Wednesday, October 12, 2011

October 12 2011: The End of the Eurozone

National Photo Co. Might as well laugh about it?! May 1, 1923
A clown band plays at a children's hospital in the Washington, D.C. area

Ilargi: It’s been a while since we last visited Bizarro world, but boy, it's starting to feel like we never left.

First, Merkel and Sarkozy over the weekend promise to present a plan that they unabashedly declare will "resolve" the entire eurocrisis. Only, they won't let us know what's in it until the end of the month. Which can only possibly mean that they don't know either.

The announcement on Sunday used quite peculiar language, if you ask me. They said something along the lines of the plan being "sustainable and comprehensive", the sort of terms mostly used by politicians exclusively to make things look much better than they really are. They could have just said that they are working on a plan to make things better. Instead, they claimed they have the power to resolve the entire crisis, and sustainably too, whatever that means in this context.

They have no such power, and if they don't know that, they should be removed from what power they do have. Alternatively, both should be held accountable by their voters on November 1, when it will be crystal clear that the crisis has not been resolved. I must admit, I still can't fully fathom why they made that claim when there didn't seem to be any reason to.

Second, a committee representing the ECB/EU/IMF troika on Tuesday said that as far as they're concerned, Greece can get its next tranche of aid, some €8 billion. That too has some bizarro aspects to it. The aid is provided under a deal that was updated in July when the second Greek bailout was negotiated. That deal also included a provision that stipulated that private investors would take a 21% haircut on their Greek debt, provided some 90% would agree to participate (a condition to prevent a hard default).

Now, while the troika team was evaluating Greek compliance with other parts of the deal, such as budget cuts and austerity measures, they were at all times acutely aware that there were and are discussions ongoing about a much bigger haircut for investors, as in more like 60%. And that will make the July deal invalid. Which puts the approved €8 billion tranche in a somewhat strange light. To put it mildly.

Moreover, it is already obvious that Greece will not be able to meet its deficit targets, something that also risks invalidating the deal. The same is true for Spain, by the way, but that's another story for another day. That is, if the troika team finds time to fly to Madrid anytime soon.

Those Europeans whose money is used in this segment of the Greek bailout might want to ask their politicians for an explanation: why should we pay up when the conditions that were put on paying only 3 months ago are missed out on by a mile and a half? That could be a fun discussion. And if you ask questions in a sufficiently persistent manner, you may notice that they have no clue what they're doing, and they're very near the end of their very wits.

If I were a betting man, I'd put my money on the option that what is going on here are the preparations for dropping Greece. The idea being that if you kick out Athens, you can spend lots of money on ringfencing the banks in the remainder of the Eurozone. Such, undoubtedly, are at least some of the calculations.

Sarkozy sees both his banks AND his sovereign credit rating under immense pressure. If he can convince Merkel to use EFSF funds to catch the -Greek- fall of Société Générale and BNP, and he can simultaneously convince Moody’s that this means France lets Europe (co-) pay for catching that fall, so France can retain its AAA rating, he will have no qualms about pushing the Acropolis into the ocean.

It is, however, nowhere near that simple and easy. And Sarkozy knows it. But he seems increasingly willing to make the bet, to close his eyes and jump into the unknown, simply because the known looks ever more likely to catch up with him and his presidency. Seen from that perspective, maybe his claim that the crisis will be resolved by the end of the month isn't so peculiar anymore. It's then purely an act of desperation.

To begin with, a Greek hard default would trigger a credit event. That means credit default swaps on Greece will have to be "made whole". And there's no one party in the world that has a 20/20 360 overview of the total CDS out there. Wholesale chaos could ensue.

Then, banks with large Greek sovereign, let alone CDS, exposure, would face downgrades of their credit ratings, and trouble in lending markets, both interbank and bonds. Just in the past few days, we've seen Belgium nationalize Dexia, Greece nationalize its Proton bank, and Denmark (not even a Eurozone member) nationalize Max Bank. It looks like they are just the vanguard; there could be a whole lot of banks being either saved, or not: both options are expensive.

I’m not the first one to call this a Pandora's box, and I won't be the last. But I did say quite a while back that I thought Europe's leaders were losing control. And today that is more tangible than ever in the past 3 years.

There is nobody, and that includes Sarkozy and Merkel and their ilk, who can predict what happens if Greece defaults. And as if that's not enough of a headache for them, there isn't anyone who can predict what happens if Greece doesn NOT default, either. Therein lie the crux and the conundrum. It's a guessing game and a virtually blind gamble all the way forward from here.

If Athens is allowed to continue to fester on the European body politic, contagion is the key. The rot will spread to the rest of the periphery, and from there to the core. Very much like a disease will do. The (bond) markets are predatory. They will pick the weakest bits off one by one. If Greece, however, is cut off, those same markets are free to go after any and all of the other contestants for most feeble euro member.

Greece is not the problem, it's just the first sign that there is a much wider and deeper problem. Which inexorably leads to the conclusion that the Eurozone of 17 members will not exist much longer. And getting rid of Greece will not make it much more stable. There's still be Portugal, Ireland, Italy and Spain for the predators to go after. And somewhere during that process France will lose its AAA rating. Also somewhere during that same process US banks will need additional bailouts.

We're just getting started in round two of the great unwind. Europe's last hurrah is but the kick-off. And when I say Europe's last hurrah, I mean Europe as it is organized today. Europe will still be here tomorrow. But it will not look the same. Nor will it have the same leaders.

Ambrose Evans-Pritchard has some nice details for the Telegraph:

German push for Greek default risks EMU-wide 'snowball'
Germany is pushing behind the scenes for a "hard" default in Greece with losses of up to 60% for banks and pension funds [..]

Officials in Berlin told The Telegraph it is "more likely than not" that investors will suffer fresh losses on holdings of Greek debt, beyond the 21% haircut agreed in July. The exact level will depend on findings by the EU-IMF "Troika" in Athens. "A lot has happened since July. Greece has fallen back on its commitments, so we have to assume that the 21% cut is no longer enough," said one source.

Ilargi: "Greece has fallen back on its commitments". In other words: all previous deals are off. And who feels like renegotiating a new one when a 60% haircut is just the beginning?

Finance minister Wolfgang Schäuble told the Frankfurter Allgemeine that the original haircuts were "probably" too low, saying banks must have "sufficient capital" to cover greater losses if need be. Estimates near 60% have been circulating in Berlin. [..]

"This could set off a snowball effect," said Andrew Roberts, credit chief at RBS. "The markets will instantly switch attention to Portugal, where two-year yields are already 17%".

Ilargi: The real problem becomes what anyone should wish to buy Greek debt for. The ECB or EFSF can't buy it at 100 cents on the dollar when it trades in the market for 40 cents, or 20 cents. But if it doesn't, that sets off another course of events. Damned if you do, doomed if you don't.

Although Greece's 10-year bonds are trading at a 60% discount on the open market, European banks do not have to write down losses so long as there is no formal default and the debt is held in their long-term loan book. [..]

Ilargi: And that means those banks are loaded with unrecognized losses. Ugly.

Marchel Alexandrovich from Jefferies Fixed Income said Germany risks opening a "Pandora's Box" by unpicking the Greek deal. "It would be a complete disaster, a signal that sovereign debt is not safe. Investors would pull their deposits out of Portugal, Ireland, Spain and Italy and set off bank runs across Europe," he said. [..]

Ilargi: There's no saying what exactly would happen, but it would certainly be chaotic. The EU periphery would crumble. But then, that will happen no matter what.

"No details of the plans were released, presumably because they haven't actually got any yet. That in itself is astonishing," said Gary Jenkins from Evolution Securities. "Nothing has really changed and we still expect that the most likely outcome will be a comprehensive package – that circles the wagons around the sovereigns and the banks – that will only be agreed at one minute to midnight when the alternative is that the market is about to implode on the Monday morning." [..]

Ilargi: A "comprehensive package", you said? There is no package comprehensive enough. Forget it.

France wants banks to be able to tap the EU bail-out fund (EFSF) directly if they cannot raise enough capital on the open market. This would avoid any further strain on the French state, already at risk of losing its AAA rating.[..]

Yield spreads between German Bunds and 10-year EFSF debt have widened from 66 to 112 basis points since early July. If yields creep much higher, the fund itself may become a problem.[..]

Portugal is as vulnerable as Greece, with higher levels of combined private and public debt and an equally large trade deficit. Spain is still in the early phase of its housing bust. Italy has lost 40% in unit labour competitiveness against Germany since 1995.

Ilargi: There's Portugal, Ireland, Spain and Italy, with Belgium hot on their heels. All of them lethally vulnerable. And the leadership all over about to wake up and give up. Maybe not Europe's last hurrah, but inevitably the end of the Eurozone. As we know it.

Merkel and Sarkozy will come with a -heavily contested- plan in late October that's going to be very costly (think trillions of largely carefully hidden euros), and after an initial market rise, prove to be wholly inadequate. And then the fun can start.

In the end, the question remains one and the same: where do broke economies get the money to lend to other broke economies? In that regard, nothing has changed since Clarke and Dawe asked exactly that question in the summer of 2010. And there's still no answer:

Write-Downs in Focus After Troika Approves Greek Aid
by Costas Paris - Wall Street Journal

Efforts to resolve Greece's financial crisis are focusing on asking banks to take a major write-down on their holdings of Greek government bonds. On Tuesday, Greece's troika of international lenders, the European Union, International Monetary Fund and European Central Bank, said Greece is likely to receive its next tranche of aid in early November, staving off a potential default.

The approval of the €8 billion ($10.92 billion) in aid quickly moves the discussion onto write-downs, or "haircuts." Sources with direct knowledge of talks with European governments and the International Monetary Fund said these write-downs could range between 40% and 60% depending on the modality used.

The other question open is whether European governments and the ECB also will have to accept losses to provide Greece with debt relief. "The discussion is on a haircut, how big it needs to be and whether sovereign creditors may be involved," said one senior official with direct knowledge of the situation. This official said Greece's debt load has come to be seen as unsustainable.

