For anyone who doubted Washington's involvement in the Greek bailout earlier this year, this article from Das Bild is a Must Read. According to the authors, at one stage Obama designated the continued presence of Greece in the Eurozone as 'a matter of National Security' for the USA.
The following is a translation of this article in Das Bild (27/9/2015) by Peter Tiede and Liana Spyropoulou.
Reports reveal a pact between Obama and Tsipras - A plot against Merkel and Schäuble
Bild has already reported this news on several occasions, but now it's official:
According to internal Greek government documents, the American government directly advised the bankrupt country in its negotiations on the rescue package and reforms, and lobbied expressly against Germany.
The aim of the Obama-Tsipras pact: a broad front against Merkel(61) and Schäuble(72).
Internal documents show the US government chatting openly about discussions between Schäuble and his US counterpart, Jack Lew.
On Sunday, the Greek newspaper 'Kathimerini' published a secret report belonging to the Greek Ambassador in Washington, Christo Panagopoulos, from the 16th July.
It gives details of this anti-Berlin plot, which was months in the making at the highest echelons in Washington.
Bild has reported several times about an alliance between Washington and Athens: now 'Katherimini' has printed it in black and white.
The Greek Ambassador wrote that he was very happy 'with the close co-operation' between the Obama and Tsipras governments, the White House, the US State Department (for foreign affairs), and the National Security Council of the USA - the top Presidential body for foreign policy, defence and US intelligence agencies, in which decisions about foreign policy, secret missions in other countries and wars are made.
The Ambassador wrote: 'I met regularly with a high level representative of the US Treasury department, who told me about the tense atmosphere at a meeting between Schäuble and Lew, when it came to a discussion about our country.'
And: The Americans advised the Greeks and especially the rant-prone former finance minister, Yanis Varoufakis, to 'avoid direct confrontation with Berlin (in the form of verbal attacks or social media campaigns)'
So Athens didn't worry about Berlin, but instead tried to quietly build an anti-Berlin coalition '...because the goal is the creation of a larger coalition with other European countries, such as Britain, France, Italy and Austria.. so that they will offer their support against Germany.'
Berlin should 'not be given the opportunity to pursue its usual goals' (meaning Grexit, which would have led to worse conditions in Greece).
Clearly, from the US side, it was mainly against Schäuble.
The Ambassador expressly noted that the US government not only did not share the views of Schäuble - who was uncompromising in his desire for the Euro to be a strong currency and to that end, felt it was essential to implement strict reforms - but indeed wanted to change his views.
But not publicly as an example to the bankrupt Greeks, and not at this point in time.
The Ambassador noted, 'From previous discussions, I know that the US side doesn't believe that this is the right time to change Schäuble's philosophical and theological approach.'
The ultra left-wing/right-wing government in Athens and the Obama administration agree on the rejection of Schäuble's austerity policy and on the preference for increasing state indebtedness in times of crisis.
The Greek Prime Minister was apparently also advised by the French government under Hollande, and it seems that the advice was successful.
Although, French President Hollande (61) spoke on Chancellor Merkel's side about the obligations of the Greeks, behind Berlin's and Brussels' backs, it was primarily French experts who for some time have been writing papers and strategies for Tsipras.
Austrian Chancellor Werner Faymann (55) went to Athens in mid June and demanded moderation from Berlin and assured Tsipras of his solidarity.
Italy's head of state Renzi (40) did much the same thing.
Only the 'No Euro' British wanted nothing to do with Athens and the Euro chaos, but added to the pressure with their own threats to leave the EU.
That something was going on between Washington and Athens quickly became clear at the end of January this year, after the election victory of Tsipras' radical left-wing political party.
Finance minister Varoufakis met Obama in Washington in mid April.
He also met his US counterpart Jack Lew in Washington, who, according to Bild information, assured him that the USA would do everything it could to keep Greece in the Euro.
Bild already announced in April that the US negotiating experts in Athens were there to be especially helpful in dealing with Berlin.
Obama regularly telephoned Tsipras and Jack Lew conversed more often with Varoufakis.
Varoufakis - and also Tsipras - were advised by a network of US investment bankers and top US economists.
In June, Obama had repeated telephone conversations with French President Hollande. His objective was to support the Greeks against the Germans and other nations in the EU.
Hollande had already sent his advisers to Athens. It was above all French experts who wrote the papers that Tsipras then submitted to the EU and other creditors as his own.
Obama designated the continued presence of Greece in the Eurozone as 'a matter of national security' for the United States.
Despite being bankrupt, the Tsipras government has completed new arms deals with American (and Russian) companies.
That Washington was closer to Athens' policy line than Berlin, was clear to the German finance minister early on.
In mid April in Washington, Schäuble said clearly several times, if Greece is so important to the USA, Washington should participate in the Greek bailout with its own money instead of always demanding more money from Europe and especially from Germany.
Monday, 28 September 2015
Friday, 31 July 2015
RBS and the Scandal of the 4/2008 rights issue
I wrote the comment below in response to this Times article dated 31/7/15 entitled:
'Taxpayer to lose millions as RBS share sale begins'
http://www.thetimes.co.uk/tto/business/industries/banking/article4513568.ece
Comment:
Everybody in the government seems to have conveniently forgotten the outrage of the April 2008 rights issue. By that time all the senior management at RBS knew how bad the financial situation at RBS was. The previous summer, Northern Rock had caused a panic in the wholesale money markets on which they relied to fund their outsized and heavily leveraged loan book. This had already had ramifications for all our other banks including RBS. But they still went ahead and issued £12 billion pounds of new shares to unsuspecting shareholders, many of them small investors.
By January of 2009, these shares were practically worthless.
So, RBS made £12 billion of its shareholders money disappear into thin air in the space of 8 months. Quite a feat! Some might call it theft, and some might wonder exactly what senior members of Gordon Brown's government knew and when they knew it?
Is there any chance of anyone ever being prosecuted for this crime alone?
I very much doubt it.
Friday, 27 March 2015
The Fate of the Euro is being decided in Greece
The following is a translation of this article by Austrian Economist and Professor Dr. Philipp Bagus, author of The Tragedy of the Euro. In this article, he is answering the question: Which Act has the Tragedy of the Euro 2015 arrived at?
