Defaulting banks - where will it stop?

[Magda Hassan]

Wikileaks Exposes German Preparations For "A Eurozone Chapter 11"

Submitted by Tyler Durden on 11/06/2011 16:34 -0500



The following cable from US ambassador to Germany Philip Murphy ("Ambassador Murphy spent 23 years at Goldman Sachs and held a variety of senior positions, including in Frankfurt, New York and Hong Kong, before becoming a Senior Director of the firm in 2003, a position he held until his retirement in 2006") "CONFIDENTIAL: 10BERLIN181" tells us all we need to know about what has been really happening behind the smooth, calm and collected German facade vis-a-vis not only Greece, but all of Europe, and what the next steps are: "A EUROZONE CHAPTER 11: DB Chief Economist Thomas Mayer told Ambassador Murphy he was pessimistic Greece would take the difficult steps needed to put its house in order. A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time. In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider." Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order. Unfortunately, there is no serious discussion of this underway, he lamented." This was In February 2010. The discussion has since commenced.
Full cable, created on February 12, 2010, presented with no comments, and just the occasional highlight, as all of what Germany is really saying has already been said by us as well.
C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000181

SIPDIS

STATE FOR EEB (NELSON, HASTINGS), EEB/IFD/OMA (WHITTINGTON), DRL/ILCSR AND EUR/CE (SCHROEDER, HODGES) LABOR FOR ILAB (BRUMFIELD) TREASURY FOR SMART, ICN (NORTON), IMB AND OASIA SIPDIS

E.O. 12958: DECL: 02/12/2020
TAGS: EAID EFIN ECON PREL EUN GM GR PGOV
SUBJECT: GERMANY RELIEVED BY EU SUMMIT OUTCOME ON GREECE

Classified By: ECONOMIC COUNSELOR INGRID KOLLIST, REASONS: 1.4 (B) AND
(D)

¶1. © SUMMARY: Chancellor Angela Merkel's government welcomed the decision taken at the EU's February 11 informal summit in Brussels not to provide financial assistance, for the moment, to cash-strapped Greece. German officials believe a bailout is not needed at this time, and that extending a lifeline to Greece would have carried too many risks. One major fear in Germany is that "saving" Greece would lead to other needy Eurozone members expecting the same treatment. Another concern is that extending an explicit guarantee for Greece could weigh on Germany's own good standing in the markets, ultimately raising its borrowing costs. While German government officials do not totally rule out an IMF program for Greece if push came to shove, most consider this eventuality highly unlikely, especially in light of the European Central Bank's strong opposition. In fact, the German government, the ECB and private German economists are downplaying the seriousness of Greece's predicament and its potential impact on stability of the Euro. They agree, however, that the crisis could have longer-term consequences for EU institutions and how they interact with member states that stray off course. END
SUMMARY.

NOT IN THE MOOD
---------------

¶2. © Prior to the February 11 EU Summit in Brussels, there was much hair pulling in Berlin over the wisdom of participating in some sort of Greek rescue. No one savored the idea of explaining to German taxpayers, already concerned about Germany's record deficit, that they would be footing the bill for the irresponsible behavior of another country. A Finance Ministry official explained to us that many Germans felt disgusted by the situation in Greece: "While Germans have spent the past decade tightening their belts and improving their competitiveness, Greek civil servants still earn 14 months' salary per year." A recent editorial in the German daily Frankfurter Allgemeine Zeitung (FAZ) asked rhetorically whether Germans would need to work until age 69 just to finance early retirement for Greek workers. With important upcoming elections in the state of North Rhine-Westphalia, bailing out Greece would not be a vote winner.

OFF THE HOOK
------------

¶3. © The German government was, in fact, "relieved" that the European Council meeting on February 11 decided not to put concrete assistance on the table at this time. Wolfgang Merz, Director for European Financial Affairs, German Ministry of Finance, told us that while Germany stands ready to throw a lifeline if the Greek government truly runs aground, Greece currently has access to capital markets and needs no outside assistance. The key to overcoming the crisis will be the Greek government's implementation of the planned austerity measures, said Merz. Bernhard Speyer, Head of Banking, Financial Markets and Regulation at Deutsche Bank (DB) Research, agreed that the EU struck the right balance: "The decision gave reassurances that Greece would not be abandoned, but kept the pressure on the Greeks by not yet putting cash on the table."

