Yves here. Outbreaks of candor and foresight among the political classes are so rare that they bear watching. As Gloy suggests, they have to be arrested quickly lest they prove to be contagious.
By Alexander Gloy, CIO of Lighthouse Investment Management
Hans-Werner Sinn, head of German research institute Ifo, has just put his life into peril. He had to pick a Swiss magazine (“Bilanz”) to express what nobody else is allowed to mention in Germany: “Greece is a bottomless barrel”.
For those who remember, Sinn was the only one among 20 German luminaries who refused to recommend buying Greek government bonds a year ago. And showed some common sense (“Sinn” coincidently meaning “sense” in German):
I would recommend vacationing in Greece. That way, you know you’ll get something in return for your money.
From his interview (my translation):
“Creditors have to take a haircut on Greek debt – Greece can’t pay it back anyway.”
“An exit from the Euro zone is, among various alternatives, the least horrible.”
“In case of an exit customers would storm their banks to withdraw their Euros, and the banks would be bust. But the outcome would be same in case of an internal devaluation, since many companies would go bust, making them unable to pay back their debt towards banks.”
“I wouldn’t be surprised if Portugal and Ireland would need another bail-out within a couple of months.”
“If German voters understood what was going on they wouldn’t tolerate it. Do they understand the difference between a billion and a trillion? A trillion puts their kids’ future at risk.”
“Strauss-Kahn is being worshipped in Greece. He was instrumental in pushing through these rescue packages.”
On Italy: “If we are lucky Italy will manage a soft-landing. They have had frightening price increases. In other countries, such real estate bubbles burst with a loud bang.”
“Nobody could save Italy. Italy has to save itself.”
On European banks: “They are still under-capitalized. They still have Greek government bonds in their books valued at prices from July 2008.”
Meanwhile in Berlin, Mutti Merkel is fuming, patiently stroking the bullwhip on her desk…
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Off-topic post, sorry.
I’m reviewing the title work for a potential purchase of a foreclosed home my wife and I are thinking of buying.
Under the transfer of a deed of trust from one mortgage company to another, the document lists one company’s address as: 33 Maiden Lane, New York, NY.
I’m sure that address rings a bell with many of you. Why would a large national private mortgage broker be using as a lender mailing address the NY FED?
This document was from 2006.
Sounds like a bit of petty revenge by someone who was not happy with how the documents were being handled.
In all seriousness, I have no idea.
It’s you, wow!
Hey Yves, thanks for everything, I love your site.
:o)
Thanks a lot!
On further inspection, although the NY Fed is a tenant at that site, I’m not certain they are the only tenant. Maybe some other readers know who is in that building.
MortgageIT seems relevant. (I think DB owns them)
Well said and I totally agree. Was just thinking that when, once again, today’s antidote du jour gave me that warm, fuzzy feeling. I thought I really must express my gratitude for the huge commitment made by Yves (and her team?) to her Blog.
I don’t know either but the implications are not nice. Whatever their belief is, they are not nearly powerful enough to directly rule America, not even the Russian slumlord, mafia version.
Pretty nonsensical article. There is plenty of criticism in German press. You might not have heard yet, but Merkels (conservative) voters are running from her in scores. Hard to imagine her winning elections right now. And for candid articles? Der Spiegel called the ECB “a giant trash dump for scrap papers” today. (EZB ist offenbar eine riesige Müllhalde für Schrottpapiere) Also investigation to why German banks are the only ones still lending to the GIPS. There are plenty of articles that don’t get translated. (Same or more criticism in the FAZ, no translation at all unfortunately.) So, just because you can’t read it doesn’t mean it is non-existent. Not every country has a press that is bought and paid for. Honestly, while Yves provides a great service with her writing in the US (and had an early start), now she doesn’t stick out so much when compared to what is written in the EU press.
And what is that whip about – German bashing again?
“Not every country has a press that is bought and paid for.”
lol… you made my day :)
I mean, of all countries, how many articles about the risks of an export bubble are published every day in the German media? How many articles talk about the need for higher consumption in Germany and propose measures that could go against Big Export’s interests (e.g. cutting the VAT and increasing salaries)?