The Fate of the Euro is being decided in Greece
While European politicians 'buy time' with their taxpayers money (in order to avoid taking difficult decisions), the Greek government has been running the Show.
On the 27th of February, the German government took the decision to extend aid to Greece. Moreover, on the 9th of March, the ECB started its QE programme, buying Euro 60 billion of Eurozone government securities every month.
On one hand, the neutral spectator risks being bored by the long drawn-out last Act (for now) of this Greek Tragedy. Once again, the Greek government has been " bought time " at the expense of the rest of Europe.
On the other hand, the Act may amuse the spectator with bizarre, comic antics, such as threats (to the main money provider, Germany), to furnish economic migrants and terrorists with the necessary papers to allow them to travel to Berlin, or alternatively, to seize the Goethe Institut in Athens.
Since the first bailout package for Greece in March 2010 - the original Monetary policy sin - the process has been repeated. There was a second, even bigger bailout package and in 2012, a debt haircut, which effectively released every Greek citizen from some Euro 10,000 of debt.
The ECB also gave the Greeks a hand, to the point where the ECB's own credibility as a politically independent Central Bank, committed to price stability, was put at risk. The ECB accepted Greek bonds as collateral despite junk ratings, allowed emergency loans ( Emergency Liquidity Assistance known as ELA) and even bought Greek government bonds.
Q: How much longer will these bailouts be repeated and amplified?
A: Until the Greeks' problems are solved - and they are as follows: stifling bureaucracy and over-regulation, lack of entrepreneurial freedom and incentives, corruption and nepotism, inefficient state-owned enterprises and excessive wages.
The cause of the lack of competitiveness is soon named : a huge state sector.
When a government spends money, it deprives the private sector of vital resources and increases the costs faced by the entrepreneur. The tax burden will increase for the private individual, and the entrepreneur finds that he is competing with the State or public sector, with excessive public wages, unemployment benefits, and pensions that start too early or are set too high.
The cause of the misery in Greece, and lack of competitiveness, is a State bubble inflated with cheap money. Athens used their first years in the Eurozone to expand their Socialist amusement park.
This State sector, in which life could be very enjoyable, was and still is very expensive to maintain and could only be realised through the accumulation of a mountain of debt.
The way the Euro was designed makes it possible to shift the burden of a government deficit partly onto foreigners (who also use the Euro currency). If a Greek politician runs a deficit in order to fulfil his election promises, the government bonds that he issues can be purchased by the banking system and deposited with the euro system (the ECB) as security for fresh loans. The result of running a deficit is that the money supply will increase and prices will tend to rise, not only in Greece but also in the rest of the euro zone. In other words, the cost of the Greek government spending can be partially passed on to residents of other Eurozone countries in the form of a loss of purchasing power of the Euro.
Since it is not only Greece that can use this mechanism, we are dealing with a Tragedy of the Commons - named after the shared and overgrazed communal grassland. Any independent Eurozone government can take advantage of this central banking system to finance their spending.
The attempt to control the use of this financing mechanism with a deficit limit of 3 percent of GDP, as specified in the Stability and Growth Pact, fails because of the nature of the present Covenant. It is a voluntary agreement between independent nations, managed by short-sighted politicians who are only focussed on the next set of elections and their own national interests.
Just as common land becomes overgrazed and eventually useless, the commonly exploited resource in the Eurozone is not common grazing land but the purchasing power of the Euro currency. Hence the self-destructive tendency of the system. How will it eventually end? We may get the answer in the next Act of the Greek drama.
Basically, there are three possible scenarios.
The first scenario is that the necessary structural reforms are finally implemented. A strict observance of the deficit ceiling would allow the Euro to survive. If the ECB and the Eurozone were to suspend their aid to Greece, the pressure for reform would increase significantly. If the Greek government were to remain in the Eurozone, they would have to make do with what they take in taxes.
However, Athens seems unwilling to carry out the necessary reforms, even though it is committed to do so on paper. For they are mostly going in the wrong direction.
The right direction would be to tackle the Greek problem; the bubble in the public sector and the problem of too much government. However, the Greek government does not want to shrink the government sector. On the contrary, they want to increase the burden on the private sector. They want to combat tax avoidance and evasion, close loopholes and put a stop to smuggling and blackmarket activities. The Greek government wants to increase revenue, instead of cutting expenditure. They want more government.
In order to be competitive and to create wealth, the private sector needs exactly the opposite : fewer barriers and regulations and lower taxes. To this end, the State would have to radically pull back. Apparently, the Greek government does not want to accept this loss of power.
The second scenario for the Euro is disintegration.
The net contributors - ie. net losers - to the Monetary Union, above all Germany, are still far away from an exit. Germany does not want to go down in history as the country that decisively torpedoed the European 'unification project'.
However, a Grexit or Graccident (an accidental exit from the euro), should not be excluded. If the bailout partners insist on their demands for reform, Athens might refrain from further requests for help, because they fear that the political consequences of these reforms might result in their government being voted out of office. So one possble result of the rescue measures demanded by the ECB and the Eurozone would be to point the Greek government to the exit door.
The Fate of the Euro is being decided in Greece
While European politicians 'buy time' with their taxpayers money (in order to avoid taking difficult decisions), the Greek government has been running the Show.
On the 27th of February, the German government took the decision to extend aid to Greece. Moreover, on the 9th of March, the ECB started its QE programme, buying Euro 60 billion of Eurozone government securities every month.
On one hand, the neutral spectator risks being bored by the long drawn-out last Act (for now) of this Greek Tragedy. Once again, the Greek government has been " bought time " at the expense of the rest of Europe.
On the other hand, the Act may amuse the spectator with bizarre, comic antics, such as threats (to the main money provider, Germany), to furnish economic migrants and terrorists with the necessary papers to allow them to travel to Berlin, or alternatively, to seize the Goethe Institut in Athens.
Since the first bailout package for Greece in March 2010 - the original Monetary policy sin - the process has been repeated. There was a second, even bigger bailout package and in 2012, a debt haircut, which effectively released every Greek citizen from some Euro 10,000 of debt.