¶4. © Stepping in with assistance at this point carried too many downside risks, according to Merz. Legal questions aside, a German or EU bailout of Greece might have harmed Germany's credit worthiness, thereby raising its own borrowing costs. Merz added that a bailout would certainly have set a bad precedent for other Eurozone countries, such as Spain and Portugal, experiencing similar stresses. (Merz acknowledged, however, that these two countries' problems were less acute -- a sentiment echoed by Speyer.)

¶5. ©Still, there is some skepticism that Greece's austerity program will get the country's finances on the right track, even if fully implemented. Merz said an IMF bail out remained on the table, despite the official line that the situation in Greece could be addressed within the EU.

IMF RESCUE? RESOUNDING NO FROM ECB
----------------------------------

¶6. © According to Karlheinz Bischofberger, Deputy Head of the Financial Stability Department at the European Central Bank (ECB), the likelihood that the IMF will be asked to bail out Greece is "zero." Greece does not have a balance of payments crisis, so there is first and foremost no basis for the IMF to step in. Bischofberger added that apart from the damage to the ECB's reputation an IMF intervention would inflict, it was uncertain that the IMF could even succeed in doing the "political dirty work" of forcing Greece to implement a structural adjustment program. DB Research's Speyer concurred, adding that [and IMF intervention] would undermine the credibility of EU institutions to manage a crisis.

REPORTS OF MY DEATH ARE GREATLY EXAGGERATED
-------------------------------------------

¶7. © Talk of a possible break-up of the Eurozone is "absurd," according to Moritz Kraemer, Managing Director, Standard and Poor's. He noted that Eurozone membership is still seen as highly desirable, and there was absolutely no incentive to exit, despite the allure of devaluation. Any country that tried to leave the Eurozone would get hammered in the credit markets, exacerbating any underlying structural problems. S and P estimates that Greece's rating in the case of an exit would drop to "BB " or lower, i.e. below investment-grade. Even today, Greece's rating of "BBB " is higher than it was in 1997 ("BBB-") before joining the common currency. [ZH: HAHA]

¶8. © While the current crisis may have revealed an "Achilles heel" of the Eurozone, it may present opportunities, according to Klaus Masuch, Head of the EU Country Division, Directorat General of Economics, ECB. The crisis is a "healthy warning signal" that Eurozone members must conduct "sound national policies in line with the agreed rules." It also underlines the necessity of better integration and coordination of member state fiscal policies.
The Euro will come out of this crisis strengthened, he said.
Better and stricter early warning and surveillance systems will be in place, and the Stability and Growth Pact will ultimately be reinforced. DB Research's Speyer agreed, adding that the crisis could make EU member states proceed more cautiously with enlargement.

A EUROZONE CHAPTER 11
---------------------

¶9. © DB Chief Economist Thomas Mayer told Ambassador Murphy he was pessimistic Greece would take the difficult steps needed to put its house in order. A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time. In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider." Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order. Unfortunately, there is no serious discussion of this underway, he lamented.

COMMENT
-------

¶10. © Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece. Still, the German government appears prepared to step in as a last resort if needed and is cognizant that German banks (such as Hypo Real Estate and Deutsche Bank) and insurance companies (Allianz) have significant exposure to Greek sovereign debt. The crisis is also viewed -- within the German government as well as within the ECB -- as a way to exert greater influence over the public finances of profligate Eurozone members. Some Christian Social Union (CSU) politicians are even using the crisis to promote the candidacy of Bundesbank President Axel Weber as next ECB President, arguing that Weber's selection would send a signal that Eurozone stability is paramount. [ZH: Axel Weber was passed over for the post of ECB head and instead former Goldman staffer Mario Draghi was appointed] One way or another, the consequences of the Greece crisis seem likely to outlive the immediate situation. One strong possibility is that German influence over policy in the common currency area will grow.

[Bernice Moore]

http://www.salon.com/2011/12/19/perry_wa...t_in_us_4/

[Peter Lemkin]

How Greece Could Take Down Wall Street
Wednesday 22 February 2012
by: Ellen Brown, Web of Debt Blog | News Analysis


A truck with a black flag, which is displayed in protest of moves by the Greek government to opening the trucking profession, on a road in Elefsina, Greece, on September 22, 2010. (Photo: Angelos Tzortzinis / The New York Times)

In an article titled "Still No End to Too Big to Fail,'" William Greider wrote in The Nation on February 15th:

Financial market cynics have assumed all along that Dodd-Frank did not end "too big to fail" but instead created a charmed circle of protected banks labeled "systemically important" that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS).

Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default. According to the Comptroller of the Currency, nearly 95% of the banking industry's total exposure to derivatives contracts is held by the nation's five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs. The CDS market is unregulated, and there is no requirement that the "insurer" actually have the funds to pay up. CDS are more like bets, and a massive loss at the casino could bring the house down.

It could, at least, unless the casino is rigged. Whether a "credit event" is a "default" triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world's largest banks and hedge funds. That means the house determines whether the house has to pay.

The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an "event of default" declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme. According to Rudy Avizius in an article on The Market Oracle (UK) on February 15th, that explains what happened at MF Global, and why the 50% Greek bond write-down was not declared an event of default.

If you paid only 50% of your mortgage every month, these same banks would quickly declare you in default. But the rules are quite different when the banks are the insurers underwriting the deal.

MF Global: Canary in the Coal Mine?

MF Global was a major global financial derivatives broker until it met its unseemly demise on October 30, 2011, when it filed the eighth-largest U.S. bankruptcy after reporting a "material shortfall" of hundreds of millions of dollars in segregated customer funds. The brokerage used a large number of complex and controversial repurchase agreements, or "repos," for funding and for leveraging profit. Among its losing bets was something described as a wrong-way $6.3 billion trade the brokerage made on its own behalf on bonds of some of Europe's most indebted nations.

Avizius writes:

[A]n agreement was reached in Europe that investors would have to take a write-down of 50% on Greek Bond debt. Now MF Global was leveraged anywhere from 40 to 1, to 80 to 1 depending on whose figures you believe. Let's assume that MF Global was leveraged 40 to 1, this means that they could not even absorb a small 3% loss, so when the "haircut" of 50% was agreed to, MF Global was finished. It tried to stem its losses by criminally dipping into segregated client accounts, and we all know how that ended with clients losing their money. . . .

However, MF Global thought that they had risk-free speculation because they had bought these CDS from these big banks to protect themselves in case their bets on European Debt went bad. MF Global should have been protected by its CDS, but since the ISDA would not declare the Greek "credit event" to be a default, MF Global could not cover its losses, causing its collapse.

The house won because it was able to define what " winning" was. But what happens when Greece or another country simply walks away and refuses to pay? That is hardly a "haircut." It is a decapitation. The asset is in rigor mortis. By no dictionary definition could it not qualify as a "default."

That sort of definitive Greek default is thought by some analysts to be quite likely, and to be coming soon. Dr. Irwin Stelzer, a senior fellow and director of Hudson Institute's economic policy studies group, was quoted in Saturday's Yorkshire Post (UK) as saying:

It's only a matter of time before they go bankrupt. They are bankrupt now, it's only a question of how you recognise it and what you call it.

Certainly they will default . . . maybe as early as March. If I were them I'd get out [of the euro].

The Midas Touch Gone Bad

In an article in The Observer (UK) on February 11th titled "The Mathematical Equation That Caused the Banks to Crash," Ian Stewart wrote of the Black-Scholes equation that opened up the world of derivatives:

The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.

As Aristotle told this ancient Greek tale, Midas died of hunger as a result of his vain prayer for the golden touch. Today, the Greek people are going hungry to protect a rigged $32 trillion Wall Street casino. Avizius writes:

The money made by selling these derivatives is directly responsible for the huge profits and bonuses we now see on Wall Street. The money masters have reaped obscene profits from this scheme, but now they live in fear that it will all unravel and the gravy train will end. What these banks have done is to leverage the system to such an extreme, that the entire house of cards is threatened by a small country of only 11 million people. Greece could bring the entire world economy down. If a default was declared, the resulting payouts would start a chain reaction that would cause widespread worldwide bank failures, making the Lehman collapse look small by comparison.

Some observers question whether a Greek default would be that bad. According to a comment on Forbes on October 10, 2011:

[T]he gross notional value of Greek CDS contracts as of last week was €54.34 billion, according to the latest report from data repository Depository Trust & Clearing Corporation (DTCC). DTCC is able to undertake internal netting analysis due to having data on essentially all of the CDS market. And it reported that the net losses would be an order of magnitude lower, with the maximum amount of funds that would move from one bank to another in connection with the settlement of CDS claims in a default being just €2.68 billion, total. If DTCC's analysis is correct, the CDS market for Greek debt would not much magnify the consequences of a Greek defaultunless it stimulated contagion that affected other European countries.