The euro zone is under mounting pressure from financial markets and governments around the world, including the U.S., to take more decisive steps to prevent the Greek crisis from spreading around Europe and triggering a new banking crisis worldwide. ECB President Jean-Claude Trichet on Tuesday warned that the euro-zone crisis has "reached a systemic dimension" and said governments must swiftly push through fiscal reforms and coordinate a recapitalization of banks.

German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks in Berlin last Sunday on new ways to tackle the crisis, and agreed upon a broad package of measures—including a plan to recapitalize European banks—but details aren't expected until later in the month.

In July, Greece's top creditors, the IMF, the European Union and the ECB, agreed on a second €109 bailout loan on top of which private-sector creditors are expected to contribute roughly another €13.5 billion. A tentative agreement was reached to accept a 21% write-down on the banks' holdings of Greek bonds. That exercise was expected to cut the face value of Greece's €350 billion debt by less than 5%.

Since July, the deteriorating Greek economy has thwarted the country's efforts to meet its goals to reduce the budget deficit, requiring more funding than originally planned. One official who participated in the July 21 meeting said discussions also considered a proposal that the write-down be as deep as 40%. The proposal was shot down by France, whose banks have the biggest exposure on Greek debt. Since then, the situation in Greece has worsened, say officials in Athens.

Luxembourg Prime Minister Jean-Claude Juncker, who also is president of the Eurogroup of 17 countries sharing the euro, said late Monday that he isn't ruling out a "brutal" haircut for holders of Greek government bonds. "I don't rule out a haircut, but we should not think that it's enough just to go ahead now with a brutal haircut for Greece," Mr. Juncker said on Austria's ORF television. "One needs to ensure that this doesn't lead to contagion elsewhere in the euro zone."

European finance ministers have been working out means of protecting European banks and governments from Greek losses and the possible aftershocks in financial markets coming from a Greek debt restructuring. The focus of these preparations is to pump more capital into European banks and activate the EU's newly enlarged bailout fund, the €440 billion European Financial Stability Facility.

European banks need padding of between €100 billion and €200 billion, Antonio Borges, director of the IMF's European department, said last week. Sticky details include how to compel banks to raise capital, and how governments can help those banks that can't easily access capital markets. Another is whether to allow the EFSF to leverage its capital to create a lending base closer to €2 trillion.

With the technicalities are still not in place, European leaders have pushed back their summit to decide on the package from Oct. 17 to Oct. 23 to allow for more time to settle the details. The plan drawn up in July envisaged a debt exchange under which private creditors will swap existing bonds for new ones with maturities of up to 30 years with an average coupon of 5%.

A senior official said one idea now under discussion foresees existing bonds being swapped for new debt with even longer maturities and even lower interest rates than had been planned when the proposal was launched in July. The talk is now for a 50% cut or more in the net present value of the bonds, and greater use of bonds with a lower principal, or face value, so that there is a meaningful reduction in Greece's ratio of debt to gross domestic product. This also equates to a bigger loss for creditors.

A second option considered is a straight haircut of 50% or more that involves both private-sector and sovereign creditors. Such a haircut would involve all European countries that participated in Greece's first bailout package of €110 billion agreed in May last year. So much of Greece's debt is already in the hands of either official creditors or the ECB that a meaningful debt reduction is almost impossible without asking official creditors to accept some form of haircut too. Under the terms of the 2010 bailout, only the IMF's loans are senior to Greece's outstanding bonds.

Representatives of the creditors completed talks in Athens Monday on whether to give Greece the next payment from its 2010 bailout plan. The decision will be made at the Oct. 23 summit. Under the first rescue package, sovereign creditors have so far given Greece €48 billion. In addition, the ECB is estimated to have bought around €50 billion of Greek sovereign paper under its Securities Markets Program. The ECB also holds tens of billions of euros of Greek debt as collateral against loans to Greek banks.

Slovakia votes against expanded EFSF
by Jan Cienski and Josh Chaffin

Slovakia’s government became the first in the eurozone to fall over opposition to bailing out indebted economies after the country’s parliament voted down approval for enhancing the bloc’s rescue fund.

After hours of debate, the final vote on approving new powers for the €440bn European financial stability facility failed late on Tuesday evening with only 55 of the parliament’s 150 MPs voting in favour, causing the coalition government of Iveta Radicova to collapse. Slovakia is the last of the 17 eurozone countries to approve the improved rescue fund.

The political drama in Bratislava should not disrupt enhancements to the EFSF for long, but it underlines how fraught the political debate has become in some eurozone creditor countries.

The Slovak parliament will remain in session and is likely to hold a second vote later this week. Three of the four parties in Ms Radicova’s coalition support it and the left-wing opposition SMER party led by Robert Fico – who called the vote a “fiasco” for the government – indicated that it would be prepared to support the measure.

“There is an assumption that, one way or another, the EFSF will be approved by the end of the week,” Ivan Miklos, the finance minister, told parliament during a fiery debate that captured the attention of officials across the EU.

In Brussels, European Union officials have watched the Slovak drama play out with a sense of queasy fascination. Throughout the ordeal they expressed confidence that the changes would ultimately be ratified, although the process proved far uglier than many expected. Although Slovakia, which joined in 2009, has long been regarded as a model euro student, the country does have a reputation for entangling high-level EU issues with domestic political feuds, according to some observers.

The Slovak crisis was ignited by Richard Sulik, the inflexible leader of the Freedom and Solidarity party, who insisted that increasing the EFSF and allowing it to recapitalise banks and buy sovereign bonds would be useless because Greece is already bankrupt, and would be costly for Slovakia. “I’d rather be a pariah in Brussels than have to feel ashamed before my children, who would be deeper in debt should I back raising the volume of funding in the EFSF bail-out mechanism,” Mr Sulik told parliament.

Mr Sulik resisted the entreaties of Ms Radicova and other officials, who stressed that Slovakia’s credibility as a responsible member of the eurozone was on the line. Ms Radicova said she had been contacted by Pedro Passos Coelho, the Portuguese prime minister, who told her that the deadlock in Bratislava was “giving him a heart attack” and that a renewed EFSF was key in allowing him to consolidate his country’s finances.

While the trials of countries such as Portugal and Ireland do find sympathy in Slovakia, which is the second-poorest member of the eurozone, there is very little feeling for Greece, which is seen by many Slovaks as having caused its own problems.

“Extending the EFSF is mainly for saving foreign banks, and it will be expensive for Slovakia,” said Mr Sulik. Ms Radicova’s cabinet could be replaced by a new coalition or by a minority government, or new elections could be held, which would likely be won by Mr Fico’s party, said Grigorij Meseznikov, a political analyst.

Spanish Banks Hit By Rating Cuts
by Christopher Bjork - Wall Street Journal

Spanish banking stocks fell early Wednesday after Standard & Poor's Ratings Services and Fitch Ratings downgraded the country's leading lenders, citing dimming economic growth prospects, a depressed property market and turbulence in capital markets.

In reports issued late Tuesday, the two credit rating agencies said they are keeping the negative outlook on all the banks. S&P said it could downgrade some banks further if the economy deteriorates more than it expects or if the "adverse impact on banks' financial profile is greater" than expected. Banco Santander SA shares were recently 1.1% lower at €6.22, while Banco Bilbao Vizcaya Argentaria SA was off 1.4% at €6.36, with other Spanish banks also sliding.

Moody's Investors Service Inc. may follow suit soon, after it put Spain's Aa2 sovereign rating and those of the country's banks on review for downgrade in July, credit analysts at Daiwa Capital Markets said. Moody's officials weren't immediately available for comment.

Standard & Poor's cut its ratings for 10 Spanish banks, including Santander and BBVA, and smaller banks like Bankinter SA and Banco Sabadell. Fitch lowered its ratings for six banks, saying the catalyst for its downgrades was an Oct. 7 decision to downgrade Spain's sovereign debt to double-A-minus from double-A-plus. It highlighted that the deterioration of funding conditions for the Spanish sovereign debt amid a deepening euro-zone crisis has "contaminated funding costs and access for all banks."

"Funding pressures may take time to die down," Fitch said. S&P said that heightened turbulence in capital markets this summer may delay Spain's economic recovery. That should keep the banks' profitability next year in line with this year's levels and well below those seen before 2008, S&P added.

The banks may see a further increase in nonperforming loans as a consequence of the tough economic conditions, as well as higher loan write-offs, S&P said. It also anticipates that the banks may accumulate more real-estate assets from developers unable to service their debts.

These so-called "problematic assets" may peak between €296 billion ($403.71 billion) and €313 billion, S&P said. That's roughly the equivalent of three-quarters of outstanding loans to construction firms and real-estate developers by Spain's banks, and around 30% of Spain's gross domestic product.

The increase in problematic loans "will continue until mid-2012 and decline only gradually afterward," S&P added. Overall, it said credit losses may peak at €135 billion, or 7.2% of the domestic private-sector credit outstanding at the end of 2008.

Both firms cut Santander and BBVA's rating to double-A-minus from double-A. The smaller Spanish banks all have lower ratings than the two largest banks in the country. "While the purely domestic banks face more significant challenges, the two international banks Santander and BBVA benefit from their geographic diversification which gives them the capacity to make up for the muted results in Spain," Fitch said.

S&P also said that while "progress has been made" in restructuring Spain's savings banks—the weakest part of the sector—the government's estimate that no more than €17 billion in state aid will be needed to recapitalize troubled lenders may fall short of the mark. It reiterated an earlier calculation, contested by Spanish authorities, that as much as €30 billion to €35 billion may be needed to recapitalize the sector instead.

Euro summit delayed as deal proves elusive
by Graeme Wearden, Allegra Stratton and Giles Tremlett - Guardian

Bailout meeting pushed back to 23 October as Osborne calls for stability facility to be expanded

Europe's embattled leaders gave themselves a two-week deadline to resolve the single currency debt crisis on Monday by delaying a crucial summit. The European Council president, Herman van Rompuy, announced the delay after it became clear that EU leaders were struggling to agree on proposals to expand Europe's bailout fund, and on possible changes to Greece's second bailout.