The ECB also gave the Greeks a hand, to the point where the ECB's own credibility as a politically independent Central Bank, committed to price stability, was put at risk. The ECB accepted Greek bonds as collateral despite junk ratings, allowed emergency loans ( Emergency Liquidity Assistance known as ELA) and even bought Greek government bonds.
Q: How much longer will these bailouts be repeated and amplified?
A: Until the Greeks' problems are solved - and they are as follows: stifling bureaucracy and over-regulation, lack of entrepreneurial freedom and incentives, corruption and nepotism, inefficient state-owned enterprises and excessive wages.
The cause of the lack of competitiveness is soon named : a huge state sector.
When a government spends money, it deprives the private sector of vital resources and increases the costs faced by the entrepreneur. The tax burden will increase for the private individual, and the entrepreneur finds that he is competing with the State or public sector, with excessive public wages, unemployment benefits, and pensions that start too early or are set too high.
The cause of the misery in Greece, and lack of competitiveness, is a State bubble inflated with cheap money. Athens used their first years in the Eurozone to expand their Socialist amusement park.
This State sector, in which life could be very enjoyable, was and still is very expensive to maintain and could only be realised through the accumulation of a mountain of debt.
The way the Euro was designed makes it possible to shift the burden of a government deficit partly onto foreigners (who also use the Euro currency). If a Greek politician runs a deficit in order to fulfil his election promises, the government bonds that he issues can be purchased by the banking system and deposited with the euro system (the ECB) as security for fresh loans. The result of running a deficit is that the money supply will increase and prices will tend to rise, not only in Greece but also in the rest of the euro zone. In other words, the cost of the Greek government spending can be partially passed on to residents of other Eurozone countries in the form of a loss of purchasing power of the Euro.
Since it is not only Greece that can use this mechanism, we are dealing with a Tragedy of the Commons - named after the shared and overgrazed communal grassland. Any independent Eurozone government can take advantage of this central banking system to finance their spending.
The attempt to control the use of this financing mechanism with a deficit limit of 3 percent of GDP, as specified in the Stability and Growth Pact, fails because of the nature of the present Covenant. It is a voluntary agreement between independent nations, managed by short-sighted politicians who are only focussed on the next set of elections and their own national interests.
Just as common land becomes overgrazed and eventually useless, the commonly exploited resource in the Eurozone is not common grazing land but the purchasing power of the Euro currency. Hence the self-destructive tendency of the system. How will it eventually end? We may get the answer in the next Act of the Greek drama.
Basically, there are three possible scenarios.
The first scenario is that the necessary structural reforms are finally implemented. A strict observance of the deficit ceiling would allow the Euro to survive. If the ECB and the Eurozone were to suspend their aid to Greece, the pressure for reform would increase significantly. If the Greek government were to remain in the Eurozone, they would have to make do with what they take in taxes.
However, Athens seems unwilling to carry out the necessary reforms, even though it is committed to do so on paper. For they are mostly going in the wrong direction.
The right direction would be to tackle the Greek problem; the bubble in the public sector and the problem of too much government. However, the Greek government does not want to shrink the government sector. On the contrary, they want to increase the burden on the private sector. They want to combat tax avoidance and evasion, close loopholes and put a stop to smuggling and blackmarket activities. The Greek government wants to increase revenue, instead of cutting expenditure. They want more government.
In order to be competitive and to create wealth, the private sector needs exactly the opposite : fewer barriers and regulations and lower taxes. To this end, the State would have to radically pull back. Apparently, the Greek government does not want to accept this loss of power.
The second scenario for the Euro is disintegration.
The net contributors - ie. net losers - to the Monetary Union, above all Germany, are still far away from an exit. Germany does not want to go down in history as the country that decisively torpedoed the European 'unification project'.
However, a Grexit or Graccident (an accidental exit from the euro), should not be excluded. If the bailout partners insist on their demands for reform, Athens might refrain from further requests for help, because they fear that the political consequences of these reforms might result in their government being voted out of office. So one possble result of the rescue measures demanded by the ECB and the Eurozone would be to point the Greek government to the exit door.
In the case of a GREXIT, the lights would only go out if the withdrawal from the Eurozone is made with a desire to make the necessary reforms. The result would be a flight of capital and entrepreneurs and a general sell-out. The cleansing storm could wash other Member countries out of the Euro.
Thereafter, the Eurozone would be restored to health, a deterrent created. The euro could develop into a hard currency. However, since the politicians are afraid of such a storm, a Grexit seems unlikely, especially as Tsipras & Co. probably prefer their salaries and pensions to be paid in Euros rather than in devalued drachma.
The third scenario is a transfer union, the ultimate dream of the government in Athens, whose policy is aimed at further Eurozone transfers. Each Act of the Greek tragedy has brought us closer to this aim. To turn away from this path is becoming costlier and therefore less likely.
It is a tragedy of the commons in which the Greek bull grazes with ease while the German milk-cow is pushed to the edges and looks on with displeasure.
Sooner rather than later, the Eurozone might have to decide which of the three ways they want to take. Thanks to Greece, the decision will probably have to be taken earlier than the constantly time-buying politicians may have hoped.
Thursday, 24 April 2014
Portugal is only acceptable in the bond markets once again on account of a rule change in 'ECB/2014/10'
The following is a translation of this article by Matthias Brendel und Sebastian Jost, published in Die Welt on 22/4/2014.
ECB Trick
Portugal is only acceptable in the bond markets once again on account of 'ECB/2014/10'
Portugal is returning to the capital markets for the first time in years. However, the demand for their bonds is high only because the ECB has helped them in a questionable way.
---------------------------------------------------------------
The room with the opulent chandelier conveys a certain seriousness. However, this does not apply to the mood that European leaders (in Washington) want to to convey.
They have been invited to a confidential meeting on the edge of the WorldBank Conference, in this historic, luxury hotel, and are pleased that the Euro- crisis is barely a topic of conversation anymore, here at one of the summit meetings of the financial world. Even a question about Portugal hardly disturbs them.
'The country has made great progress', says the politician who was one of the principal architects of the euro bailout in recent years.