It is the "contagion," however, that seems to be the concern. Players who have hedged their bets by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets. The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives "weapons of financial mass destruction." It is also why the banking system cannot let a major derivatives playersuch as Bear Stearns or Lehman Brothersgo down. What is in jeopardy is the derivatives scheme itself. According to an article in The Wall Street Journal on January 20th:

Hanging in the balance is the reputation of CDS as an instrument for hedgers and speculatorsa $32.4 trillion market as of June last year; the value that may be assigned to sovereign debt, and $2.9 trillion of sovereign CDS, if the protection isn't seen as reliable in eliciting payouts; as well as the impact a messy Greek default could have on the global banking system.

Players in the future may simply refuse to play. When the house is so obviously rigged, the legitimacy of the whole CDS scheme is called into question. As MF Global found out the hard way, there is no such thing as "risk-free speculation" protected with derivatives.


Ellen Brown

Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com. She is also chairman of the Public Banking Institute.

[Jan Klimkowski]

Golem XIV nails the lying bastards:

The Momentum of Lies

By Golem XIV on May 11, 2012




Headline in the FT "Spain to force banks to set aside €30bn." This is a bad joke. One which ordinary Spanish people are going to pay for in blood.

First, €30bn is a joke because it is not enough and the Spanish central bank and the government know it.

Second, 30bn of what? The Spanish banks don't have 30bn of anything worth setting aside.

According to a Bank of Spain presentation quoted in an article by Bloomberg, the bad debt provisions of Spanish banks so far


would cover losses of between 53 percent and 80 percent on loans for land, housing under construction and finished developments.

The additional €30B announced today


would increase coverage to 56 percent of such loans,..

The tiny little problem here, as Bloomberg points out, is that this additional sum is still ONLY for covering losses on land construction and finished developments. Which means even this new' rescue, like those before it, has no provision in it ,


… to absorb losses on 650 billion euros of home mortgages held by Spanish banks or 800 billion euros of company loans.

That's €1.4 trillion in residential mortgages and business loans for which the Spanish banks have made….no provision.

Now it is true that default rates have been lower in Spain than in Ireland for example. But while Ireland has unemployment of about 14% Spain's unemployment is 24%. Very nearly 1 in every four of the workforce has no official job. Even if they are working in the black economy that still leaves the state with a vast shortfall in tax revenue. No matter which way you look at it it is impossible that Spain's Caja's are not going to find huge suprise' losses on their residential and business loans. Of course those losses are already there but being held off the books with central bank complicity. Why else would the central bank and government simply not make provision for such losses unless they knew they were hidden? The problem is how much longer they can be hidden.

Taking the likely losses on those residential and business loans in to account,


…banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group.

I take that estimate with a pinch of salt because, although I do not know the Centre for European Policy Studies, it does look to me, to be fairly mainstream if not right wing. Even so I think the figures are clear that Spain's latest bail out of its banking system is as doomed to failure as those which preceded it.

Then there is the second and more fundamental problem which is that the Spanish banks simply don't have €30B they can set aside as further provision for bad loans. How can I make such a stark claim? Actually its not hard. And this is why.



(Chart at link)





This chart from Reuters shows that Spanish debt you remember those successful bond auctions was NOT bought by the bond market at large (non-resident holders), it was bought by Spanish banks (domestic holders). Similarly Italian debt has been bought by Italian banks.

According to data from the Spanish Treasury quoted by another Bloomberg article, in just December 2011 and January 2012 alone Spanish banks and other domestic lenders increased their holdings of Spanish debt by 26% to €220. Which means they bought over €40 billion. So exactly how successful were those Spanish debt auctions?

Similarly Italian banks increased their holdings of Italian debt by 31% to a massive €267B in the three months ending in Feb. 2012.

The graphs make it starkly clear that neither Spain nor Italy has had any truly successful bond auctions in some time. What they have had is a suicide pact with their own insolvent banks.

Spain and Italy have desperately needed to claim that they were not locked out of the bond markets and could fund their borrowing. At the same time the largely insolvent private banks desperately needed cash and capital. Cash for day to day running and capital to meet minimum capital adequacy rules. Which just means the base of capital against which their massive book of loans sit upon.

