G. G. Bain The new Queensboro (59th Street) Bridge over the East River, NYC 1909
Merkel must find a way to do what she forbids others to do.
A top economist has warned that Germany’s biggest bank is teetering on the edge of crisis and they only way to protect it against future shocks is to nationalise it. Martin Hellwig said stress tests carried out by the European Central Bank revealed the Deutsche Bank would be left in a precarious position in the event of another financial crisis. While it would probably not go bust in a fresh downturn – he predicted the bank which is crucial to the German economy would face serious equity problems. He said: “Putting it short: for a long and serious crisis there simply wouldn’t be enough money.” The Berlin government has previously only bailed out the banks under extreme circumstances but Mr Hellwig, director of the Max Planck Institute for Research on Collective Goods, backed the idea of using taxpayers’ money to fund public sector investment.
He said: “Turning banks into community property through public funds is not only possible but also necessary. “If a bank is no longer able to help itself, the federal government should take on shares and exercise the related control functions.” He continued: “In Sweden the state stepped in in 1992, filleted out unprofitable divisions and left stable companies. “It was a successful, temporary nationalisation. The goal had always been to enable a clean-up and to then get out again.” He said nationalisation may not have been part of Germany’s plan since the last financial crisis but unusual scenarios sometimes require desperate measures and would be appropriate for banks as such a large part of the economy is entirely dependent on them.
Mr Hellwig said: “I assume that this tool will be used when it comes to an institution where there are fear that a settlement procedure would bring significant system damage.” Banks that are “too big to fail” could be saved with tax-euros and the investment might even pay a return for the state. Another possible effect of state intervention would be the inevitable modernisation that would improve the bank which has seen its retail divisions become barely profitable. Mr Helwigg said: “From the outside, one gets the impression that in the last 20 years the investment bankers controlled the bank and sucked it dry. Nationalisation in an emergency could be a step towards more rationality in the banking world.”
Creative accounting saves the day.
After the ECB concluded its latest annual stress test, which as expected found no problems with Europe’s largest banks instead scapegoating Italy’s well-known troubled banks in results that were widely discredited by the market, yesterday in an unexpected outcome, German economic research institute ZEW found that Germany’s largest bank, Deutsche Bank, had the highest potential capital shortfall, as much as €19 billion in a study of 51 European banks using U.S. Federal Reserve stress test methods. The capital gap is greater than DB’s entire market cap. Using the Fed’s approach, and thus a far more credible approach than that proposed by the ECB, the 51 European banks showed a total capital shortfall of €123 billion, with the largest gaps at Deutsche Bank, Societe Generale (€13 billion) and BNP Paribas (€10 billion).
“European banks lack sufficient capital to offset the losses expected in the case of another financial crisis,” the ZEW said in a statement on Tuesday, cited by Reuters. ZEW Finance Professor Sascha Steffen worked with New York University Stern School of Business and the University of Lausanne researchers to run stress tests used by the Fed in 2016 and the European Banking Authority (EBA) in 2014 to compare capital needs and leverage. While Societe Generale and BNP have market capitalisations of 26 billion euros and 55 billion euros, respectively, well above the study’s theoretical capital gap, Deutsche Bank would find itself in trouble if the ZEW calculation is correct as it has a market capitalisation of less than €17 billion.
Which is why it promptly disagreed with ZEW’s calculation. “There is an official EBA stress test that checked the capital backing against very tough and adverse conditions and this showed there was no acute capital need at Deutsche Bank,” the bank said in a statement in response to the study. [..]
Guess why Schäuble didn’t want Spain, Portugal fined.
Sometimes the most important thing that happens is what doesn’t happen — or, to paraphrase Sherlock Holmes, it’s the dog that doesn’t bark in the night. The lack of response to the European Commission’s non-enforcement in Spain and Portugal of the terms of the Stability and Growth Pact (SGP) is one of those times. According to SGP rules, the Commission should have proposed a fine to be levied on Spain and Portugal for overshooting their fiscal deficit targets by a wide margin. The fine would have been largely symbolic, but the Commission seems to have decided that the symbolism wasn’t worth it. And it was not only the Commission that chose not to bark; the rest of Europe remained silent as well. Not even Germany, the European Union’s leading austerity watchdog, perked up.