In the summer, help from the euro bailout fund ESM and the International Monetary Fund runs out, and everyone is looking for a "clean exit" from the programme. Portugal should be able to stand on its own two feet, financially speaking, by then, without any need for further help or a precautionary credit line from the ESM.
The country is already returning officially to the free capital markets on Wednesday, and will offer ten year government bonds in an auction to investors, according to the national debt agency in Lisbon.
The first public auction, since the call for help to the EU in April 2011, should raise 750 million Euros for the state treasury.
A small change to the rules, with great significance
It would be a success story for the architects of the euro bailout, which they could really do with just before the European elections.
To this end, a number of European finance ministers have been praising Portugal in recent weeks.
What they don't say is this: upon its departure from the bailout programme, Portugal can rely on another, more subtle form of support. It is hidden in a twelve page document with the unwieldy name ECB/2014/10.
With this directive, the ECB is making a small change to its own regulatory framework, but one of great significance for Portugal. This is because, according to Die Welt's investigations, it relates directly to the future acceptance of Portuguese government bonds as loan collateral by the ECB.
For, as long as the ECB continues to accept Portuguese government bonds as loan collateral, this will hugely facilitate the sale of debt securities on the capital markets - without this relief, it would hardly be possible for Portugal to fully finance itself again from private monetary sources.
In this way, a crisis country benefits once more from ECB policy.
The background to this is the system of bank-financing in the euro-zone.
Credit institutions may, in principle, borrow unlimited amounts of money from the ECB, but they have to pledge securities as collateral against these loans. Bonds which are suitable for this purpose are therefore much more valuable to the banks, and are much easier to sell and can be placed at a much lower interest rate.
The Calls of the Portuguese were heard by the ECB
Credit worthiness is the decisive criterion: the ECB only accepts securities with a definite minimum credit rating, and it is precisely this point that the most recent change to ECB rules affects.
Under the old rules, Portuguese government bonds had not met this minimum credit rating for quite some time.
Portuguese government bonds could only be submitted as collateral with the ECB, because the credit quality threshold was overridden for countries with an ESM bailout. In this way, for example, the ECB continues to accept Greek government bonds as collateral.
But if Portugal were to leave the ESM programme as planned during the year, the special rule currently governing Portuguese government bonds would come to an end. Then Portuguese government bonds would no longer be eligible as collateral with the ECB. In this situation, banks would almost completely disappear as a buyers of these bonds (because they would have no use for them) and it would be highly doubtful whether Portugal could access enough money on the capital markets to fund itself.
For quite some time, the Portuguese government has been pestering the ECB to support the country during the exit from the rescue program.
However, all the calls for the ECB to buy Portuguese bonds directly from the government went unheard in Frankfurt (huge sigh of relief).
However, at least with regard to the rules on minimum credit ratings, the 24-member ECB Governing Council made a decision which played right into the hands of the Portuguese.
That decision had already been made into a formal policy by the middle of March. It applies from April 1st 2014, but for weeks it remained below the radar of public awareness.
Small rating agency, big impact
The crucial 'green light' for Portugal is hidden in bureaucratic wording. It says that the ECB will now also accept securities for financial transactions which are given a 'BBB (low)' rating by the small Canadian rating agency DBRS. Up to now, the threshold rating level was one notch higher, with a DBRS rating of "BBB".
This is important for Portugal because the country is currently rated "BBB (low)" (by DBRS). As far as the other three rating agencies, Standard & Poors, Moodys and Fitch are concerned, Portugal dropped out of the 'BBB' zone a long time ago.
-----------------------------------------------------------------------------------------------
The article goes on to say that, as we know, the ECB has dropped its credit rating criteria several times in the course of the financial crisis. Also, the Portuguese government will not be the only beneficiary of this ratings change.
Four Portuguese banks and an Italian bank will also benefit from the new minimum rating rule. Those banks are Banco Espírito Santo, Banco Comercial Português, Caixa Económica the Montepio Geral, the Caixa Geral de Depósitos and the Italian Banca Popolare di Vicenza.
ECB Trick
Portugal is only acceptable in the bond markets once again on account of 'ECB/2014/10'
Portugal is returning to the capital markets for the first time in years. However, the demand for their bonds is high only because the ECB has helped them in a questionable way.
---------------------------------------------------------------
The room with the opulent chandelier conveys a certain seriousness. However, this does not apply to the mood that European leaders (in Washington) want to to convey.
They have been invited to a confidential meeting on the edge of the WorldBank Conference, in this historic, luxury hotel, and are pleased that the Euro- crisis is barely a topic of conversation anymore, here at one of the summit meetings of the financial world. Even a question about Portugal hardly disturbs them.
'The country has made great progress', says the politician who was one of the principal architects of the euro bailout in recent years.
In the summer, help from the euro bailout fund ESM and the International Monetary Fund runs out, and everyone is looking for a "clean exit" from the programme. Portugal should be able to stand on its own two feet, financially speaking, by then, without any need for further help or a precautionary credit line from the ESM.
The country is already returning officially to the free capital markets on Wednesday, and will offer ten year government bonds in an auction to investors, according to the national debt agency in Lisbon.
The first public auction, since the call for help to the EU in April 2011, should raise 750 million Euros for the state treasury.
A small change to the rules, with great significance
It would be a success story for the architects of the euro bailout, which they could really do with just before the European elections.
To this end, a number of European finance ministers have been praising Portugal in recent weeks.
What they don't say is this: upon its departure from the bailout programme, Portugal can rely on another, more subtle form of support. It is hidden in a twelve page document with the unwieldy name ECB/2014/10.
With this directive, the ECB is making a small change to its own regulatory framework, but one of great significance for Portugal. This is because, according to Die Welt's investigations, it relates directly to the future acceptance of Portuguese government bonds as loan collateral by the ECB.
For, as long as the ECB continues to accept Portuguese government bonds as loan collateral, this will hugely facilitate the sale of debt securities on the capital markets - without this relief, it would hardly be possible for Portugal to fully finance itself again from private monetary sources.
In this way, a crisis country benefits once more from ECB policy.
The background to this is the system of bank-financing in the euro-zone.