Watching the US from Frankfurt I get fed up with the German bashing too – my fellow Americans barely have a clue – but I get a kick out of the whip. Go Yves!!!
You angry comment is wide of the mark. First, contrary to your assertions, Merkel’s wobbly political position has been widely reported in the English language press and here since February (see http://www.nakedcapitalism.com/2011/02/links-22111.html).
Second, there is a marked difference between the long-standing complaints about the ECB’s collateral and the sort of statements that Sinn is making. How many German political figures are advocating that Greece should leave the euro since its banking system is toast no matter what it does? Or saying that another bailout of Ireland and Portugal are just around the corner? If you can give me some links to German MSM with similar sightings from others, you might have a case, but you haven’t made one.
Sorry Yves,
but I´m afraid you are wrong on this one.
Two of the largest german political talk shows discussing precisely this question(from about 2 weeks ago). In the second video even Brüderle(cabinet minister till about 4 weeks ago) calls for a 50% haircut on greek debt:
http://www.youtube.com/watch?feature=player_detailpage&v=isBn9Nv40XI
http://www.youtube.com/watch?feature=player_detailpage&v=2Z_QX7TkuWA
This does not address the points I made. I did not mention the 50% haircut issue. I pointed to the comment re another bailout for Ireland and Portugal being imminent and Greece being better off to exit the euro since its banking system was toast no matter what. Were any of those comments in the links your provided? If not, the points still stand.
“If you can give me some links to German MSM with similar sightings from others, you might have a case, but you haven’t made one.”
“This does not address the points I made. I did not mention the 50% haircut issue. I pointed to the comment re another bailout for Ireland and Portugal being imminent and Greece being better off to exit the euro since its banking system was toast no matter what. Were any of those comments in the links your provided? If not, the points still stand.”
Actually this precisely addresses the point you make! First of all you were asking for “similar sightings” not an exact equivalent. Secondly the point about Greece being screwed whether they exit or not is actually explicitly mentioned, Ireland and Portugal are implicitly refered to! Did you actualy bother watching the whole shows or are you just nitpicking???
I have seen various solutions to the Eurozone crisis, for example:
– Debt writedowns to Greece and other PIIGs at 50-75%; Eurozone remains intact
– Stop further credit to Greece, kick out Greece from the Eurozone, Eurozone remains intact for now
– Issue ECB bonds to finance Greek and other PIIGS debt; Eurozone remains intact; ECB bonds paid for by richer countries
– Brady Bonds type of refinancing; Eurozone remains intact
– Greece leaves Eurozone first, followed by other countries; Eurozone partially or wholly breaks up; departing countries default on debt and go back to native currencies
– Germany leaves first, Eurozone remains intact as a fragile rump but still faces fundamental debt and trade imbalance problems
I wonder if perhaps the best solution is to maintain a hardline, refusing refinancing and further loans, then kicking out the PIIGs one-by-one. These countries would default on all or most loans to France and Germany. The Northern countries (ie remaining Eurozone countries) would get money from the ECB to recapitalize their banks, with the sums being added to their respective national debts. Naked derivatives/CDSs on the defaulting countries would be cancelled. Some good bank bad bank system would be set up with the bad banks going bankrupt.
It wouldn’t matter to Germany, France and the rest of the Eurozone what happens to Greece, Portugal and Ireland. It is enough that the Euro countries have written off all their debt to them. Greece, for instance, might face some difficulties but without the crushing foreign debt they would survive, and would implement reforms that they should set up long ago (such as collecting taxes, esp from the rich).
The current Eurozone is currently unworkable and will never work, so there is no point in trying to save it (in its current form) by throwing even more money at it. Plus, the actual amount of debt owed to Germany by current debt miscreants (Greece, Portugal, Ireland, Spain) is about 300 billion Euros, a relatively modest amount in comparison to Germany’s GDP or to the amount of toxic junk currently in their banks (about 800 billion). Apparently what Euro leaders are worried about are the derivatives/CDSs — so why not just cancel them, or at least the non-hedging, naked derivatives? The German population would more readily accept this solution than the alternatives, since at least they would be told the truth: the debt can’t be paid back, and new debt (for recapitalization) would paid directly to the German banks.
Just speculating here.
Blech.