In fact, there have been reports that German finance minister Wolfgang Schäuble lobbied several commissioners not to impose fines on Spain or Portugal. The German financial press, which often criticises the European Commission for being too lax, barely registered the decision. What explains the silence? There is precedent for fiscal leniency in the EU. In 2003, all three large eurozone countries (France, Germany, and Italy) were running deficits in excess of 3% of GDP, the upper limit established by the SGP. Toward the end of that year, it was clear that France and Germany (then with record-high unemployment) were not fulfilling their deficit-reduction commitments. But, unlike today, the Commission did bark (even if it could not really bite). It proposed ratcheting up the SGP’s so-called excessive deficit procedure.
The proposal did not entail any fines; rather, it focused on the stage before fines would be considered. Nonetheless, EU finance ministers strenuously opposed it, largely for political reasons. The clash occupied the front pages of newspapers all over Europe, especially in Germany, where the press, like the political opposition, was eager to chastise Chancellor Gerhard Schröder’s government for its failure to uphold fiscal rectitude. There were heated debates on the fiscal rules, and the Commission’s role in enforcing them. In short, everyone was howling.
Despite the resistance, the Commission decided to plough ahead and censure Germany and France. With that decision, it sent a clear message that it took seriously its responsibility to administer the EU treaties — so seriously, in fact, that it would enforce rules with which it did not necessarily agree. Indeed, the Commission’s then-president, Romano Prodi, had already harshly criticised the SGP’s rigidity. Ultimately, however, political interests won the day, and the EU finance ministers voted down the proposal.
There goes the eurozone.
Europe’s powerhouse could be stalling. German economic growth looks set to show a dip in the second quarter, raising questions about the health of the euro zone’s largest economy in the wake of the Brexit vote. Economists polled by Reuters expect Germany’s GDP figures, due Friday morning, to increase by a mere 0.2 percent in the months from April to June, compared with 0.7 percent growth in the previous three months. Experts said the export-driven economy is struggling to sustain momentum in an uncertain global environment that encompasses the unsteady emerging economies and the uncertainty surrounding Brexit. This has sparked fears among Europe-watchers as the country is by far the 28-country European Union’s biggest economy and when Germany catches a cold, it affects the rest of the region.
“No matter how you look at it, the economy is slowing,” said Carl Weinberg, chief economist at High Frequency Economics. “The economic trend is clear. It is not pretty.” Weinberg pointed to retail sales, industrial production, and export data stalling Germany’s growth engine. The country’s economic expansion, fueled by robust consumption and international trade, has been a bright spot in the euro zone in recent years. But global developments, including a slowdown in emerging economies from lower commodity prices as well as the U.K.’s vote to leave the European Union, could weigh on the outlook. “All of the risks are to the downside,” Weinberg said.
Here’s the reality: Europe’s banking system is toast. Wholesale interest rates on the continent are already negative. Negative interest rates essentially penalize any bank that tries to be responsible and hold extra reserves. What an unbelievably stupid policy. Rather than encourage banks to be conservative with their customers’ deposits, the ECB is practically forcing them to make as many loans as possible. So it’s not exactly much of a shocker to find out that, in their haste to loan out almost 100% of their customers’ money, many of the loans went belly-up. EU data showed that by the end of September 2015, 17% of Italian loans were non-performing. The non-performing loan rate is a shocking 43.5% in Greece, and 50% in Cyprus. (That data is nearly a year old, so the numbers are worse now.)
This is a huge problem. Banks have lost a big chunk of their depositors’ savings. There’s a lot of talk now about government bail-outs. And some of that has already taken place. In Italy, the government already had to step in with a €150 billion guarantee just to forestall a potential bank run. But the Italian government is one of the most bankrupt in the world, with a debt level that exceeds 130% of GDP; they’re in no position to bail anyone out. That’s why, as of January 2016, European “bail in” legislation has taken effect. The rules are already in place whereby depositors can be held liable for the idiotic financial decisions of their banks. If the bank goes under, they can take your money down with it.
It’s already happened. In 2013, the government of Cyprus froze EVERY bank account in the country, locking every single depositor out of his/her savings. These risks are very real. Banks are illiquid and overleveraged. They’ve made far too many bad loans with their customer’s savings. The governments are in no financial position to bail them out. And the bail-in legislation already exists to steal from depositors. What’s the point of holding money in this kind of system, especially when the biggest benefit you could hope for is about a 0.1% yield on your savings account? When you step back think about the big picture, the conclusion is pretty obvious: don’t hold money in such a precarious banking system. And yet, it’s very seldom that anyone really thinks about his/her bank.
More creative accounting.