Credit institutions may, in principle, borrow unlimited amounts of money from the ECB, but they have to pledge securities as collateral against these loans. Bonds which are suitable for this purpose are therefore much more valuable to the banks, and are much easier to sell and can be placed at a much lower interest rate.
The Calls of the Portuguese were heard by the ECB
Credit worthiness is the decisive criterion: the ECB only accepts securities with a definite minimum credit rating, and it is precisely this point that the most recent change to ECB rules affects.
Under the old rules, Portuguese government bonds had not met this minimum credit rating for quite some time.
Portuguese government bonds could only be submitted as collateral with the ECB, because the credit quality threshold was overridden for countries with an ESM bailout. In this way, for example, the ECB continues to accept Greek government bonds as collateral.
But if Portugal were to leave the ESM programme as planned during the year, the special rule currently governing Portuguese government bonds would come to an end. Then Portuguese government bonds would no longer be eligible as collateral with the ECB. In this situation, banks would almost completely disappear as a buyers of these bonds (because they would have no use for them) and it would be highly doubtful whether Portugal could access enough money on the capital markets to fund itself.
For quite some time, the Portuguese government has been pestering the ECB to support the country during the exit from the rescue program.
However, all the calls for the ECB to buy Portuguese bonds directly from the government went unheard in Frankfurt (huge sigh of relief).
However, at least with regard to the rules on minimum credit ratings, the 24-member ECB Governing Council made a decision which played right into the hands of the Portuguese.
That decision had already been made into a formal policy by the middle of March. It applies from April 1st 2014, but for weeks it remained below the radar of public awareness.
Small rating agency, big impact
The crucial 'green light' for Portugal is hidden in bureaucratic wording. It says that the ECB will now also accept securities for financial transactions which are given a 'BBB (low)' rating by the small Canadian rating agency DBRS. Up to now, the threshold rating level was one notch higher, with a DBRS rating of "BBB".
This is important for Portugal because the country is currently rated "BBB (low)" (by DBRS). As far as the other three rating agencies, Standard & Poors, Moodys and Fitch are concerned, Portugal dropped out of the 'BBB' zone a long time ago.
-----------------------------------------------------------------------------------------------
The article goes on to say that, as we know, the ECB has dropped its credit rating criteria several times in the course of the financial crisis. Also, the Portuguese government will not be the only beneficiary of this ratings change.
Four Portuguese banks and an Italian bank will also benefit from the new minimum rating rule. Those banks are Banco Espírito Santo, Banco Comercial Português, Caixa Económica the Montepio Geral, the Caixa Geral de Depósitos and the Italian Banca Popolare di Vicenza.
Wednesday, 26 June 2013
Gold and Silver
With the recent drop in the price of Gold and Silver, I wanted to put my views on these precious metals down in writing.
I am basically Austrian in my approach to Economics. I wish Murray Rothbard and Hayek were still alive. However, while I agree that when governments are debasing paper currencies in order to run huge debts and deficits, hard assets such as Gold and Silver should provide protection to the ordinary citizen, unfortunately, Gold and Silver are traded assets and their prices can be bid up to extremes.
Consequently, the ordinary person cannot buy Gold or Silver blindly with the expectation that their prices will always go up. As we have seen over the last year, Gold and Silver prices can also come down sharply.
As with buying any asset, getting the timing right is key, but also incredibly difficult.
I am inclined to believe that predictions of much higher Gold and Silver prices, due to ultra-loose monetary policies, will eventually be proven to be correct, but how long this will take is very difficult to foresee.
In the meantime, the recent pull back in prices may provide us all with an opportunity to add small quantities of Gold and Silver - perhaps one or two coins per month - to our portfolios, with the aim of price averaging over the next year.
Tuesday, 30 April 2013
The Inflation Monster: How Monetary Policy Threatens Savings
This is a very good article on the effects of inflation in Der Spiegel - but in English - which you can read by clicking here.
I particularly liked the introduction. The article begins :
'Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It's meant as a gag gift, but the sight of this stack of colourful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.'
I particularly liked the introduction. The article begins :
'Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
Saturday, 13 April 2013
Brilliant if depressing article on France by Charles Gave of Gavekal.com
Charles Gave has written a brilliant article on the French economy,
France is on the Brink of a Secondary Depression which you can read here.
His concluding sentences are: 'Until quite recently, my working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government I have changed my mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe—the world’s last truly Communist country is about to implode.'
Along the same lines, see this article entitled 'France's Explosive Picket Lines' plus short video by France 24.
France is on the Brink of a Secondary Depression which you can read here.
His concluding sentences are: 'Until quite recently, my working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government I have changed my mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe—the world’s last truly Communist country is about to implode.'
Along the same lines, see this article entitled 'France's Explosive Picket Lines' plus short video by France 24.
Friday, 1 February 2013
Nomination for most idiotic suggestion of the week. See this article by David Kemper, chairman and CEO of Commerce Bancshares in Bloomberg Businessweek.
Saturday, 12 January 2013
The following is a translation of this article by Reinhard Göweil first published on 11/1/2013 in Die Wiener Zeitung.
Hässliche Isolation - Ugly Isolation
British Chancellor of the Exchequer, George Osborne, is demanding that the European Union changes. Now he is right about that, although he means something very different. The EU must change but in order to do so it will be necessary for the British Chancellor to leave the room. The internal political weakness of the government of Prime Minister David Cameron is only surpassed by their chutzpah in European affairs. For months, the United Kingdom has been blocking everything in Brussels that it possibly can.
The Government in London has significant problems with Tory MPs who have apparently adopted the Republican Tea Party movement in America as their model. They want to leave the EU: Cameron dares not strongly oppose them.
In the end, the noises against Europe were becoming more and more unpleasant - until two days ago. First of all, British businessses warned of the economic damage that an exit from the EU could cause. Then the American government piped up. They didn't consider a 'Brexit' to be a good idea and said so loud and clear.
The Chancellor is now engaged in damage limitation. He has told the EU that non-Euro countries must be allowed to keep the same rights as countries that use the Euro currency.
The message from London is - we may not be on the inside, but we still want a say in everything.
So US President Barack Obama's administration came out and warned the British against leaving the EU, but where is the clear European reaction to George Osborne?