With international lenders also reportedly making slow progress assessing Greece's finances, the summit has been pushed back from next Monday to Sunday, 23 October. But with Slovakia's coalition government failing to reach agreement on the existing deal to give the eurozone rescue fund stronger powers, the eurozone still appeared disunited.

The postponement came as George Osborne told MPs that Europe needed to take decisive action immediately as the eurozone was now the "epicentre" of this summer's turmoil on global stock markets. "We need a comprehensive solution which ringfences vulnerable eurozone countries, recapitalises Europe's banks and resolves the uncertainty about Greece," Osborne told the House of Commons.

The chancellor added his voice to those calling for the European financial stability facility (EFSF) to be expanded further. "If you're trying to protect larger countries, then €440bn is sadly not enough." Osborne also revealed that prime minister David Cameron had discussed the crisis with Barack Obama on Monday afternoon, a sign that Europe's woes continue to dominate the international agenda.

World stock markets rallied again as traders welcomed the bank recapitalisation plan agreed over the weekend by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy. Although details of the "long-lasting, complete package" remained elusive, the FTSE 100 closed at a five-week high. The blue-chip index rose by 1.8% to 5399, up 95 points, while Germany's Dax jumped by 3%.

Joshua Raymond, chief market strategist at City Index, said investors had taken confidence from the bailout of Dexia. "While it is hoped this act will not need to be repeated elsewhere, investors are taking some muted confidence from the fact that leaders have shown an appetite to protect banks through liquidity support in times of trouble," Raymond said. News of the Merkel-Sarkozy deal also strengthened the euro, which gained three cents against the dollar to almost $1.37.

Osborne refused to agree with Tory backbenchers that the European single currency should be allowed to collapse. "I think that's actually wrong – it's not in Britain's national interests," said Osborne. He reiterated that eurozone countries must "follow the remorseless logic of monetary union" and accept closer fiscal union as part of a wider rescue plan.

Van Rompuy argued that the EU had made good progress in recent weeks at dealing with a debt crisis that threatens to drag the world economy down, pointing to the 16 countries that have ratified the expansion of the EFSF. Malta approved it on Monday night, leaving only the knife-edge vote in Slovakia to complete the process this week. Delaying the summit by six days would allow more progress to be made, Van Rompuy added.

"Further elements are needed to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools (EFSF)," said Van Rompuy in a statement. He has also asked EU finance ministers to hold a meeting ahead of the full summit of European leaders.

Elsewhere in Europe, alarm bells rang over Spain's ability to hit its public deficit target this year without taking further dramatic steps to raise extra income or cut spending. Figures released last week by the national statistics institute (INE) show that the deficit level remained virtually unchanged during the first half of this year, according to one of the country's leading analysts.

Ángel Laborda, of the savings banks federation Funcas, said the figures on the overall borrowing needs of Spain's public administration meant the chances of bringing the deficit down from 9% to 6% this year were slim.

The deficit could now head for between 7.5 and 8% of GDP – well off the target agreed by the socialist government of the prime minister, José Luis Rodríguez Zapatero, and the EU and much worse than previous analysts' estimates. "Most of the year has already gone so I think it is impossible to meet 6%," Laborda said. "I'd say it will be closer to 8%."

He blamed the problem on the regional governments, which account for a third of public spending. Many had only seriously begun to cut spending after May elections, he said. Lower-than-expected growth was also a handicap.

Separate figures show that central government has brought down its part of the deficit, suggesting that regional governments may have actually grown their deficits during the first half of the year, he said. The Zapatero government has staked its credibility in the markets on hitting deficit targets. The fact that it met last year's target, together with Spain's relatively low overall national debt, helps to explain why bond yields have been lower than neighbouring Italy's.

But José Carlos Díez, chief economist at Intermoney in Madrid, said the new figures did not change his predictions significantly. "There is no way the deficit will be 8%," he said. "It has to be below seven."

Spain unlikely to meet deficit target
by Giles Tremlett - Guardian

Alarm is sounded over the country's borrowing, with the chance of the public deficit being cut from 9% to 6% said to be slim

Alarm bells are being rung over Spain's ability to hit its public deficit target this year without taking further dramatic steps to raise extra income or cut spending. Figures released last week by the national statistics institute (INE) show that the deficit level remained virtually unchanged during the first half of this year, according to one of the country's leading analysts.

Angel Laborda, of the savings banks federation Funcas, said the figures on the overall borrowing needs of Spain's public administration meant the chances of bringing the deficit down from 9% to 6% this year were slim. The deficit could now head for between 7.5 and 8%of GDP – well off the target agreed by the socialist government of prime minister José Luis Rodríguez Zapatero and the European Union and much worse than previous analysts' estimates.

"Most of the year has already gone so I think it is impossible to meet 6%," Laborda said. "I'd say it will be closer to 8%." He blamed the problem on the regional governments, who account for a third of public spending. Many had only seriously begun to cut spending after May elections, he said. Lower-than-expected growth was also a handicap. Separate figures show that central government has brought down its part of the deficit, suggesting that regional governments may have actually grown their deficits during the first half of the year, he said.

The Zapatero government has staked its credibility in the markets on hitting deficit targets. The fact that it met last year's target, together with Spain's relatively low overall national debt, helps to explain why bond yields have been lower than neighbouring Italy's. Finance minister Elena Salgado has repeatedly vowed to meet this year's 6% target. The socialist government, which is set to be replaced by the conservative People's Party (PP) at a general election on 20 November, has said it will introduce new measures if it has to.

"Our objective of a 6% deficit at year's end will not be given up on," a finance ministry spokesman reaffirmed. "We have said many times that we will do whatever it takes to meet that." The PP has also pledged to meet deficit targets. The spokesman blamed a change in INE's metholodogy for Laborda's calculations. Laborda denied that there was a problem, saying INE had also presented its data on previous years using the new methodology. The average predicted deficit figure from 18 of Spain's top analysts prior to last week's figures was 6.5% for 2011.

German push for Greek default risks EMU-wide 'snowball'
by Ambrose Evans-Pritchard - Telegraph

Germany is pushing behind the scenes for a "hard" default in Greece with losses of up to 60% for banks and pension funds, risking a chain-reaction across southern Europe unless credible defences are established first.

Officials in Berlin told The Telegraph it is "more likely than not" that investors will suffer fresh losses on holdings of Greek debt, beyond the 21% haircut agreed in July. The exact level will depend on findings by the EU-IMF "Troika" in Athens. "A lot has happened since July. Greece has fallen back on its commitments, so we have to assume that the 21% cut is no longer enough," said one source.

Finance minister Wolfgang Schäuble told the Frankfurter Allgemeine that the original haircuts were "probably" too low, saying banks must have "sufficient capital" to cover greater losses if need be. Estimates near 60% have been circulating in Berlin. The shift in German policy has ominous echoes of last year when Chancellor Angela Merkel first called for bondholder haircuts, setting off investor flight from Ireland and a fresh spasm in the EU debt crisis.

"This could set off a snowball effect," said Andrew Roberts, credit chief at RBS. "The markets will instantly switch attention to Portugal, where two-year yields are already 17%".

Although Greece's 10-year bonds are trading at a 60% discount on the open market, European banks do not have to write down losses so long as there is no formal default and the debt is held in their long-term loan book. The danger arises if banks are forced to "crystallize" the damage before raising their capital buffers. Marchel Alexandrovich from Jefferies Fixed Income said Germany risks opening a "Pandora's Box" by unpicking the Greek deal.

"It would be a complete disaster, a signal that sovereign debt is not safe. Investors would pull their deposits out of Portugal, Ireland, Spain and Italy and set off bank runs across Europe," he said. "The French are against doing this and so is the European Central Bank. They know banks need more time to adjust. We don't think Europe will pull the trigger."

Mrs Merkel and French president Nicolas Sarkozy vowed over the weekend to do "all that is necessary to guarantee bank recapitalisation", promising a package for Greece and the eurozone by the end of the month. The pledge was vague.

"No details of the plans were released, presumably because they haven't actually got any yet. That in itself is astonishing," said Gary Jenkins from Evolution Securities. "Nothing has really changed and we still expect that the most likely outcome will be a comprehensive package – that circles the wagons around the sovereigns and the banks – that will only be agreed at one minute to midnight when the alternative is that the market is about to implode on the Monday morning."

France and Germany have yet to agree on how to beef up the banks, or on the scale of the threat. Antonio Borges, Europe chief for the International Monetary Fund, said lenders may need up to €200bn to cope with losses. France wants banks to be able to tap the EU bail-out fund (EFSF) directly if they cannot raise enough capital on the open market. This would avoid any further strain on the French state, already at risk of losing its AAA rating.

Mr Schäuble said the EFSF should be the last resort when all else fails – "Ultima Ratio" – and deployed only under the strictest conditions. He said the fund should not buy the debt of states in difficulty (presumably Italy and Spain) until they implement tough reforms under "tight control", signalling that Germany will not endorse blanket purchases of EMU debt to cap yields. He ruled out any attempt to leverage the EFSF beyond €440bn by letting it act as a bank: "That would be to monetise European state debt. That is not acceptable."

The apparent German veto on any expansion of the EFSF leaves it unclear how Europe's debt crisis can be contained if the region tips into a double-dip recession, which would play havoc with debt dynamics. City analysts say the fund needs €2 trillion to restore confidence. "We think Europe is going to struggle to escape market pessimism until we see the emergence of a lender-of-last resort, whether a much larger commitment from the ECB to buy bonds [ideally QE] or a significantly revamped EFSF," said Graham Secker from Morgan Stanley.

Whether the EFSF can safely be increased is unclear. Yield spreads between German Bunds and 10-year EFSF debt have widened from 66 to 112 basis points since early July. If yields creep much higher, the fund itself may become a problem.