Back in February 2016, Obama took to the stage at a press conference to boast about job growth and “most importantly” how the stronger job market was “finally starting to translate into bigger paychecks.” He also took the opportunity to jab at Republicans saying the strong jobs data was “inconvenient for Republican stump speeches” as they continued their “doom and despair tour.” Obama’s specific comments were: “Most importantly, this progress is finally starting to translate into bigger paychecks. Over the past six months, wages have grown at their fastest rate since the crisis. And the policies that I’ll push this year are designed to give workers even more leverage to earn raises and promotions. So, as I said at my State of the Union address, the United States of America, right now, has the strongest, most durable economy in the world. I know that’s still inconvenient for Republican stump speeches as their doom and despair tour plays in New Hampshire. I guess you cannot please everybody.”
Turns out that revisions to historical real wage growth figures issued by the Bureau of Labor Statistics yesterday are actually fairly “inconvenient” for Obama. Time to get the band back together for a reunion of that “doom and despair” tour. In yet another stunning tribute to the “accuracy” and “consistency” of economic propagandadata being reported by our government agencies, the Bureau of Labor Statistics yesterday reported a massive downward revision of the 1Q 2016 YoY real wage growth from +4.2% to -0.4% (a 4.6% swing).
But we wouldn’t worry much about it because the revisions resulted in only “small” changes in the underlying data according to the BLS: “Indexes of all hours-related measures in the business, nonfarm business, and nonfinancial corporate sectors show historical revisions because hours in the base year of 2009 were revised; resulting revisions to percent changes are small.” We guess “small” would be one way to describe a 4.6% swing in YoY real wage growth…we would probably choose something more like “abysmal” or “disastrous” but we’re not ones to split hairs.
He feels invincible.
Turkish President Recep Tayyip Erdogan ratcheted up pressure on the nation’s banks, saying he would consider resistance to his calls to cut mortgage rates as an act of treason. Banks will be held “accountable” should they “act negatively in the matter of loans and interest rates,” Erdogan told members of Turkey’s Exporters Association at his palace in Ankara on Wednesday. “I would consider it as treason if the banks don’t open the way for investors.” Erdogan has demanded that lenders cut mortgage rates to an annual rate of about 9% from the market average of around 13.7% as he seeks to shore up the economy following the failed coup last month.
Lenders TC Ziraat Bankasi, Sekerbank, BNP Paribas unit Turk Ekonomi Bankasi as well as Denizbank, owned by Russia’s Sberbank, have all recently lowered interest charges to levels closer to what the president is demanding. Erdogan said he would “push the banking sector” to cut rates amid “disagreement between me and bankers.” He will convene with executives of Turkey’s banks soon in a meeting to be attended by Prime Minister Binali Yildirim, he said. The reduced rates also follow a decision by the central bank to cut the amount of cash commercial banks must keep locked up with the regulator – the so-called lira reserve requirement ratio – by half a %age point on Tuesday. It also allowed lenders to use a small amount of foreign currency and gold as reserves for lira liabilities. “You won’t lose money” if you cut rates, Erdogan told business groups in Ankara on Aug. 4. “Now is the time to do this and you can earn from the masses.”
“..that’s what happens when debts can’t be repaid: money vanishes.”
What we face is discontinuity, the end of old spent dynamics and the beginning of new dynamics. Monetary deflation has been underway for years because that’s what happens when debts can’t be repaid: money vanishes. Now we will encounter the other dimensions of deflation: the contraction of manufacturing, trade, wages, and all the familiar markers of expansion in the waning techno-industrial era.
The many dodges and stratagems tried by the supreme central bankers to work around contraction only produce ever greater distortions in markets, currencies, and the distribution of dwindling capital, leading to a grand battle over the table-scraps of history, i.e. the rise of radical politics world-wide, including Islamic Jihadism, and the western response in Trump, LePen, and the nascent Germanic right-wing. These current manifestations may be mild versions of what’s coming. Nobody in power can come to grips with the reality of our situation. We have to salvage what we can and get smaller, becoming a more modest presence here, or the planet itself is going to hit the delete button on us.
It rubs against the current religion of progress, which has replaced the other old cultic practices. The choice now is between time-out or game over, and the debate over these things is absent from the arena. The aforesaid distortions in markets, currencies, and capital are spinning out in an ever broader, centrifugal gyre, coinciding, as chance would have it, with the most peculiar election in modern times. The incoherence and deceit on both sides is far beyond even the extravagant American norms of dauntless political bullshit. We literally have no idea what we’re doing in this country, or what we’re actually wishing for. The financial structures of everyday life look more fragile than ever. Gravity always wins.