It would have been nice if European Commission President Jose Manuel Barroso or European Council President Herman Van Rompuy had shown similar guts and finally told the Brits what might be gained from their obstruction: absolutely nothing.
If Great Britain doesn't like the path that the EU has taken, then they haven't understood the European concept. No-one in the Eurozone is happy about giving money to Greece - but it is a question of keeping the Eurozone together.
The British will have to learn that their Empire is in the past and that 'Rule Britannia' is just a song.
Whether a weak politician like Cameron is up to that job is doubtful. However, it is possible that Scotland will soon split from the UK. This part of the Island is definitely happy in the EU.....
Saturday, 22 December 2012
Gerard Depardieu's move to Belgium
With regard to Gérard Depardieu's decision to move to Belgium, the quote of the month on Twitter is from Bastiat2022..........
'Tu sais que ton pays a un gros problème fiscal lorsque la Belgique y est considérée comme un paradis fiscal.'
'Tu sais que ton pays a un gros problème fiscal lorsque la Belgique y est considérée comme un paradis fiscal.'
Wednesday, 19 December 2012
Der Spiegel - Investigation into Deutsche Bank
The following is a translation of this article published by Jakob Augstein in Der Spiegel 17/12/2012.
'Investigation into Deutsche Bank - Break it up!'
Chancellor Merkel has failed in the fight against the finance industry. This is the best opportunity for the man who wants to replace her - Peer Steinbruck. He must break up Deutsche Bank.
'Investigation into Deutsche Bank - Break it up!'
Chancellor Merkel has failed in the fight against the finance industry. This is the best opportunity for the man who wants to replace her - Peer Steinbruck. He must break up Deutsche Bank.
The police officers who forced their way into Deutsche Bank, on Wednesday of last week, were armed, even though they could not have been expecting violent resistance from the bankers inside. However, their weapons were a powerful symbol. They were a sign of the special danger that the State attaches to the suspects: Bankers can also be serious criminals. They can hold whole societies to ransom.
It is the Chancellor's greatest failure that she has done nothing to contain the power of these people: and it is the greatest opportunity for the man who would replace her.
The State has fired a warning shot. The bank has already challenged it. It concerns the trade in CO2 certificates and the suspicion of serious tax evasion. Millions are at stake - once again. The investigation has already been running for a long time. Deutsche Bank had promised to cooperate, but the investigators felt that they were being taken for a ride. Deutsche Bank put down obstacles. Worse still. Der Spiegel writes in its cover story that evidence may well have been destroyed. One reads of 'intentional help' for tax evasion on a massive scale.
Deutsche Bank - the largest bank in the country - has frankly been behaving like a drug cartel: keep quiet, cover up and carry on. Now even co-CEO Juergen Fitschen is at the centre of the criticism. He recently said, 'It is often said in public that the banks don't want to be reasonable, that they don't want to learn (from their mistakes). I, in contrast, assert that we are reasonable, that we have taken the appropriate steps and that we will take further steps.'
In truth, the bank has wasted the opportunity to act in a timely fashion. So the State has taken over. The gloss has gone, this bank will not shine so quickly again. It's not just about this case. There is also the court decision that the bank must pay compensation to the heirs of Kirch. The allegations from Saxony are that the Frankfurt based bankers (at Deutsche Bank) unloaded so-called Residential Mortgage Backed Securities onto the Landesbank - securities that were 'of poor quality' and that 'Deutsche Bank knew this' - so it is stated in the court application. The behaviour of the bank was 'brazen fraud'. Add to this complaints and inquiries from the USA and other countries, according to which Deutsche Bank allegedly lied and cheated. Even though, in each individual case, the presumption of innocence must apply and even if Deutsche Bank manages to reject some of the allegations, the damage is done. Their reputation is ruined.
The Bankers have lost all sense of proportion
What does it take to be a good banker?
At the beginning of the sixties, Hermann Josef Abs said, 'First of all the ability to think about the interests of the customer, secondly, to have the courage of their convictions, thirdly, to weigh the degree of risk.'
At that time, it was an essential feature of banking that it was quiet, serious, almost a bit boring. Bankers were also powerful back then but they made sure to stay within the letter of the law.
Since then they have lost all sense of proportion. This is a hallmark of capitalism as a whole, since the so-called socialist countries collapsed. Banks had little to do with the Socialist system. Banks were what the sociologist Oskar Negt calls a 'demarcation reality'. They gave the Western system a legitimacy which has since evaporated.
The company that was once the centre of Germany Inc. now stands suspected of particularly well organised criminality. This bypasses the selfunderstanding of the bankers at Deutsche Bank. What did co-CEO Fitschen do once the State lawyers had left the building? He telephoned the Minister-President of Hesse, Mr. Bouffier, to complain. He is obviously accustomed to do this. Boufffier ignored him. However, the episode shows what you could hitherto expect as a banker at Deutsche Bank from the Minister-President.
The time for joking is over.
This is the failure of politics. It has failed to set boundaries for the bankers. In autumn 2009, Angela Merkel said: 'We need rules - for each product, for every location in which they are traded, and for every institution .... No bank should be so large that they may ever again blackmail countries.' Words which were not followed by any deeds.
After Fukushima, Merkel managed to phase out nuclear power, but after the meltdown of the financial sector, she was unable to achieve a similar coup. In dealing with the nuclear lobby, the Chancellor was able to summon her courage. Confronting the banks, her courage deserted her.
As a result of all the banking scandals of recent years, the credibility of Germany's largest banking institution has been destroyed. The bank should be broken up. Peer Steinbruck, the SPD candidate for Chancellor, has put forward a plan as to how the credit and securities trading divisions can operate separately under the umbrella of a holding company. That is a sensible idea.
Steinbruck, who in the past was happy to be invited out and paid by the banks, has boasted that he has never said anything (to the banks) that they liked to hear. That may well be true. The banks have listened to his scolding, just as a King listens to the scolding of a Fool.
The SPD candidate can use the forthcoming election campaign to make it clear to the banks that the time for joking is over.
Tuesday, 18 December 2012
Old article - The tragedy that is Greece
This article was first published on lewrockwell.com in May 2010, but is still relevant to the current situation in Greece.