Critics say Germany is making a policy blunder by treating the crisis as a Greek morality tale, losing sight of EMU's deeper structural woes. Portugal is as vulnerable as Greece, with higher levels of combined private and public debt and an equally large trade deficit. Spain is still in the early phase of its housing bust. Italy has lost 40% in unit labour competitiveness against Germany since 1995.

Pulling the plug on Greece risks bringing a much bigger crisis to a head all too quickly.

EU Postpones Summit on Debt Crisis
by Spiegel

Financial markets are on edge, but EU leaders can't seem to find a strategy for tackling the euro debt crisis. A summit scheduled for next week has been delayed amid reports of a rift between France and Germany. Both sides have denied any disagreements.

The European Union summit scheduled for Oct. 17 to address the euro debt crisis has been postponed by a week to Oct. 23, European Council President Herman Van Rompuy announced on Monday, saying it would give the EU time to finalize its strategy. Government leaders of all the 27 EU member states were due to meet on Oct. 17, followed on Oct. 18 by a meeting of the heads of the 17 euro zone countries.

The postponement has fuelled speculation of a rift between Germany and France, although the governments of both countries have denied this. On Sunday, German Chancellor Angela Merkel and French President Nicolas Sarkozy had failed to agree on details for a revised euro rescue strategy but had said they would come up with one by the end of this month. They denied media reports of a rift between them on how to provide help for banks facing financial trouble as a result of the debt crisis.

Extra Time to Finalize Strategy
Van Rompuy, who is in charge of calling and preparing summit meetings, said the delay will allow the block "to finalize our comprehensive strategy on the euro-area sovereign-debt crisis covering a number of interrelated issues." He added that "significant progress has been accomplished in the implementation of the July package," referring to the EU summit that month which agreed to increase the size and scope of the euro bailout fund.

"Further elements are needed to address the situation in Greece, the bank recapitalization and the enhanced efficiency of stabilization tools," Van Rompuy said. He said those elements were closely linked to the outcome of the current visit to Greece by representatives from the "troika" comprised of the EU, European Central Bank and International Monetary Fund who are assessing Greece's progress in adhering to its fiscal reform pledges.

At Sunday's Franco-German meeting in Berlin, Sarkozy insisted that he and Merkel were in "total agreement" on their approach to recapitalizing unstable European banks, despite rumors to the contrary.

Merkel and Sarkozy Set Deadline for Crisis Plan
by Spiegel

Angela Merkel and Nicolas Sarkozy have agreed to a mutual approach to halt the euro crisis, promising to protect European banks after a meeting in Berlin. But details of the deal won't be revealed until the end of the month. Meanwhile, Britain's prime minister is warning it is time to take out the "big bazooka" if Europe wants to save the euro.

The financial markets reacted positively on Monday to a promise by the leaders of Germany and France on Sunday in Berlin to reach an agreement to recapitalize banks and tackle the euro-zone debt crisis hand-in-hand. European shares made slight gains despite reluctance by Chancellor Angela Merkel and President Nicolas Sarkozy to provide details of their plan. Instead, they set a clear deadline for its completion -- by month's end, just before Sarkozy hosts the upcoming G-20 summit in Cannes from Nov. 3-4.

When pressed by journalists to give more detail on just how Germany and France planned to boost European banks, both leaders refused to offer specifics pending discussions with their euro-zone counterparts mid-month at a summit in Brussels. "We are determined to do the necessary to ensure the recapitalization of Europe's banks," Merkel said.

Having noted the two countries' particular sense of responsibility in stabilizing the currency union, Sarkozy added that their response would be "sustainable and comprehensive." The French president also insisted that he and Merkel were in "total agreement" on their approach to recapitalizing unstable European banks, despite rumors to the contrary.

Without recapitalization, some analysts fear that European banks would fail to withstand a potential government bond default by Greece, which could cause some to go bust. "The market is looking for a road map for a solution to the euro-zone crisis. Merkel and Sarkozy details are scratchy and investors will need to see the detail by the end of the month," Richard Batty, a strategist at Standard Life Investments, which has $245 billion in assets under management, told news agency Reuters on Monday.

While details were scarce, Merkel did say that recapitalization measures would include the analysis of all euro-zone banks according to the same criteria, coordinated by authorities including the European Banking Authority and the International Monetary Fund.

Dexia Desperation
Though the European Union has disputed the figures, the IMF has estimated that euro-zone banks could require up to €200 billion ($267 billion) in fresh capital. Among the Contintent's biggest Greek bond holders, France reportedly wants to tap the EU's €440-billion European Financial Stability Facility (EFSF) backstop fund instead of its own national resources to recapitalize its threatened banks. There are fears in the country that concerns about French banks could endanger the country's AAA credit rating.

But Merkel has said the EFSF should be used only if banks fail to raise fresh capital on the markets and their country can't manage to shore up the financial institutions on their own. Still, Sarkozy said on Sunday, "there are no disagreements" between the two countries on the use of the EFSF.

In an interview with the Financial Times published on Monday, British Prime Minister David Cameron urged France and Germany to set their differences aside and implement a clear plan, taking a "big bazooka" approach to the crisis before year's end. "The situation with the world economy is very precarious ... you either make the euro zone work properly or you confront its potential failure," he told the paper.

Meanwhile, the implosion a Belgian subsidiary of the struggling bank Dexia due to its exposure to Greek and Italian debt added a critical element to the talks. While France, Belgium and Luxembourg have agreed to a massive bailout, the debacle seemed like a harbinger of what could befall other banks as the soveriegn debt and currency crisis continues to unfold. Over the weekend, Ireland estimated that euro-zone banks would need upwards of €100 billion ($135 billion) in capital to weather the debt crisis, while the IMF suggested that figure be doubled.

Debt Haircut Rumors
Greece is expected to run out of cash by mid-November without more aid, which is still pending approval by the "troika" inspectors from the European commission, the IMF and the European Central Bank. The group is analyzing whether Greece has fulfilled the reform requirements promised in exchange for the next tranche of the €110-billion bailout fund put together in 2010. After their meeting on Sunday, both Merkel and Sarkozy said they wanted to keep Greece as a member of the EU.

"We are working closely with the troika which is currently in Greece and we expect them to present a sustainable solution for Greece that keeps it in the euro zone and also ensures the financial stability of the euro zone," Merkel said.

A total Greek default remains improbable, but German news agency DPA published a report on Monday citing sources in the finance industry and individuals familiar with negotiations indicating that euro-zone finance ministers are discussing scenariors for a Greek haircut of as much of 60 percent. Meanwhile, in a guest commentary for Financial Times Deutschland newspaper on Monday, former German Chancellor Gerhard Schröder also called for an "intelligent debt haircut of some 50 percent," adding that the EFSF fund would also need to be expanded.

Comments by German Finance Minister Wolfgang Schäuble on Sunday also indicated that European leaders were preparing for a massive Greek debt haircut. In July, private financial institutions taking part in the second, €109-billion bailout for Greece had agreed to have their Greek bond holdings slashed by 20 percent, but Schäuble suggested this may not have gone far enough. "So far we have probably assumed an insufficient percentage of debt reduction," the member of Merkel's conservative Christian Democrats told the Frankfurter Allgemeine Sonntagszeitung newspaper. "There is a big risk that this crisis will spread further."

Sounding the Deeps
by George Monbiot - Guardian

I stumbled out into the autumn sunshine, figures ricocheting around in my head, still trying to absorb what I had heard. I felt as if I had just attended a funeral: a funeral at which all of us got buried. I cannot claim to have understood everything in the lecture: Sonnenschein-Mantel-Debreu Theory and the 41-line differential equation were approximately 15.8 metres over my head(1). But the points I grasped were clear enough. We’re stuffed: stuffed to a degree that scarcely anyone yet appreciates.

Professor Steve Keen was one of the few economists to predict the financial crisis. While the OECD and the US Federal Reserve foresaw a "great moderation", unprecedented stability and steadily rising wealth(2,3), he warned that a crash was bound to happen. Now he warns that the same factors which caused the crash show that what we’ve heard so far is merely the first rumble of the storm. Without a radical change of policy, another Great Depression is all but inevitable.

The problem is spelt out at greater length in the new edition of his book Debunking Economics(4). Like his lecture, it is marred by some unattractive boasting and jostling. But the graphs and figures it contains provide a more persuasive account of the causes of the crash and of its likely evolution than anything which has yet emerged from Constitution Avenue or Threadneedle Street. This is complicated, but it’s in your interests to understand it. So please bear with me while I do my best to explain.

The official view, as articulated by Ben Bernanke, chairman of the Federal Reserve, is that both the first Great Depression and the current crisis were caused by a lack of base money. Base money, or M0, is money that the central bank creates. It forms the reserves held by private banks, on the strength of which they issue loans to their clients.

This practice is called fractional reserve banking: by issuing amounts of debt several times greater than their reserves, the private banks create money that didn’t exist before. Conventional economic theory predicts that when the central bank raises M0, this triggers a "money multiplier": private banks generate more credit money (M1, M2 and M3), boosting economic growth and employment.

Bernanke, echoing claims by Milton Friedman, believed that the first Great Depression in the US was propelled by a fall in the supply of M0, which, he said, "reinforced … declines in the money multiplier."(5) But, Keen shows, there is a weak association between M0 money supply and depression. There were six occasions after World War Two when M0 money supply fell faster than it did in 1928 and 1929.

On five of these occasions there was a recession, but nothing resembling the scale of what happened at the end of the 1920s(6). In some cases unemployment rose when the rate of M0 growth was high and fell when it was low: results which defy Bernanke’s explanation. Steve Keen argues that it’s not changes in M0 which drive unemployment, but unemployment which triggers changes in M0: governments issue more cash when the economy runs into trouble.