The solution was called the ECB's LTRO (The Long Term Refinancing Operation), the brain child of the ECB's new President, Mr Draghi. The LTRO allowed banks to borrow direct from the ECB. This was a major departure for the ECB. The banks asked for loans which the ECB granted at a nominal 1%. To give you some notion of the size of this operation to keep Europe's in business, banks in Italy, Spain, Portugal, Ireland and Greece between them borrowed 489 billion euros on Dec. 21 2011 and 530 billion euros on Feb. 29. 2012. A trillion so far. I say so far because there is every reason to suppose the ECB will decide the only way to avoid a collapse in the banks they seem determined to keep from their maker is to pump yet more money in to them (LTRO3).

The banks that took the money then used it to do several things. First and foremost they bought sovereign debt as per the plan. That way the sovereigns could claim all was well with them. After all they could show suprisingly buoyant demand' for their debt/bond auctions, which rather marvelously kept down the interest they had to offer. The result was that the private banks were then in possession of sovereign debt that would have paid them between 5-6%. So, money they borrowed at 1%, bought bonds that paid them 5%. That is a straight bail out from the sovereign's tax payers of 4%.

Think about it. The sovereigns could have gone to the ECB themselves and borrowed money themselves from the ECB for 1%. Instead the sovereigns let the private banks borrow from the ECB at 1% and then the sovereign borrowed from the private banks (remember when a sovereign sells bonds/debt the buyers of that debt are lending to the sovereign) at 5%-6%. Why? Answer so they could say, We're not having to get bailed out by the ECB. No, we are selling our debt successfully to the market, who love us.' It was a lie but it made it sound as if the reovery plan' and the unpopular austerity policies must be working. And at the same time it allowed the sovereigns to bail out the private banks without having to tell the people they were doing so. Two lies for the price of one.

If we now take stock for a moment of who ended up with what, the picture becomes rather ugly. The insolvent private banks pretend to be solvent, but in fact what they have is a vault full of IOUs/bonds from their nations. The Nations claim to be selling their debt but have in fact sold it only as far as down the road into banks who are only alive at all because they are being bailed out.

And what of the ECB? Well former ECB board member Juergen Stark said recently in an interview with the German newspaper, Frankfurter Allgemeine that,


…the balance sheet of the euro system, isn't only gigantic in size but also shocking in quality.

The shocking' quality of the assets is because the assets' in question are the bad loans that Europe's private banks couldn't get anyone else in the whole wide world to accept as collateral. EVery tie the ECB bails teh banks out, each time it extends loans' it has to acceot as collateral for those loans whatever the banks have left. Which means the assets' that the ECB wouldn't accept last time.

All that has happened is that an elaborate debt laundering two-step has been put in place so that banks can be bailed out by nations who can be bailed out by the ECB. But it is done in such a duplicitous way that the banks appear to be merely getting a loan, the nations appear to be selling their debt as per normal and the Tax payer, who is actually footing the bill for both, is completely in the dark about the whole thing. THAT is the ECB and our European rulers in action. Feel shafted and lied to? You should.

Now however, the lie is unravelling. You see the key is that the private banks' bad assets, those that no one believes have any real worth, are taken out of the private banks and pledged as collateral' at the ECB who in return give them loans. The ECB of course reveals no details so no one can prove a thing. The private banks then use then loans they got from the ECB buy sovereign debt with that money. (Some, the really terminal, also use it for repo in order to keep breathing day to day). The result of this gyration, from the point of view of the private banks, is to replace worthless their assets with one's that are backed up by the sovereign nation. The ratings agencies will then look at those assets and say this is proof of how much support the sovereign is willing to give to their banking system. They call this sovereign uplift' and add this as a positive factor in establishing the solvency and credit worthiness of the private banks. And of course the sovereigns are also being helped by the banks who are buying their debt.

In a sense the idea is to get two cripples to lean on each other. As long as the two cripples stay very still you can see them as propping each other up. But if ever one or, heaven forbid, both start to wobble then the previously positive relationship suddenly looks very negative. Instead of propping each other up they look as if they are pulling each other down. And that is where we are now. If the banks look like falling over the sovereign will be left with a massive collapse which it will, as with Spain's recent nationalization of Bankia, try to foot the bill for. That will hugely increase sovereign debt. But who will they sell their debt to now? Even the banks who haven't yet collapsed are badly affected because they and their ratings rely on the perceived ability of their sovereign to support them. Which becomes more and more questionable with every bank that the sovereign has to save. As the sovereign is seen as more and more vulnerable , with larger and larger debt which it seems less and less likely to be able to sell, then the banks who have bought all their sovereign's debts are perceived as potentially being back where they started with a vault full of dubious IOUs.