On May 5th, three bank workers died in a blaze at their Athens office block after violence broke out in a mass demonstration against the Greek government.
This was the tragic result of a decision taken in 1992, to impose a single currency on twelve very different economies.
The European political elite had always wanted a single currency. From 1979, most members of the European Economic Community (the precursor to the European Union) participated in the European Monetary System or EMS. This was an arrangement whereby the member states linked their currencies to prevent large fluctuations relative to one another. This led to the creation of the European Currency Unit or ECU, which was the precursor to the Euro.
The Tragedy that is Greece
by Sally Copperwaite MA Oxon
On May 5th, three bank workers died in a blaze at their Athens office block after violence broke out in a mass demonstration against the Greek government.
This was the tragic result of a decision taken in 1992, to impose a single currency on twelve very different economies.
The European political elite had always wanted a single currency. From 1979, most members of the European Economic Community (the precursor to the European Union) participated in the European Monetary System or EMS. This was an arrangement whereby the member states linked their currencies to prevent large fluctuations relative to one another. This led to the creation of the European Currency Unit or ECU, which was the precursor to the Euro.
The participating countries had to prevent movements of more than 2.25% (although Italy had a much wider band of 6%) relative to the other participating currencies. Periodic adjustments raised the values of strong currencies and lowered those of weaker ones, but after 1986, changes in national interest rates were used to keep the currencies within a narrow band.
Britain finally joined the EMS in 1990, but the strains of keeping the Pound in a tight band relative to the other currencies soon began to show.
Britain finally joined the EMS in 1990, but the strains of keeping the Pound in a tight band relative to the other currencies soon began to show.
By 1992, Britain was forced to raise interest rates to punishingly high levels. George Soros saw the writing on the wall. By September 16th, 1992, (Black Wednesday) his fund had sold short more than $10 billion of Pounds Sterling, as he gambled that the British government would have a limit to how much money they would be prepared to lose in supporting the Pound.
On September 16th, the British government announced a rise in Base Rate from an already high 10% to an eye-watering 12% in order to tempt speculators to buy pounds. Despite this, and a promise later the same day to raise Base Rate again to 15%, dealers kept selling pounds. By 19:00 that evening, Norman Lamont, the Chancellor, announced that Britain would leave the ERM with immediate effect. George Soros (in)famously walked away with a profit of over $1 billion.
At the same time, Ireland was forced to raise their key interest rate to 17% in order to keep the Irish Punt within its EMS band, while Italy threw in the towel and withdrew from the EMS on the 17th of September 1992.
Ironically, 1992 was also the year in which the European political elite officially imposed their desire for a single European currency on nearly 300 million people under the terms of the Maastricht Treaty.
Despite the problems suffered under the EMS, and clear breaches of the convergence criteria set down in the Maastricht treaty, the Euro project went ahead in January 1999, as eleven EMS member states (including Italy which had re-joined the EMS at a later stage) had their currencies fixed at the rate they were trading at as part of the ECU.
On September 16th, the British government announced a rise in Base Rate from an already high 10% to an eye-watering 12% in order to tempt speculators to buy pounds. Despite this, and a promise later the same day to raise Base Rate again to 15%, dealers kept selling pounds. By 19:00 that evening, Norman Lamont, the Chancellor, announced that Britain would leave the ERM with immediate effect. George Soros (in)famously walked away with a profit of over $1 billion.
At the same time, Ireland was forced to raise their key interest rate to 17% in order to keep the Irish Punt within its EMS band, while Italy threw in the towel and withdrew from the EMS on the 17th of September 1992.
Ironically, 1992 was also the year in which the European political elite officially imposed their desire for a single European currency on nearly 300 million people under the terms of the Maastricht Treaty.
Despite the problems suffered under the EMS, and clear breaches of the convergence criteria set down in the Maastricht treaty, the Euro project went ahead in January 1999, as eleven EMS member states (including Italy which had re-joined the EMS at a later stage) had their currencies fixed at the rate they were trading at as part of the ECU.
The Euro thus became the successor of the ECU, and the European Central Bank (ECB) became the de facto central bank for the Eurozone member states.
Greece became the twelfth member of the Eurozone in 2002. Ominously, it was not able to join the Euro in 1999 because it could not meet the convergence criteria.
Even in 2002, no-one seriously believed that Greece had met the convergence criteria. This credibility gap has always been a major problem with the Euro project. The political elite were determined to carry on with their master plan, no matter what. They assured the people of the Eurozone that they knew what they were doing. They hoped that ordinary people would be so disinterested, or confused, that they would not object.
The ECB’s primary aim was to ensure the acceptance of the Euro by the 300 million people suddenly having to use it. They decided that the easiest way to do this was to keep their key interest rate artificially low from the start – far too low, as it turned out, for many of the new member states.
For decades prior to joining the Euro, short-term Irish Punt interest rates traded around 11%. Short-term rates reached a high of 17% in 1992, as Ireland struggled to keep the Punt inside its EMS bands. As conversion to the Euro loomed ever closer, short-term interest rates in Ireland gradually dropped until by January 1999, they were 3% in line with the rest of the Eurozone.
Spain, Portugal and later, Greece, all suffered the same fate as Ireland – a massive expansion of credit, as the banks in those countries actively expanded deposits and loans. The property markets in all of these countries went through the roof as the ECB did nothing to rein in the credit expansion, despite the ECB President’s constant refrain, ‘We are firmly anchoring inflation expectations.’
In fact, the ECB was not only expanding credit by intervening in the market to keep their key interest rates artificially low, they were also debasing the Euro by indirectly financing the ever-growing debts of profligate member states.
This is due to the way the ECB prints money.
As Philipp Bagus explained in his Mises.org article of February 11th 2010,
‘The European Central Bank accepts Greek government bonds as collateral for their lending operations. European banks may buy Greek government bonds (now paying a premium in comparison to German bonds of more than 3%) and use these bonds to get a loan from the ECB at 1% interest – a highly profitable deal.
The banks buy the Greek bonds because they know that the ECB will accept these bonds as collateral for new loans. As the interest rate paid to the ECB is lower than the interest received from Greece, there is a demand for these Greek bonds.