He proposes an entirely different explanation for the Great Depression and the current crisis. Both events, he says, were triggered by a collapse in debt-financed demand(7). Aggregate demand in an economy like ours is composed of GDP plus the change in the level of debt. It is the sudden and extreme change in debt levels that makes demand so volatile and triggers recessions. The higher the level of private debt, relative to GDP, the more unstable the system becomes. And the more of this debt that takes the form of Ponzi finance – borrowing money to fund financial speculation – the worse the impact will be.

Keen shows how, from the late 1960s onwards, private sector debt in the US began to exceed GDP. It built up to wildly unstable levels from the late 1990s, peaking in 2008. The inevitable collapse in this rate of lending pulled down aggregate demand by 14%, triggering recession(8).

This should be easy enough to see with the benefit of hindsight, but what lends weight to Keen’s analysis is that he saw it with the benefit of foresight. In December 2005, while drafting an expert witness report for a court case, he looked up the ratio of private debt to GDP in his native Australia, to see how it had changed since the 1960s. He was astonished to discover that it had risen exponentially.

He then did the same for the United States, with similar results(9). He immediately raised the alarm: here, he warned, were the conditions for an economic crisis far greater than those of the mid-1970s and early 1990s. A massive speculative bubble was close to bursting point. Needless to say, he was ignored by policy-makers.

Now, he tells us, a failure to address these problems will ensure that this crisis will run and run. The "debt-deflationary forces" unleashed today "are far larger than those that caused the Great Depression."(10) In the 1920s, private debt rose by 50%. Between 1999 and 2009, it rose by 140%. The debt-to-GDP ratio in the US is still much higher than it was when the Great Depression began(11).

If Keen is right, the crippling sums spent on both sides of the Atlantic on refinancing the banks are a complete waste of money. They have not and they will not kickstart the economy, because M0 money supply is not the determining factor.

President Obama justified the bailout of the banks on the grounds that "a dollar of capital in a bank can actually result in $8 or $10 of loans to families and businesses. So that’s a multiplier effect"(12). But the money multiplier didn’t happen. The $1.3tn that Bernanke injected scarcely raised the amount of money in circulation: the 110% increase in M0 money led not to the 800 or 1000% increase in M1 money that Obama predicted, but a rise of just 20%(13).

The bail-outs failed because M0 was not the cause of the crisis. The money would have achieved far more had it simply been given to the public. But, as Angela Merkel and Nicholas Sarkozy demonstrated over the weekend(14), governments have learnt nothing from this failure, and seek only to repeat it.

Instead, Keen says, the key to averting or curtailing a second Great Depression is to reduce the levels of private debt, through a unilateral write-off, or jubilee. The irresponsible loans the banks made should not be honoured. This will mean taking many banks into receivership(15). Otherwise private debt will sort itself out by traditional means: mass bankruptcy, which will generate an even greater crisis.

These are short-term measures. I would like to see them leading to a radical reappraisal of our economic aims and moves to develop a steady-state economy, of the kind proposed by Herman Daly and Tim Jackson(16). Governments and central bankers now have an unprecedented opportunity to learn from the catastrophic
mistakes they’ve made. It is an opportunity they seem determined not to take.

Europe's Attention Shifts to Its Ailing Banks
by Spiegel

Sovereign bonds were once considered among the safest of all investments. Yet with Greece teetering and several more euro-zone countries on the watch list, the Continent's banks are in trouble. The European Union is struggling to come up with an antidote.

The mood was decidedly somber last Thursday as Jean-Claude Trichet put in his last appearance as the president of the European Central Bank (ECB) following a meeting of the institution's governing council. There was no farewell gift and no bouquet of flowers -- only a few words of praise from Jens Weidmann, the president of Germany's central bank, the Bundesbank.

Trichet briefly acknowledged that he was "deeply moved" by the tribute from his German colleague. Then the Frenchman, who will be replaced by Italy's Mario Draghi at the end of this month as the head of Europe's currency watchdog, turned to the latest casualty of the euro crisis. The banks.

Three years after the collapse of the Lehman Brothers investment bank in September 2008, the crisis is heading toward a new peak. The banks no longer trust each other and, during the past week, prices of insurance policies to protect investors in the event that credit institutions go bankrupt have soared to the highest levels ever observed. Only the central banks are considered safe havens and are flooded with money from financial institutions.

Even US President Barack Obama is anxiously watching as events unfold in Europe. He recently stated publicly that the events transpiring on the other side of the Atlantic currently represent the greatest threat to the American economy. "You must act fast," he told the Europeans, adding that there needs to be a "very clear, concrete plan of action that is sufficient to the task."

Back in 2008, the threat came from America. At the time, the US government allowed Lehman Brothers to go bankrupt -- and unleashed a financial tsunami that drove large parts of the global economy into a recession and cost millions of jobs.

Extremely Precarious Situation
Now, it has become apparent that the danger from the heart of the financial world has not yet been eliminated. This time, though, it is emanating from Europe. With leading politicians and economists saying that the cash-strapped Greeks will soon require substantial debt relief, Europe's financial institutions find themselves in an extremely precarious situation.

Many banks still hold billions of euros in government bonds from Greece and other debt-stricken European countries. If these securities tumble in value, the institutions involved could face bankruptcy themselves. In the financial sector there is a growing fear of a chain reaction -- and of a second meltdown in the banking sector. The supply of money to business and industry could soon dry up, sparking a new credit crunch.

As a precautionary measure, ECB President Trichet has turned on the money pump again. Over the coming months, the banks will have access to virtually unlimited liquidity from the ECB. Furthermore, European heads of government are debating a new radical program. It has become apparent that a number of European banks will have to be nationalized and plans call for the money to finance this move to come, at least in part, from the European Financial Stability Facility (EFSF), the temporary euro backstop fund.

It was only in early September that Christine Lagarde, as the new head of the International Monetary Fund (IMF), was heavily criticized after she suggested that European banks would need some €200 billion ($267 billion) in additional capital. Now though, following a meeting with German Chancellor Angela Merkel and World Bank President Robert Zoellick last week in Berlin to discuss the banking crisis, it is clear that everyone agree on the gravity of the situation.

Zero Risk?
The problems are immense. The European debt crisis involves a type of investment long considered to be one of the soundest available -- government bonds issued by European countries. It is a situation which has taken politicians by surprise as well, as can be seen by existing regulations regarding the assessment of risk posed by sovereign bond investments. When determining how much equity capital banks need as a buffer, the risk of financial loss associated with government bonds is considered to be zero.

In the middle of the year, many banks were already forced to write off 21 percent of their Greek bonds due to the impending debt reduction, known as a "haircut." That, though, likely won't be enough. Greek bonds may soon lose half their value -- if not more.

German financial institutions would likely be able to absorb such losses. The country's 13 largest banks have reduced their Greece-related risks to €5.6 billion. But what if other European countries are affected by the turmoil? Currently, Italian and Portuguese government bonds are only being traded at a steep discount. If Greece were to default on its loans, the market value of these bonds would plummet even further.

US investment bank JP Morgan suggests a scenario in which Greek bonds have to be written down by 60 percent, Portuguese and Irish bonds by 40 percent and Italian and Spanish bonds by 20 percent on bank balance sheets. Due to these writedowns alone, JP Morgan says that European banks require an extra €54 billion. Analysts at Morgan Stanley even recommend up to €150 billion more in capital.

Signs of Trouble
French banks are particularly vulnerable, as demonstrated by last week's collapse of the troubled Belgian-French bank Dexia. After being bailed out in 2008, it now has to be rescued a second time with public funds from France, Belgium and Luxembourg. The Dexia Group holds €21 billion worth of sovereign bonds from ailing euro-zone countries. BNP Paribas also has more than €20 billion in Italian government bonds on its books while Spain owes the French bank some €2.5 billion. Furthermore, BNP and Dexia together constitute Greece's leading foreign creditor with approximately €4 billion.

France's banks are now showing signs of trouble. The venerable commercial bank Société Générale has lost 50 percent of its share value since the beginning of the year. It, along with Crédit Agricole, was recently downgraded by the US rating agency Moody's. To make matters worse, both banks have Greek subsidiaries that have been dragged down by the crisis.

On top of that, the French will find it increasingly difficult to raise money on a daily basis to meet their ongoing obligations. They are much more dependent than other European financial institutions on cash injections from powerful US money market funds. These investment funds, which manage a total of $1.5 trillion, are specialized in such short-term transactions.

Such lenders, however, immediately cut all lines of credit if any doubts arise over whether they will be repaid. According to the Fitch rating agency, the funds are setting increasingly tighter deadlines. Nearly 30 percent of the French securities traded by the 10 largest US money market funds only have terms of up to seven days. Dexia's rapid collapse shows what happens when the cash flow suddenly stops.

Europe Mulls Forced Bailouts
Sources of liquidity are already starting to dry up. Since late July, US funds have withdrawn nearly 20 percent of their investments from French banks. Société Générale alone lost nearly €20 billion in financing within just a few weeks this summer.

The situation is even worse for Spanish and Italian banks, which have been largely cut off from this important flow of dollars for some time now. A few weeks ago, the US Federal Reserve and the ECB, together with the British, Swiss and Japanese central banks, joined forces to make dollars available to these banks until the end of the year. Without this regular intervention by the central banks, liquidity would have long since dried up.

Greek financial institutions have been forced to stop financing many domestic businesses and investments. Even many healthy companies now find it almost impossible to borrow money. "This is the death of the Greek economy," Greek Economy Minister Michalis Chrysochoidis grimly commented. The country's banks are first in line for any European bailout program.

Things look significantly better for German financial institutions thanks to the country's robust economic recovery. But banks such as the state investment bank Nord/LB in Hanover and the publicly-owned regional bank Landesbank Hessen-Thüringen (Helaba) have too little equity to weather a major crisis. These financial institutions reportedly need an extra €20 billion in capital.

Commerzbank was bailed out in 2008 with two injections of capital. It was only recently that Commerzbank CEO Martin Blessing returned the majority of the state guarantees that he had received from Berlin -- but he may have to turn right around and ask the German government for more money.