If it all seems head spinningly circular, that is because it is. It is a cycle of lies and debt re-branding. As long as the momentum of the lie and of public belief is in the forward' direction then all seems to be well. Everyone is selling their debt, no one is being bailed out and no one is aware of who is paying. But if the lie and the momentum of belief goes into reverse then all the players start to look more not less vulnerable and at risk.

What has happened in the last week with the election in Greece and the unravelling of the lies and hidden bank insolvency in Spain, is that the momentum of the grand lie has started to reverse. If that reversal is not halted and the truth not quarantined then I believe there will be a another clamour raised by Europe's insolvent banks for the ECB to announce yet another emergency funding programme.

The fog of burning acidic financial lies that have been rained down on us for four solid years is finally meeting political reality and opposition. Suffering can be ignored and met with the police baton but it cannot be erased forever. We have yet to see what if anything M. Hollande will do in France and what will happen in Greece and in Spain. But the momentum of their lies is, for now at least, running against our oppressors.

[Magda Hassan]

Nationalized Spanish Bank Plummets On News Of Bank Run

Submitted by Tyler Durden on 05/17/2012 07:21 -0400

• Bank Run
  
• Bond
  
• Don't Panic
  
• Greece
  
• Nationalization
  
• Newspaper
  

The problem with bank runs is that once they start, they don't stop. And while the world was conveniently distracted by events in Greece, debating whether or not people were withdrawing money in droves (they were), the real bank run happened elsewhere, namely in Spain, where just nationalized bank Bankia moments ago plunged 30% and was halted following an El Mundo report that "customers had withdrawn €1 billion over the past week." In other words - a bank run (but whatever you do, don't call it that - it's not the politically correct and accepted nomenclature) which has sent shockwaves through Europe, pushed the EURUSD under 1.27, and bond yields in their traditional "Europe is open" direction - wider.
From FT:

Shares in Bankia, the Spanish bank which was part-nationalised last week, plunged by over a quarter on Thursday morning, after a report that customers had withdrawn €1bn from the bank over the past week.

Shares fell 27 per cent to €1.21 after El Mundo, a national Spanish newspaper, reported customers had withdrawn €1bn from the bank over the past week, citing information from a recent board meeting.

The self-styled "the leader of the new banks" was formed from seven cajas last year and has now shed nearly 70 per cent of its market capitalisation since its shares were listed in July of last year.

The fall helped to drive the broader IBEX 35 index down 2 per cent to 6,480.7.

The news has started to spill over to other PIIGS banks, and very soon all Italian banks will resume being suspended limit down on fear that the bank run contagion, pardon, thewithdrawal meme (h/t William Banzai), because in this fake, artificially supported world, one is never allowed to call a spade a spade, has commenced.
In th meantime don't panic: after all, just recall the Bank of Spain statement which promised that despite the Bankia nationalization, that "BFA-Bankia is a solvent entity thatcontinues to function quite normally and customers anddepositors should have no concern."
Turns out depositors had a few concerns...
http://www.zerohedge.com/news/nationaliz...s-bank-run

[Jan Klimkowski]

Diamond shouldn't be "giving up" his bonus.

He and his top table should be looking at serious jail time.

But that doesn't happen in the world of financial market capitalism....

Barclays chief Bob Diamond gives up 2012 bonus over £290m fine

Top executives forgo bonuses after bank fined £290m for 'serious, widespread' role in manipulating crucial interest rates

Jill Treanor, City editor

guardian.co.uk, Wednesday 27 June 2012 14.17 BST


Barclays has been slapped with total fines of £290m for its "serious, widespread" role in manipulating the price of crucial interest rates in a move that has forced chief executive Bob Diamond and other top executives to forgo any bonuses for 2012.

The £59.5m fine from the Financial Services Authority is the largest penalty ever levied by the City regulator, which found that Barclays contravened its rules for a number of years and involved "a significant number of employees".

The other penalties paid by Barclays are to settle with the US authorities, the department of justice ($200m) and the Commodities Futures Trading Commission ($160m), as part of an industry wide probe into the way that interest rates traded between banks were set.

The investigation covered the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) both of which play a critical role in setting the rates of interest that households and major companies pay to borrow.