Greece became the twelfth member of the Eurozone in 2002. Ominously, it was not able to join the Euro in 1999 because it could not meet the convergence criteria.
Even in 2002, no-one seriously believed that Greece had met the convergence criteria. This credibility gap has always been a major problem with the Euro project. The political elite were determined to carry on with their master plan, no matter what. They assured the people of the Eurozone that they knew what they were doing. They hoped that ordinary people would be so disinterested, or confused, that they would not object.
The ECB’s primary aim was to ensure the acceptance of the Euro by the 300 million people suddenly having to use it. They decided that the easiest way to do this was to keep their key interest rate artificially low from the start – far too low, as it turned out, for many of the new member states.
For decades prior to joining the Euro, short-term Irish Punt interest rates traded around 11%. Short-term rates reached a high of 17% in 1992, as Ireland struggled to keep the Punt inside its EMS bands. As conversion to the Euro loomed ever closer, short-term interest rates in Ireland gradually dropped until by January 1999, they were 3% in line with the rest of the Eurozone.
Spain, Portugal and later, Greece, all suffered the same fate as Ireland – a massive expansion of credit, as the banks in those countries actively expanded deposits and loans. The property markets in all of these countries went through the roof as the ECB did nothing to rein in the credit expansion, despite the ECB President’s constant refrain, ‘We are firmly anchoring inflation expectations.’
In fact, the ECB was not only expanding credit by intervening in the market to keep their key interest rates artificially low, they were also debasing the Euro by indirectly financing the ever-growing debts of profligate member states.
This is due to the way the ECB prints money.
As Philipp Bagus explained in his Mises.org article of February 11th 2010,
‘The European Central Bank accepts Greek government bonds as collateral for their lending operations. European banks may buy Greek government bonds (now paying a premium in comparison to German bonds of more than 3%) and use these bonds to get a loan from the ECB at 1% interest – a highly profitable deal.
The banks buy the Greek bonds because they know that the ECB will accept these bonds as collateral for new loans. As the interest rate paid to the ECB is lower than the interest received from Greece, there is a demand for these Greek bonds.
Without the acceptance of Greek bonds by the ECB as collateral for its loans, Greece would have to pay much higher interest rates than it does now. Greece is, therefore, already being bailed out. The other countries of the eurozone pay the bill. New euros are, effectively, created by the ECB accepting Greek government bonds as collateral. Greek debts are monetized, and the Greek government spends the money it receives from the bonds to secure support among its population.’
His outlook for the Euro was bleak.
‘The future of the euro is dark because there are such strong incentives for reckless fiscal behavior, not only for Greece but also for other countries. Some of them are in situations similar Greece's. In Spain, official unemployment is approaching 20% and the public deficit is 11.4% of GDP. Portugal announced a plan to privatize national assets as its deficit is at 9.3% of GDP. Ireland's housing bubble burst with a deficit of 11.5% of GDP.
The incentives for irresponsible behavior for these and other countries are clear. Why pay for your expenditures by raising unpopular taxes? Why not issue bonds that will be purchased by the creation of new money, even if it finally increases prices in the whole eurozone? Why not externalize the costs of the government expenditures that are so vital to securing political power?’
Despite, or more likely, because of the spending undertaken by the previous Greek government, Greece has been in a recession since the credit crisis of 2007/8. Aside from problems accessing credit, the Greek economy has suffered from the strength of the Euro over the last three years. Greece relies heavily on tourism to bolster its economy and the strong Euro has been a deterrent to many tourists. Turkey, right next door, is a much cheaper holiday destination.
Many Greek people may not have identified the Euro currency as the source of their problems but they knew that they needed a different government. So, in October last year, they voted in a new Socialist government, headed by George Papandreou, who pledged to fight corruption and tackle Greece's worst economic recession in years.
It was only once the Socialist party took office that they realised how bad the fiscal situation was.
It has fallen to George Papandreou and his Finance Minister to sort out the mess left by the previous government, and this will entail drastic cuts in government spending, higher taxes and an increase in an already high unemployment rate, at least initially. This is why the Greeks are rioting.
Unfortunately, their anger is directed at the new government even though this crisis was caused by the previous government, aided and abetted by the ECB.
LVM and Hayek would be horrified but not surprised by the inflationary activities of the ECB and by the profligacy of governments prepared to do anything to stay in power.
His outlook for the Euro was bleak.
‘The future of the euro is dark because there are such strong incentives for reckless fiscal behavior, not only for Greece but also for other countries. Some of them are in situations similar Greece's. In Spain, official unemployment is approaching 20% and the public deficit is 11.4% of GDP. Portugal announced a plan to privatize national assets as its deficit is at 9.3% of GDP. Ireland's housing bubble burst with a deficit of 11.5% of GDP.
The incentives for irresponsible behavior for these and other countries are clear. Why pay for your expenditures by raising unpopular taxes? Why not issue bonds that will be purchased by the creation of new money, even if it finally increases prices in the whole eurozone? Why not externalize the costs of the government expenditures that are so vital to securing political power?’
Despite, or more likely, because of the spending undertaken by the previous Greek government, Greece has been in a recession since the credit crisis of 2007/8. Aside from problems accessing credit, the Greek economy has suffered from the strength of the Euro over the last three years. Greece relies heavily on tourism to bolster its economy and the strong Euro has been a deterrent to many tourists. Turkey, right next door, is a much cheaper holiday destination.
Many Greek people may not have identified the Euro currency as the source of their problems but they knew that they needed a different government. So, in October last year, they voted in a new Socialist government, headed by George Papandreou, who pledged to fight corruption and tackle Greece's worst economic recession in years.
It was only once the Socialist party took office that they realised how bad the fiscal situation was.
It has fallen to George Papandreou and his Finance Minister to sort out the mess left by the previous government, and this will entail drastic cuts in government spending, higher taxes and an increase in an already high unemployment rate, at least initially. This is why the Greeks are rioting.
Unfortunately, their anger is directed at the new government even though this crisis was caused by the previous government, aided and abetted by the ECB.
LVM and Hayek would be horrified but not surprised by the inflationary activities of the ECB and by the profligacy of governments prepared to do anything to stay in power.
May 11, 2010
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