A Different Story
The Greek debts are not his major concern, though: Commerzbank lent €2.2 billion to the Greek government in late July, and an additional €900 million to Greek banks and other enterprises. "Commerzbank could reasonably withstand even a 100-percent haircut in Greece," says Merck Finck analyst Konrad Becker.

It would be a different story altogether, though, if Italy and Spain ran into greater difficulties in the event of a Greek default. The governments of both countries owe Blessing's bank a total of €11.6 billion. On top of that, there are loans and other financing measures for the private and banking sector amounting to nearly €19 billion.

Should the crisis actually escalate and debt restructuring also become necessary in Spain and Italy, "Commerzbank would certainly no longer be in a position to cope with this alone," says Becker. This would make Commerzbank a candidate for recapitalization. If necessary, the medicine will have to be administered forcibly.

A move to compel banks to increase their liquidity buffers, as is currently under discussion in Brussels, would meet with even more resistance from Deutsche Bank. "We are very well capitalized," said Deutsche Bank CEO Josef Ackermann at an analysts' conference last week in London. He explained in detail that the bank will be able to improve its capital base thanks to billions in anticipated profits, adding that by the end of 2013 Deutsche Bank intended to shed risky securities worth nearly €100 billion.

At the same time, however, Ackermann had to admit that the bank will miss its profit target of €10 billion for 2011. Although the bank reduced its risks in Greece, Italy, Portugal, Spain and Ireland to €3.7 billion by late June, it's clear that if other euro countries besides Greece start spinning out of control, things could also get tight for the German market leader.

One analyst at JP Morgan has already put forward a scenario in which Deutsche Bank requires nearly €10 billion in additional capital. Moreover, the analyst argues that the bank's liquidity cushion may be insufficient once regulators introduce new provisions over the coming years. Ackermann cites big numbers in an effort to refute such criticism. He says the bank has obtained €180 billion in liquidity.

Soffin Relaunch
There is so much fear of a second banking meltdown that officials in the German Finance Ministry are working to redeploy a tool that already proved itself during the financial crisis of 2008 and 2009 -- the Special Fund for Financial Market Stabilization (Soffin). The fund was able to provide ailing banks with guarantees totaling up to €400 billion.

This initiative expired in 2010 and is now only dealing with old cases -- but it would be easy enough to revive it: "All we would have to do is change the date in the text of the law," according to staff members working for German Finance Minister Wolfgang Schäuble. They also think that such a move would be approved by the parliamentarians of the parties in Germany's center-right coalition government.

The topic of bailing out the banks is at the top of the agenda across the European Union, and a fundamental decision on the issue was expected at the next summit of the 27 heads of state and government in Brussels, originally scheduled for Oct. 17-18. Due to ongoing differences between France and Germany, however, it has now been postponed until Oct. 23.

When it comes to banks, the Germans are pushing for all banks in the euro zone and the UK to have a standard capital ratio of, for example, 10 percent. Furthermore, experts in Brussels are considering introducing compulsory aid for banks. This contrasts with existing rules in individual EU countries that provide no means of bolstering recalcitrant financial institutions. According to the new concept, any bank that can't raise enough private capital would be financed from public coffers.

Sources in the German Finance Ministry say that these measures would be limited to banks deemed "too big to fail." In addition, the affected banks would initially be given a deadline to bring their capital reserves up to the required level on their own. "Compulsory capitalization is definitely a controversial issue," says Michael Meister, deputy leader of the conservatives' parliamentary group in the Bundestag.

It is still unclear whether the plan would receive majority support in Germany and the EU. France is pushing for the expanded European Financial Stability Facility (EFSF) bailout fund to quickly and unbureaucratically aid embattled banks with sorely-needed capital. This would be a less conspicuous way of recapitalizing French banks -- and at a lower cost to the French.

'The Faster, the Better'
By contrast, the German government wants to limit EFSF operations to extreme emergencies. The Germans say that initially, at least, the struggling banks would have to attempt to raise fresh capital from private investors. If that doesn't succeed, says Berlin, then the home country will have to step in.

France is, however, not alone in its demand that the bailout fund be used to recapitalize banks. Support for the idea also comes from countries that generally argue for cautious spending of taxpayers' money. Austria, for instance, whose banks are also under threat, does not oppose in principle using the EFSF to support the sector.

Another contentious aspect is Germany's determination to give the Bundestag a say on how the money is spent. The plan calls for the majority of EFSF operations to be subject to the approval of a parliamentary committee. Germany's partners in the EU have expressed reservations about this approach. "A government needs the general confidence of parliament for it to be able to act effectively on decisions that affect the financial markets," says Luxembourg Finance Minister Luc Frieden, "and this is especially true of large countries."

A very different proposal to use the new bailout funds more efficiently has been made by Walther Otremba, a former top official in the German Economics Ministry. In an article in this week's SPIEGEL, the former state secretary proposes creating a Europe-wide insurance for struggling peripheral countries like Portugal, Italy, Spain and Ireland. According to Otremba, the concept would be financed from the risk premiums of the associated bonds -- and would provide a way of preventing the contagion from spreading to other members of the euro zone should Greece default.

Speaking in Berlin last Thursday, ECB President Jean-Claude Trichet made it clear that he thought domestic programs should be used first to strengthen the banks' equity capital base. He added that the EFSF bailout fund would soon be in a position to lend money to the member states to recapitalize their banks. "The faster the EFSF can tackle the root causes of the crisis," Trichet said, "the better."

Capitalism Collapse? 'Cash grab system cannot survive storm'
by RT

There is barely a corner of the globe that has not been touched by the current financial meltdown. But a senior sociology scholar at Yale University thinks the crisis is far wider than the economic crash - it is capitalism itself which is collapsing. Immanuel Wallerstein explained his theory to RT.

Dexia gets $122 billion of state guarantees
by Simon Kennedy - MarketWatch

Beleaguered European lender Dexia SA on Monday agreed to the nationalization of its Belgian retail banking arm as part of a new rescue package for the group that also includes 90 billion euros ($122 billion) of state funding guarantees.

The French-Belgian bank, which has already been bailed out once earlier in the financial crisis, said it will sell its Belgian unit to the state for €4 billion in a deal that will slash the size of its balance sheet. The governments of Belgium, France and Luxembourg will also provide a 10-year guarantee on the group’s funding up to a maximum of €90 billion.

Dexia specializes in providing financing for local governments, which has left the bank with hefty exposures to Greece and other troubled European sovereigns. Rising worries over the ability of those countries to pay their debts means Dexia has struggled to obtain its own funding in recent weeks. The rescue package will, therefore, provide a guarantee on the group’s borrowing from other banks and the bond markets.

Shares in Dexia have been suspended since Thursday, but are due to resume trading Monday. Up until they were halted, shares in the group had lost two-thirds of their value since the start of the year.

Belgium will be responsible for 60.5% of the guarantee, while France is providing 36.5% and Luxembourg the remaining 3%. While the deal will help Dexia regain access to funding markets, it will also add further pressure to the balance sheets of the governments involved. Moody’s Investors Service late Friday put Belgium’s Aa1 credit rating on review for a possible downgrade, citing among its reasons uncertainty over the impact of likely measures that would be needed to support banks.

Shrinking balance sheet
Dexia said the sale of its Belgian consumer-lending arm to the state will cut its balance sheet by around €55 billion and lower its short-term funding requirements by €14 billion. As of June 30 it would also have resulted in a loss for the group of €3.8 billion.

The bank is also negotiating an agreement with Caisse des Depots et Consignations and La Banque Postale in relation to the financing of local authorities in France, which could cut another €10 billion from the bank’s funding requirements.

The final part of the package involves talks to negotiate a sale of the group’s Dexia Banque Internationale a Luxembourg SA arm to a group of international investors. The bank said a binding offer for the unit will be submitted in two weeks.

Dexia OKs Rescue Plan, Nationalization Of Belgian Unit
by Inti Landauro and Matthew Dalton - Dow Jones Newswires

The board of beleaguered Franco-Belgian bank Dexia SAearly Monday approved the rescue plan agreed by the governments of Belgium, France and Luxembourg, which includes the sale of the Belgian unit for EUR4 billion to the Belgian state and a EUR90 billion guarantee over its funding for the next 10 years.

The statement didn't specify what will happen to Dexia's coveted Turkish unit Denizbank AS. Shares in Denizbank rose sharply on speculation that Dexia will sell its majority stake. However, in a news conference later in Brussels, Dexia Chief Executive Officer Pierre Mariani said there is no deadline for the group to sell DenizBank as part of the break-up of the group. Mariani also said the intention is for the group to continue to be publicly traded.

Over the weekend, the three governments and the bank's board agreed on a three-step plan for the bank that includes the nationalization of the Belgian unit; the sale of Dexia's French local public finance unit to French state-owned financial institutions Caisse des Depots et Consignations and Banque Postale, the banking arm of France's state-owned mail service; and the sale of the Luxembourg unit to a group of investors that include the Luxembourg government, Dexia's board said in a statement.

Luxembourg Finance Minister Luc Frieden said Monday morning that the government is in talks with the royal family of Qatar. "We have found an investor that is ready to develop [the unit] as a stable bank for the future of Luxembourg," Frieden told a news conference. He declined to give any potential value for the sale, as it is Dexia itself that is directly negotiating. Frieden reiterated that the government of Luxembourg will keep a minority stake in the unit.

Dexia bank was thrown into turmoil over the past couple of weeks as the European sovereign crisis made it difficult to get funding on the interbank financing market. Last Thursday, its stock was suspended on the Brussels and Paris indexes at the request of regulators. They remained suspended early Monday. The top officials of the three governments met during the weekend to set up an agreement to rescue the bank. People familiar with the negotiation had anticipated the dismantling of the bank since late last week.

The Belgian government's offer for Dexia Bank Belgium includes a mechanism to pay a premium to current shareholders if the government sells the business within five years. Dexia's board said the sale of its French public finance unit would reduce its short-term funding needs by EUR10 billion. The three governments also agreed to grant Dexia guaranteed funding of as much as EUR90 billion. Belgium would cover 60.5% of the guarantee, France 36.5% and Luxembourg 3%.