Better: Dissolve the Eurozone and return all the countries to SOVERIENITY so they can treat their own citizens as a top priority rather than worrying about bankers and bond holders. SCREW THEM.
Economies and governments should serve towards the betterment of their people, NOT banks, NOT investors, NOT billionaire leeches.
Huzzuh!
Maybe the situation in the Eurozone is not fully understood across the atlantic. I will try to bring some points that could deserve consideration in the US blogosphere.
1. Financial blogs tend to focus on financial aspects of the crisis and start calculating losses for banks, the ECB and so on. Hans Werner Sinn is also of that party.
2. Sinn and most of the german media fail to mention that the deficits of the periphery were the surpluses of Germany. That’s how they pursue a political agenda of neoliberalism instead of addressing the best area where these imbalances can be solved: raising wages in the surplus countries and taxing the uber-rich.
3. The true problem with greek insolvency is contagion: once greek debt is written of, the other periphery states are going down the drain too. The burden whould have to be born by german and french banks. In that respect the debtor nations are on the longer end of the lever. The result would be dramatic write-offs in savings accounts and pension provisions of the german and french people. This is politically taboo, so a write-off of the debts is highly unlikely.
4. That nonetheless writing off the debt is vehemently discussed is part of the true fight behind the issue: The struggle for influence in Europe. Germany has to pay a tremendous price anyway but now tries to get as much political influence in return as possible. So basically all these threats are fear mongering although the possibility remains that some politicians go mad and indeed let the european project fail.
5. The odds of a eurozone break-up are minuscule for historical reasons. Europe has been a cruel battlefield for centuries culminating in world war II. The fear of returning nationalism is therefore deep rooted in the political class which, in contrast to much of the populace, maintain a clear awareness of the blessing of peace since WW2, yet still don’t take it for granted.
6. The most probable endgame is the introduction of euro-bonds combined with much greater fiscal and political integration and rising influence of the EU.
I like the added dimension of analysis. I am not familiar with Euro Finance, what I know comes mostly from this site. But there is an over reliance to speculate using the markets as the only variable that determines political decisions. There may not be a seat at the table for any other social science professionals other than economists in national governments. But there is clearly more to the task of maintaining the social order, here or in Europe than the cost calculations of the finance set. Political integration and war are driving forces that exceed in the mind of public in Europe the arcane financial tug of war. People grasp the concept of bankruptcy as a means to starting over. It is a better alternative than rioting, state violence and a return to red cell bombing activity. The nascent street action of the Spanish, Greek and other youth to the corrupt financial machinations of private banks, enabling finance ministers, and a bleak work future with depressed wages and benefits is a signal of civil society that they are mobilizing for entering the political arena to battle with the markets. I hope that message is not lost to opinion makers on the blogs in America.
“”deep rooted in the political class which, in contrast to much of the populace””
I think this is an important statement and doesn’t bode well for future fiscal and political integration of the Eurozone but implies more of a disconnect between the leaders and the populace. This seems to play into the financial oligarchy winning out over democracy Such as 85% of the Greek populace not wanting to bail out the banks. (similar to 90% of Americans not wanting TARP but Congress passing it anyway).
We need some good bank fighting populist leaders such as Thomas Jefferson or Andrew Jackson.
Financial Matters;
How about Aaron Burr? After al, he did shoot Alexander Hamilton.
“”Those were his positive contributions, but Hamilton also left a darker legacy. Lurking behind the curtain in his new national bank, a privileged class of financial middlemen were now legally entitled to siphon off a perpetual tribute in the form of interest: and because they controlled the money spigots, they could fund their own affiliated businesses with easy credit, squeezing out competitors and perpetuating the same class divisions that the “American system” was supposed to have circumvented. They money power had been delivered into private hands; and they were largely foreign hands, the same interests that had sought to keep America in a colonial state, subservient to an elite class of oligarchical financiers.
Who were these foreign financiers, and how had they acquired so much leverage? The Yellow Brick Road takes us farther back in history, back to when the concept of “usury” was first devised….”” (teaser for Web of Debt)
” .. and they were largely foreign hands, the same interests that had sought to keep America in a colonial state, ..
Who were these foreign financiers, ..”
If memory serves, they were of British origin and location.
