at 06:18:07 PM PDT

              [ Parent ]

              •  Actually, I have a question ... (0+ / 0-)

                I work on the real economy and that is where I am centred. Can someone explain to me the differences between Sarkozy's and Merkel's position? I had heard that he wanted to recapitalise the banks using the ECB and Merkel chose this route. Is this correct? If not can someone explain the difference between their approaches?

                "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                by NY brit expat on Thu Nov 03, 2011 at 06:28:56 PM PDT

                [ Parent ]

                •  I think that they have mainly been (2+ / 0-)
                  Recommended by:
                  NY brit expat, upstate NY

                  arguing over which of them has the fattest ass. They seem to be in a continual personality spat and I have never been able to detect differences of financial substance in their arguments.

                •  A difficult question because it was never (2+ / 0-)
                  Recommended by:
                  Richard Lyon, NY brit expat

                  explained what he wanted. It was all behind close doors. I think he didn't want the EFSM to rely on tranches but instead to be funded in concert with ECB (in other words, the ECB would back the EFSM and not the CDOs and derivatives that it is currently operating under). Basically he lost, because if the ECB backstopped the EFSM, that might put some real skin in the game.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Thu Nov 03, 2011 at 06:49:37 PM PDT

                  [ Parent ]

                  •  thank you, that is what I had thought (0+ / 0-)

                    but as you said the discussion was hidden behind closed doors, but the little I heard indicated what you said.

                    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                    by NY brit expat on Fri Nov 04, 2011 at 10:23:29 AM PDT

                    [ Parent ]

            •  I agree with all of that except (1+ / 0-)
              Recommended by:
              limpidglass

              the Maiden Lane stuff. The recapitalization happens in two ways. One, Greece directly pays the banks back with the money it receives, and the ECB backs purchases of Greek bonds in the secondary market by providing collateral to banks in Greece that buy it. So it's not a stealth recapitalization. In fact, I looked up all this information on the website of BIS (Bank of International Settlements) which tracks it. It's out in the open. It only seems stealthy because no one reports it and because all the official pronouncements are designed to skew and distort what is going on.

              I also don't think the politicians are doing this out of some bank blackmail but rather because their banks are in pretty poor shape. I do think the politicians are, in terms of ideology, totally mistaken with idiotic approaches.

              Finally, few people talk about this but, Germany tried to turn E. Germany around and had an incredibly difficult time of it. Unemployment in E. Germany is 11%. I would argue that the measures Germany adopted for E. Germany were horrendously bad. They were out of Gordon Gekko's book. Liquidate the country and take the proceeds to start up new businesses. A colossal failure. Given their experiences, they think less of the periphery than they do of their Eastern brothers.

              In short, they do not believe in providing the sort of structural foundations for an economy through government. They believe in privatization of public assets.

              There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

              by upstate NY on Thu Nov 03, 2011 at 06:47:05 PM PDT

              [ Parent ]

              •  West Germany's burnout (1+ / 0-)
                Recommended by:
                upstate NY

                from rescuing East Germany is indeed a significant part of the picture. It takes more than money to put two economies in full synch with each other. If the Germans are still trying to digest all of each other, how ever will they ever integrate all the countries of the EU.

                •  One way to do it is by (0+ / 0-)

                  not liquidating industry, no matter how unproductive you deem it, because that privatization earned Germany 10% of what was projected, and they left 3 million people without a job.

                  In other words, if you don't strip them of assets, you might be better off in the end.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Thu Nov 03, 2011 at 07:24:22 PM PDT

                  [ Parent ]

    •  they desperately need (0+ / 0-)

      recapitalization.

      This is the "little" secret so cleverly hidden behind the Greece smokescreen.

  •  Obama seems to be reinforcing Geithner's (0+ / 0-)

    ...position at the last G8 without any more clarity - EU has the resources to bail themselves out and must detail its  own action plan before the US will consider paying the IMF  "dues". So, I'm not clear on your "black mailed" reference other than the generalization that all G8 countries are redistributing global wealth into the hands of bad banks making the TBTFs bigger and forcing a generation of indentured servitude.

    Your article suggests Obama's making a linkage to Iran again.

    The fin tax is a righteous and relatively painless attempt at putting a lid on the madness but Obama/Geithner will have nothing with that. And it gets no US press.

    Here are the G20 we are going to have to flesh out more of the details about how the commitments are going to be fully and decisively implemented.

    Obama said security issues would also be coming up and he specifically mentioned the threat posed by Iran's nuclear programme. The International Energy Authority (IEA) will publish a report on this next week, he said.

    In his response, Sarkozy said they had discussed the financial transaction tax (aka, the Robin Hood tax). He said he and Obama had agreed on a common analysis (but not, by implication, a common way forward.) I took that as a sign that they had agreed to disagree - France is in favour, the US isn't - but it wasn't clear.

    11.06am: While we're on the subject of the Robin Hood tax, Bill Nighy, the actor, is in Cannes and he has been giving a press conference on the subject. He's one of the leading figures in the Robin Hood tax campaign and he said he could not understand why the British government was opposed.

    He's written an article on the subject for the Huffington Post. Here's an excerpt.

       

    The 'occupy' protesters outside St Paul's have been criticised for their lack of concrete ideas about what should change. Yet there is a very simple idea - a tiny tax on the financial transactions of banks, hedge funds and other financial institutions - that could go a long way towards making finance pay its fair share to society. Such a Robin Hood tax of just 0.05% could raise tens or even hundreds of billions worldwide if applied to share, currency, bond and derivative transactions.

        The billion hungry people in the world (more than the total populations of the US and EU combined) should not have to wait for economic recovery to receive the help promised. Nor is it just people in Africa who cannot feed themselves, as I found out when I visited a food bank in Putney of all places earlier this year.

        Given the UK's leadership on aid, it is all the more disappointing that the UK, rather than enthusiastically supporting Gates' recommendation, is instead expected to block progress. The PM knows the US is strongly opposed, yet claims financial transaction taxes must be global to work. Has he not noticed the UK's own unilateral Stamp Duty on share transactions that raises about £3bn every year?

    Eliminate the Bush tax cuts Eliminate Afghan and Iraq wars Do these things first before considering any cuts

    by kck on Thu Nov 03, 2011 at 05:12:36 PM PDT

    •  The blackmail is that Italy's bonds hit 6.4% (3+ / 0-)
      Recommended by:
      Richard Lyon, NY brit expat, kck

      today.

      Once they hit 6.5%, they go into "the program."

      Only the program put together last week is one of those guns which, when you pull the trigger, a flag pops out of the barrel with the word, "bang!"

      Given that, the IMF is required to provide the capital to save the world.

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Thu Nov 03, 2011 at 05:31:24 PM PDT

      [ Parent ]

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