"The granting of that funding guarantee and the execution of the three operations will strengthen the safety of deposits and give a margin for maneuver to the Dexia group in terms of liquidity and to reduce its exposure," French Prime Minister Francois Fillon said in a statement early Monday. The rescue plan will be sent to the European Commission for approval, he added.

In Monday's news conference, Dexia CEO Mariani disputed the idea that the group, which will now largely hold legacy assets that can't be sold, is now a "bad bank"--the name for banks that hold assets of poor credit quality. "The term of bad bank isn't justified," he said. He also said that the bank had faced significant deposit withdrawals recently, although less than during the financial crisis in 2008. And he said that the bank faces liquidity, not capital problems and that a recapitalization of the bank alone would not have resolved its problems.

Belgium, France, Luxembourg and Belgian regional shareholders had already injected EUR6.4 billion of new capital into the bank in 2008 following the banking crisis triggered by the failure of Lehman Brothers bank. Dexia, which was created in 1996 from the merger of Belgian and French government-lending banks, grew into one of the world's largest public finance banks in 2008. The group lent to local governments stretching from the U.S. to Europe to Japan, amassing an enormous portfolio of loans and bonds that reached EUR650 billion in 2008. The bank mainly depended on funding from financial markets instead of more secure retail and commercial deposits.

Separately Monday, Belgian bank KBC Group N.V. said it has agreed to sell its Luxembourg-based private-banking unit to Precision Capital, a Luxembourg company "representing the interests of a Qatari investor." The sale price of the unit, KBL European Private Bankers, is EUR1.05 billion, with a EUR50 million "earn-out" clause that depends on the performance of the business. That's less than the EUR1.3 billion that the Hinduja group bid for the company. That offer was blocked by regulators. KBC's shares were down 1.9% at EUR18.60.

'Time short' for eurozone, says Cameron
by George Parker and Lionel Barber - FT

David Cameron has urged European leaders to take a "big bazooka" approach to resolving the eurozone crisis, warning they have just a matter of weeks to avert economic disaster. The UK prime minister wants France and Germany to bury their differences and to adopt before the end of the year what he claims would be a decisive five-point plan to end the uncertainty, which was having a "chilling effect" on the world economy.

Meanwhile, on Sunday, Angela Merkel, the German chancellor, and France’s President Nicolas Sarkozy spelt out their determination to defend the stability of the euro as they met for a bilateral summit in Berlin, though they refused to spell out details of their plans. Mr Sarkozy insisted that the two leading governments in the eurozone were pursuing a common course, and were ready to announce a comprehensive package before the summit of the G20 leading global economies in Cannes, France, at the beginning of November.

Mr Cameron’s interview with the Financial Times increases pressure on eurozone leaders to act, including pressing Mr Sarkozy to agree a plan of action for the recapitalisation of Europe’s banks.

Separately, Mr Cameron wants Germany and others to accept the "collective responsibility" of euro membership and to increase the firepower of the eurozone’s €440bn bailout fund to stop financial contagion spreading from Greece. Although he refused to speculate on a Greek default – some British government ministers believe it is now inevitable – he said all uncertainty had to be removed about the country’s economic future.

He also called for the International Monetary Fund to be more active in "holding feet to the fire", confronting eurozone leaders in the starkest terms possible with the consequences of further prevarication.

The final part of Mr Cameron’s plan is to address Europe’s underlying weaknesses, including deepening the single market and improving the governance of the eurozone, if necessary through treaty change. "That’s the menu," he said. "It’s not à la carte – you have to do the whole thing." His comments reflect growing frustration in London and Washington at the incremental approach so far adopted in response to the crisis. "Time is short, the situation is precarious," he said.

Mr Cameron believes it is vital that Europe’s leaders get ahead of the markets by announcing a comprehensive plan, comparing it to the "bazooka" approach once advocated by Hank Paulson, former US Treasury secretary. He said Europe’s leaders must break the habit of doing "a bit too little, a bit too late" and conveyed the message in person over the weekend to Mrs Merkel.

Mr Cameron’s endorsement of new EU bank stress tests – applying market-based write-downs to sovereign debt holdings – is a tacit acknowledgement that Greece may not be able to meet the onerous terms of its austerity plan. The tests could put new pressure on the British government to inject more capital into state-owned Royal Bank of Scotland, although Mr Cameron said he thought this would not be necessary.

Separately Mr Cameron called for EU "safeguards" put in place to protect the interests of non-euro members like Britain as the single currency area becomes increasingly integrated. He detected a French-inspired plot to discriminate against the City of London simply because it operates outside the eurozone. "I’m not having them trying to move our financial services industry to Frankfurt – forget it," he said.

Banque de France turns a blind eye to European financial crisis
by Jeremy Warner - Telegraph

Crisis? What crisis? To judge by a speech in Tokyo last week from Christian Noyer, Governor of the Banque de France, you would never have guessed there was an almighty financial implosion going on at the heart of the eurozone. And certainly not one so recently described by Mr Noyer's opposite number at the Bank of England, Sir Mervyn King, as "the most serious since the 1930s, if ever".

It's a funny thing about French policymakers, but whenever markets don't behave as they would wish, they invariably blame it on the "speculators" of the City and Wall Street, as if they are the undoubted cause of all crises. There was quite a lot of that in Mr Noyer's speech, though he did at least manage to steer clear of the "s" word.

Thus it is that the recent precipitous fall in bank share prices is "an overreaction" that "can be explained by a simple amplification mechanism: slower growth means lower profits, thus lower projected dividends". If it really were that simple, it really would be nothing to worry about.

Fears about the sovereign risk carried by French banks are apparently "exaggerated", while you'll be pleased to know that there really isn't a problem of competitiveness in the eurozone periphery, nor even a problem of debt, since if you take the aggregate of the budget deficit as a proportion of GDP across the eurozone as a whole, it is much lower than both the UK and the US. Simples. "There are good reasons for optimism", Mr Noyer proudly concludes. Welcome to Tokyo, Dr Panglos.

Back home in France, the reality is that Mr Noyer messed up on a major scale by failing to insist that French banks recapitalise during the brief window of opportunity that existed a year ago when share prices were still riding high.

That was the time for French banks to buttress themselves against the coming storm – when they could still do so on reasonable terms. It's going to cost them and the economy a lot more to do it now. Mr Noyer failed to seize the moment. Unsurprisingly, nobody believes him now that he's left forlornly claiming that there really isn't much of a problem.

In any event, things have moved on since Mr Noyer made his speech. Over the weekend, Angela Merkel and Nicholas Sarkozy finally conceded that some sort of a grand plan needs to be concocted to recapitalise the European banking system. Details are necessarily thin on the ground, for first it has to be decided precisely what banks are being recapitalised for.

Is it just in preparation for the bad debts stemming from a standalone act of Greek default, in which case it would be a relatively minor affair? Or would it be to backstop the system against wider sovereign stresses, which would require new capital of €300bn and upwards, using IMF estimates of sovereign risk? Either way, the money is going to have to come substantially from national treasuries, with equity markets essentially closed to many banks.

The answer to this choice depends in large measure on how big the European Financial Stability Facility is eventually made. The more the fund is leveraged in size, the less need there is for bank recapitalisation; a larger fund ought to reassure markets that the eurozone is capable of building a fire wall around Greece, and of seeing Italy, Spain and others through what they all still insist is a temporary liquidity problem, rather than one of solvency.

In such circumstances, the sovereign impairment on bank balance sheets would be smaller and therefore require less capital. A separate question is how much of the money for bank recapitalisations should come from the fund itself, and how much from national treasuries, with Mr Sarkozy apparently in favour of the fund doing the bulk of the heavy lifting, but Germany resisting.

There are plenty of moving parts here, and a very limited timetable. Angela Merkel and Nicholas Sarkozy have given themselves until the end of the month for coming up with something credible. Whichever way policymakers jump, it's going to be painful. Part of the purpose of enforced recapitalisation is to stop the pervasive process of deleveraging and credit contraction now taking place in the European banking system.

Yet to recapitalise at rates of return below those normally demanded for bank equity may just magnify the problem and lead to further, economically harmful deleveraging. They are damned if they do, damned if they don't. Use of contingent capital, where governments are paid a fee to provide new equity if and when it is needed, thereby underpinning confidence in the banking system without actually putting up the additional capital, may provide a less painful model.

In any case, the funding problem at the heart of the European banking system is now extreme, however much Mr Noyer likes to downplay it. The market for senior, unsecured term debt, which accounts for the great bulk of longer term wholesale funding, has become all but closed to European banks and won't be reopening until the sovereign debt crisis is resolved.

Unfortunately, that also includes UK banks, which cannot help but get caught up in the same funding crisis. Most of the UK banks took steps in the first half of this year to make sure they were fully funded through to early 2012. They've also significantly reduced their dependence on wholesale funding by improving their loan to deposit ratios. For Royal Bank of Scotland, for instance, this is now down to 114pc, against more than 150pc before the crisis.

Even so, if funding markets haven't reopened by the beginning of next year, a second, very significant credit squeeze will begin to kick in. The cost of credit will further increase at a time of growing stress for households and business.

All this helps explain the additional £75bn of quantitative easing announced last week by the Bank of England. The world economy is slowing fast, confidence is plummeting, the sovereign debt crisis is getting worse, and on top of all that now comes a second credit crunch. All four factors feed off each other, producing a potentially lethal cocktail of negatives.

And Mr Noyer thinks there is good reason for optimism. Even accepting that it is part of the central banker's job to reassure, Mr Noyer seems to have gone one step further and transmogrified into Pollyanna. The governor of the Banque de France regards it as a badge of honour that the European Central Bank hasn't engaged in nearly as much quantitative easing as the UK or the US. I doubt that will be the judgment of history.