” .. middlemen were now legally entitled to siphon off a perpetual tribute in the form of interest: and because they controlled the money spigots, they could fund their own affiliated businesses with easy credit, squeezing out competitors and perpetuating the same class divisions that the “American system” was supposed to have circumvented.”
The middlemen were ‘keeping the faith’, and the faith was in subversion of ‘revolution’.
Eurobonds? Without backing of a Treasury possessing taxing power over Euro member nations? Without a military backing this presently non-existent Treasury? Who, outside the trans-Atlantic community of central banks with their penchant for acquiring assets of dubious worth, would buy these things?
pigeon wrote: “The odds of a eurozone break-up are minuscule for historical reasons. Europe has been a cruel battlefield for centuries culminating in world war II.”
A common currency is NOT the same as a common language, a common culture, history etc.
Besides, never heard of civil war?!
As long as
– pensions are still being paid to dead Greeks,
– the wealthy in Greece hardly pay taxes (regressive taxation, as a guest blogger wrote last week), and have already taken their deposits out of Greek banks,
– and the Greek government has some 300 billion euro’s real estate (a rough guestimate only, as in Greece there is still no reliable real estate and land registration system, even though the country was paid lots of EU money to set up such a system),
and more,
many people in other countries do not want to subsidize the kleptocracy of the Greek wealthy and political families.
Your point 6 will not happen.
“never heard of civil war?!”
I’ve heard that Chinese historians refer to WWI as the European Civil War. I always thought that was a reasonable description, and now appears to be outright prescient. Personally I’d prefer 1848 to 1914 though.
Actually, the eurozone problems aren’t just eurozone problems – and I don’t mean just UK. As the most recent BIS paper shows, US banks are in top-3 most exposed on all GIPS. That is counting not only the direct exposure, but indirect (credit guarantees). BIS report says that US banks hav over 41bn in exposure to greece – more than German ones (but less than French). Similarly, US banks are in top3 for all the oher IPS exposures, when a contingent exposure is calculated (which it should, at this point…).
http://www.bbc.co.uk/news/business-13663002
And now Obama is applying pressure on Germany. The problem with all of this is that Germany is ultimately hostage. It really is a sinkhole.
The path is more Extend & Pretend providing additional time prior to resolution (likely mass bank nationalization, limited withdrawal capability, and capital controls). At some point, a critical mass of participants will come to realize that promises must be broken. I suspect that a small percentage are actually going to make it out with all of their savings.
This no haircut insanity has to stop sometime; preferably before disorderly resolution becomes certain. It seems that a threat of disorderly resolution is part of a dangerous game. They had years to implement a pre-positioning for effective resolution of bank failures.
Wolfgang Schaeuble, the German finance minister seems to be saying a similar story.
http://ftalphaville.ft.com/blog/2011/06/08/587996/dear-ecb-get-lost-yours-wolfgang/
Now whether this is just political posturing for the benefit of the German masses or the first gambit in negotiations I am unable to tell. It occurs to me this may be aimed more at the IMF than Greece who are saying if Greece cannot get access to the markets then they will not put more money in. Germany might be saying to both the IMF and ECB either you sort it out or we do it the hard way and both the IMF and ECB lose money and their current leaders face the chop.
From a german point of view it may be cheaper to bail out the banks especially since some european banks (northern europe and UK) have been agressively reducing their exposure and the germans are likely to get backing (UK,Finland and Netherlands are not happy with the new bail out).
The key off course is the ECB who before they have to go begging to governments for a bailout would shut Greece out completely, causing a complete collapse. You might then see some other southern europeans leaving the euro, followed by some protracted trade problems in Germany and France. As usual I expect political reputations to come ahead of what the populations want.
At some point of course somebody will look at the insurance written and work out that it will be cheaper for the US to twist the IMF’s arm and throw it some money than face the consequences (Its the derivatives not the debt exposure). The good old US taxpayer gets to bail out Greece which will suit the Europeans fine.
You know your stuff Brick. The CDS exposure in 2008 was $62-$63T. Isn’t it amazing that the U.S. debt exploded from $4 T in 2008 to $14 T? $9T in CDS backstopping. Ready for the math?