Prime Minister Alexis Tsipras has called on Europe to offer debt relief to Greece, on the 63rd anniversary of the generous debt write-off to Germany (August 8, 1953). In a message he posted on Facebook, the Greek prime minister reminds Europe that the 1953 London Debt Agreement secured the write-off of 50% of Germany’s External Debts. Tsipras argues that Europe should do the same and grant Athens substantial debt relief, in order for the country to come out of the economic crisis. The 1953 agreement in favor of Germany covered money owed before and after WWII and reduced West German debt by 50% and stretched the repayment period to 30 years. This helped Germany recover after the defeat and later become a world economic power.
“On this day, on August 8, 1953, a nearly six-month negotiation between Germany and its creditors was concluded, with the signing of the London Debt Agreement. The debt-ridden and war-torn Germany enjoys the ultimate move of solidarity in modern European history by having 60% of its foreign debt cancelled, its internal debts restructured and a trade surplus clause,” Tsipras wrote, stressing that Greece was one of the countries that signed the deal. The Greek PM also wrote that Greece’s debt relief has been a goal of SYRIZA from the start, even when in opposition. He also wrote that after the May 24 agreement between Greece’s and euro zone finance ministers, debt easing will be discussed again in 2018, after the successful completion of the country’s bailout program.
“Europe must rise to the occasion and turn its gaze to the future by signing a new social contract that will guarantee the prosperity of its people,” Tsipras added.
Everything falls apart. This is why I ask for your help
The National Health Service (ESY) is on the brink of collapse after six years of underfunding and a freeze on hirings as a result of Greece’s protracted financial crisis, according to a damning report issued on Tuesday by the Panhellenic Federation of Employees at Public Hospitals (POEDIN) which blames the Health Ministry and Prime Minister Alexis Tsipras. “Hospitals, medical centers, EKAV [ambulance services] are in a state of dissolution,” POEDIN said in a statement, adding that the premier and Health Ministry officials will “soon have to answer for the destruction of ESY.” Painting a dire picture, the report notes a fundamental lack of medical equipment (even ambulance stretchers), the shutdown of intensive care units and operating theaters, as well as shortages in doctors and staff at medical units across the country.
The situation at the Geniko Kratiko Athinon Gennimatas Hospital is particularly acute as 40% of positions across all its medical departments are vacant, while different departments have been merged to allow overworked staff to take a five-day summer vacation. According to POEDIN, one of the two CT scanners at the hospital is often out of order for long periods of time, while its two x-ray machines don’t work, forcing patients and doctors to pay to use others at private clinics and hospitals. The report also warns that the Erythros Stavros Hospital in Athens will be forced to shut down if orthopedic doctors are not hired soon, as most are now about to retire, while 70% of administrative positions are vacant.
Let’s see it happen first. Sweden delayed it for 4 years.
Julian Assange will be questioned by Swedish prosecutors inside the Ecuadorean embassy in London, in a possible breakthrough to the impasse over his case. The Ecuadorian attorney general delivered a document agreeing to a request by the Swedish prosecutor to question the founder of WikiLeaks. He is wanted for questioning over a rape allegation, which he denies. If he goes to Sweden he believes he will be taken to the US because of the activities of WikiLeaks. Assange has been living inside the embassy for more than four years and has been granted political asylum by Ecuador. He has offered to be questioned inside the embassy but Swedish prosecutors have only recently agreed.
A statement issued in Ecuador said: “In the coming weeks a date will be established for the proceedings to be held at the embassy of Ecuador in the United Kingdom. “For more than four years, the government of Ecuador has offered to cooperate in facilitating the questioning of Julian Assange in the Ecuadorian embassy in London, as well as proposing other political and legal measures, in order to reach a satisfactory solution for all parties involved in the legal case against Julian Assange, to end the unnecessary delays in the process and to ensure full and effective legal protection. “In line with this position, Ecuador proposed to Sweden the negotiation of an agreement on mutual legal assistance in criminal matters, which was signed last December and which provides the legal framework for the questioning.”
The statement said the proceedings did not affect the recent opinion of the Working Group on Arbitrary Detentions of the United Nations, which found that Assange was being arbitrarily detained. The working group called for Assange to be released and given compensation for violation of his rights. The Ecuador statement added: “Ecuador’s Foreign Ministry reiterates its commitment to the asylum granted to Julian Assange in August 2012, and reaffirms that the protection afforded by the Ecuadorian state shall continue while the circumstances persist that led to the granting of asylum, namely fears of political persecution.”