Libor is used as a benchmark for setting financial contracts and interest rates around the world and is overseen by the British Bankers' Association. The BBA is conducting its own review which will be published later on Wednesday. Banks are asked which rate they think they will be able to borrow from each other for periods of time ranging from overnight to 12 months in currencies including sterling, dollars, euros, yen and Swiss francs.

The FSA found that Barclays had been making submissions to the process that were intended to allow the bank to make profits through its traders speculating on interest rates and reduced the price it submitted during the financial crisis because of management concerns over negative media comment. The FSA said that Barclays' top management was concerned that the higher prices it was saying it expected to borrow at were making it appear that it had liquidity during the crisis and so the bank ended up submitting lower prices than it would otherwise have done.

The FSA made a damning criticism of Barclays and warned other banks that more cases were to come. Tracey McDermott, acting director of enforcement and financial crime, said the misconduct was "serious, widespread and extended over a number of years".

"Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays' behaviour threatened the integrity of the rates with the risk of serious harm to other market participants," said McDermott.

"The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure."

Diamond, who has been pledging to make Barclays a better corporate citizen, is giving up his bonus for 2012 as a result.

"The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business. When we identified those issues, we took prompt action to fix them and co-operated extensively and proactively with the authorities," Diamond said.

"Nothing is more important to me than having a strong culture at Barclays; I am sorry that some people acted in a manner not consistent with our culture and values."

The boss of Barclays Capital (the investment banking arm) Rich Ricci; the chief operating offer Jerry del Missier and finance director Chris Lucas are giving up their bonuses too

Here's Market Ticker Karl Denninger's take:

It's Ok To Manipulate Markets


This sort of scam ought to lead to prison time. Instead, as has been the pattern, we find ourselves with tiny little wrist-slap fines and nothing more -- and the crooks get to keep the profits besides.

Barclays Plc (BARC), Britain's second-biggest bank by assets, agreed to pay 290 million pounds ($452.3 million) in penalties to settle U.S. and U.K. probes into whether it sought to rig the London and euro interbank offered rates.

Barclays Chief Executive Officer Robert Diamond and other executives will forgo their bonuses as a result, the bank said in a statement.

"The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business," Diamond said in the statement.

So it's perfectly ok to rig one of the biggest markets in the world -- on which hundreds of trillions of dollars of derivative contracts rest and where extremely tiny moves turn into monstrous profits (or losses) -- and just pay a tiny fine?

I thought corruption was actually illegal?

Employees responsible for Libor submissions have said in interviews with Bloomberg they regularly discussed where to set the measure with traders sitting near them, interdealer brokers and counterparts at rival banks. The talks became common practice after money markets froze in 2007, they said, making it difficult for individual bankers to gauge the cost of borrowing from other lenders.

The obvious answer to the question is that you can rig all the markets you want and steal all the money you want so long as you're a big bankster, and if you get caught -- just pay a tiny fine.

The obvious incentive to do this more often and with ever-larger amounts of money (which has to come from someone -- in this case it comes from the bank's customers and others in the market -- that ultimately means you and I!) should be clear to everyone.

Of course if you steal $50 from the corner Stop-N-Rob, now that deserves prison time.

[Ed Jewett]

[URL="http://www.youtube.com/watch?v=uFHuzf8li0k&feature=youtu.be"]http://www.youtube.com/watch?v=uFHuzf8li0k&feature=youtu.be (23:21)

[/URL]Euro zone: the centralization battle rages on-On the Edge with Max Keiser-06-29-2012


Published on Jun 30, 2012 by PressTVGlobalNews
In this edition of the show Max interviews Catherine Austin Fitts from Solari.com. She talks about the multiple debt plans; bailouts and funding facilities, attempting to hold the Euro zone together. Catherine Austin Fitts is the president of Solari, Inc., the publisher of The Solari Report, managing member of Solari Investment Advisory Services, LLC.

[Jan Klimkowski]

Check out Market Ticker, via Zero Hedge, with a copyrighted article here.

The long and the short, pun very much intended, is that five years ago a couple of MSM financial correspondents, including one working for the Financial Times, were ordered to back off the manipulation of LIBOR story.

Or LIEBOR as it will now forever be rendered.

[Peter Lemkin]

[Peter Lemkin]

The biggest heist yet....this one could reach hundreds of trillions of dollars. Amazingly, in the video, above, they refer to yet larger scams by the financial institutions coming to light...hard to imagine! What is clear is that those running the financial system are the major criminal class [along with those who really run the governments and corporations].