$60T x 1.5% counterparty fee = $9T
The joke of the devil is on the American people. However, I live here and people at retail locations are already talking about revolution and we are only half way through the big hurricane. I wrote on this topic on SA on commentary back in late 2007. I don’t see the U.S. politicians talking about it or MSM reporting it. Gee, wonder why ;0
Brick: “From a german point of view it may be cheaper to bail out the banks especially since some european banks (northern europe and UK) have been agressively reducing their exposure and the germans are likely to get backing (UK,Finland and Netherlands are not happy with the new bail out).”
Indeed. That’s why the argument “bailout of Greece, is bailout of EU banks” is not valid.
Re the trillions of CDS:
at the height of the crisis, Merkel et al. wanted to make it illegal to have naked shorts and naked CDS. Speculators et al. have won that battle.
Hence, the trick now is to call ‘it’ a soft restructuring or whatever, but not a default.
Oviously they had not seen this suggestion, which given some comments in the press is just not a absurb as one would first think.
http://dismalpoliticaleconomist.blogspot.com/2011/06/germany-to-purchase-greece-in-first.html
“If German voters understood what was going on they wouldn’t tolerate it. Do they understand the difference between a billion and a trillion? A trillion puts their kids’ future at risk.”
I’d love to see how Sinn would justify that statement. It is, as far as I can see, the equivalent of the US argument regarding the deficit and children having to pay it back.
Sinn is a dodgy mofo. He’s been making some very strange assertions about how central banking in the Eurozone works. Here’s the details — it’s a bit wonkish, but its very important:
http://www.iiea.com/blogosphere/professor-sinn-misses-the-target
Sinn seems to view the Eurosystem — that is, the banking system in Europe — as some sort of agent transferring wealth from German to Irish bank accounts. Despite this being completely untrue — as the above article makes clear — it also throws light on Sinn’s motivations.
I found a much better article on this — that last one was extremely dry:
http://olafstorbeck.com/2011/06/06/the-stealth-bailout-that-doesn%E2%80%99t-exist-debunking-hans-werner-sinn/
There is a lot of denialism among the europhiles. Kleptocracy is just as prevalent and entrenched in Europe as it is everywhere else. Things in Europe are not going to be fixed because kleptocracy is not about fixing things. It’s about looting. Greece is not going to be fixed. The other PIIGS are not going to be fixed. Eastern Europe (had you forgotten about them?), they’re not going to be fixed. The French, German, and Dutch banks aren’t going to be fixed. This is all about keeping the cons going, –pushing it all down the road until the inevitable kleptocratic smashup and then dumping as much of it as possible on to the backs of ordinary Europeans.
And when I talk about Europe, I am mostly referring to the geographic entity, not the fictitious political one. Nationalism could be partially neutralized during the bubble years. It is easier to sell such ideas when people feel they can afford them and that their costs don’t affect them much. But we have been on the downside of the European bubble for something like 3 years now. Noticeably absent during this time has been the call for Europe to fix Europe’s problem. Instead it has all fallen back to the national level. It is all about Greece or Germany or Ireland, the UK, Portugal, Spain, France, etc., etc. Even in the post above, Sinn is looking at all this in national terms: how Greece should be dealt with, that Italy must save itself. There is no European response to what, from this side of the Atlantic, is clearly a European level problem. And don’t bring up the ECB which is a sockpuppet of the Germans and to a lesser extent the French. Indeed looking at how the euro was put together, it really looks like a scam of the Germans and French perpetrated on everyone else.
Perhaps we should be talking less about the construction of Europe and more about the con of Europe. I mean depending on how you count it the euro has only been around for around 10-20 years. Or another way of looking at it is that the German mark has only been gone for 10 years. And is the euro even the defining characteristic of “Europe”. We have all these incomplete overlaps: NATO, the European Union, the eurozone, etc. Can we even define what Europe is exactly? It seems to me to be more of a mirage, something that looks real enough until you start looking at it closely whereupon it just sort of evaporates before your eyes.
I’m with Hugh above.
But I also look forward (with hope) for a LOT of social unrest and even (I know is it not PC) violence against the oligarchs/plutocrats.
Real people need to sharpen their knives and put paid to the self-entitled, self-worshipping kleptocrats and finance leeches. Time to rebalance the books in favor of REAL people rather than a haughty few.