Europe bank rescue is not enough
by Ben Rooney - CNNMoney

The leaders of Europe's two largest economies have agreed on a "comprehensive package" of measures to address the eurozone sovereign debt and banking crisis, but they did not give any details. After meeting in Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they have reached an agreement on a "durable" solution for the sovereign debt problems in Greece.

Analysts said the mention of a "durable" solution suggests Merkel and Sarkozy are willing to accept a deeper restructuring of the nation's unsustainable debt load. EU leaders have repeatedly said that Greece will meet its obligations and avoid a default. But many economists say the private sector will have to write down the value of Greek bonds by up to 50% in order for the nation to finally get out of debt.

Merkel and Sarkozy also pledged to do "all that is necessary" to ensure that European banks have sufficient capital. Sarkozy said further information on the plan will be disclosed later this month, adding that "now is not the moment to go into the details."

Analysts had been expecting an announcement on bank recapitalization at the next European Council summit. The meeting, which had been scheduled for Oct. 17-18, has been pushed back Monday to Oct. 23. The rhetoric, while familiar, boosted morale across global financial markets. In Europe, shares in London, Frankfurt and Paris gained between 1.8% and 3%. U.S. stocks were also sharply higher.

The rallies came despite news that troubled lender Dexia Group has been bailed out by the governments of France, Belgium and Luxembourg. Dexia, which is largely dependent on wholesale funding markets for financing, was the first bank to succumb to the recent pullback in bank-to-bank lending.

Europe bails out its first bank, Dexia
Merkel and Sarkozy have been leading the European Union's slow-motion charge to rescue the euro from a sovereign debt crisis that has festered for 18 months and now threatens to infect the European banking system. The latest talk from Paris and Berlin has focused on the need to strengthen banks that are exposed to potential losses on government bonds issued by Greece, Italy and other so-called peripheral euro area nations.

Despite the positive response in financial markets Monday, analysts said recapitalizing European banks, while important, is not enough to fully resolve the underlying government financing problems. "The recapitalization of Europe's banks is a necessary, but not sufficient step to return confidence to the market," said John Peace, a research analyst at Nomura Securities. "If steps are not taken to reassure the market about the solvency of Italy, we have really only treated the symptoms and not the disease of the current crisis."

In addition, analysts said implementing a "coordinated" rescue of the European banking system would be technically complex. Mujtaba Rahman, an analyst at Eurasia Group, said a government rescue would likely involve some combination of direct injections by individual European states, along with recapitalization and government bond purchases by the European

Financial Stability Fund
But all three elements of such a strategy face challenges, he noted in a recent research report. Rahman said that injecting money directly into banks could make the situation worse by increasing the liabilities for those European governments making the investments or contributing to the EFSF bailout fund.

In addition, the amount of money in the bailout fund is widely believed to be insufficient, and talks about how to boost its firepower have been inconclusive. The European Central Bank could also do more to facilitate interbank lending, he added.

Merkel and Sarkozy did not announce any plans to enhance the powers of the EFSF. The leaders have reportedly disagreed on how to deploy the €440 billion bailout fund once a proposed overhaul is made official later this month. France is said to be worried that using government money to rescue troubled banks could tarnish the nation's top-tier credit rating. Banks in France are among the most exposed to distressed sovereign debt. On Sunday, Sarkozy said France and Germany are in complete agreement on the undisclosed rescue measures.

Don't expect a euro breakup ... yet
Holger Schmieding, chief economist at Berenberg Bank in London, said preparing for an orderly default by Greece and recapitalizing European banks could "make a lot of political and economic sense." "The measures that are being planned now may well be necessary," he said. "However, on their own, these two measures could make the actual debt crisis worse."

Schmieding said allowing Greece to default would send a signal to investors that Italian bonds may also be subject to major write downs. That would drive up Italy's borrowing costs and raise speculation about the nation falling victim to a fate similar to Greece, he added.

"To rein in the grave risks which these measures may entail, they would have to come with an iron-clad guarantee for Italy that could impress hyper-nervous investors enough to buy and hold Italian sovereign debt again," said Schmieding. 

Bank of England abandons part of QE program after traders make bonds too expensive
by Ben Harrington - Telegraph

The Bank of England was forced to abandon part of its quantitative easing (QE) programme after city traders made government bonds too expensive for the Old Lady to buy. In a highly unusual move on Monday, the Bank of England refused to buy bonds with a maturity of 2017 and yield of 8.75pc after dealers drove up the price to £140.78 ahead of the auction.

The Bank of England has never previously refused to buy government bonds as part of a reverse auction [a sales process whereby market makers and traders sell government gilts to the Bank of England]. In a statement, the Bank of England said: "The Bank has decided to reject all offers against the 2017 government bond following significant changes in its yield [a reflection of the gilts price] in the run-up to the auction."

A person close to the situation said: "The price of the 2017 bond behaved very strangely compared with other gilts the Bank of England was buying on Monday." John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, told Bloomberg that traders had been pushing the price of the 2017 bond up "aggressively, obviously in the hope that they'd be able to sell it to the Bank of England".

Mr Wraith added: "The Bank of England rejected it [the 2017 bond] and that might have given people a bit of a shock. There would have been some people who hoped that the bank would be willing to pay significantly higher prices for the bonds." Last week, the Bank of England shocked financial markets when it decided to take pre-emptive action to rescue the faltering economic recovery by increasing its money printing programme by £75bn.

Denmark's Max Bank transferred into state hands
by Mette Fraende - Reuters

Denmark's Max Bank was transferred into state hands after it acknowledged at the weekend that it could no longer meet requirements for further write downs. Its operations were to be transferred at the weekend to a new subsidiary under Finansiel Stabilitet, the state authority set up to handle failed Danish banks, Finansiel Stabilitet said in a statement late Saturday.

It would be the 10th bank to fall into state hands since the start of the financial crisis in 2008.The transfer of operations will be made under a recent adjustment to an existing government bank aid package, and the transfer would be effective on October 8, Finansiel Stabilitet said. The bank would still be able to service its customers, Finansiel Stabilitet said.

Last month, Danish political parties agreed to adjust a bank aid package to help the Nordic country's smaller liquidity-squeezed banks and promote mergers within the sector. The agreement followed growing worries that more small Danish banks could fail. But it has offered little guarantee to creditors, which has contributed to a shortage of international funding to all but a handful of the country's biggest banks.

Also last month, Denmark's central bank threw a lifeline to the country's liquidity-squeezed banks by offering a new six-month loan based on its main lending rate and expanding the scope of collateral that it accepts from banks. Max Bank reported a net loss of 60.3 million Danish crowns ($10.8 million) in the first half of the year following 79.2 million crowns of write downs, but kept its 2011 outlook of a 80 million to 100 million crowns profit.

Greece activates rescue fund to save Proton Bank
by George Georgiopoulos and Harry Papachristou - Reuters

Greece's central bank said on Monday it activated a bank rescue fund to save Proton Bank, effectively nationalizing the small lender that is under investigation for possible violation of the country's money-laundering laws.

It is the first lender to be nationalized under the Financial Stability Fund (FSF), a safety net set up by Greece and its international lenders for banks that need to recapitalize but cannot raise funds in the market. Analysts said the move had to do with Proton's own business problems and not with the country's severe debt crisis. "After recommendation by the Bank of Greece, the Finance Ministry proceeded to apply to Proton Bank a new law about the restoration of banks," the Bank of Greece said in a statement.

The Bank of Greece said Proton was split into a "good bank" where all of its private sector, government deposits and sound assets were transferred. The good bank will have the FSF backstop as its sole shareholder and retain the trade name Proton. "The 'good bank' is well capitalized, with a capital adequacy ratio that is well above the regulatory threshold. It has access to euro-system liquidity through the Bank of Greece," the central bank said.

According to the finance ministry, the new Proton Bank has a capital adequacy ratio of 10.6 percent. The Bank of Greece has told the country's lenders they will have to maintain a Core Tier 1 ratio of 10 percent from January 2012. Proton, with a network of 31 branches and a current market value of about 11 million euros, had total assets of 3.8 billion at the end of the first quarter.

The central bank said the license of the old Proton Bank was withdrawn and it was put into liquidation. The proceeds of the liquidation will be used to cover the claims of third parties. Proton shareholders will rank as last claimants. "The new bank, free of the deficiencies of the previous bank, is financially sound and will continue normally its operations," the Bank of Greece said.

Central Bank Probe
Proton's woes erupted this summer after it disclosed it was being probed by the central bank on money laundering violations related to transactions by its main shareholder. "The activation of the Financial Stability Fund for Proton Bank has nothing to do with its exposure to Greek sovereign bonds but it has to do with its bad loans' portfolio," said a Greek-based bank analyst who declined to be named. A senior banker who requested anonymity also said Proton's woes were the result of its own business issues and was not a result of the debt crisis.

Shares in Proton will be suspended from trade, a senior bourse official said. Proton's major shareholder was businessman Lavrentis Lavrentiadis, who reduced his stake from a little over 20 percent to about 15 percent in March.

Greek banks, troubled with rising provisions for impaired loans, shut out of wholesale funding markets and hurt by their Greek government bond holdings, have also seen their deposits drop sharply since the start of the country's debt crisis. Greece's FSF already has 10 billion euros to recapitalize the Greek banking system.

That amount should grow to 30 billion once euro zone parliaments ratify the EU's EFSF safety net created to prevent the Greek crisis from spilling over into other countries like Spain or Italy and triggering a new global economic downturn.

Financial crisis is literally killing Greeks
by Rosie DiManno - Toronto Star

Three weeks ago, a man in his mid-50s set himself on fire outside a bank in the northern Greek city of Thessaloniki. While his suicide bid did not succeed — he was hospitalized with severe burns — the symbolism of the act, and its location, was profound. Police said the poor fellow had been struggling with personal debts. He viewed the bank as his tormentor.

In Tunisia late last year, fruit seller Mohammed Bouazizi — poor, desperate, harassed by authorities — set himself alight and died a few weeks later, inspiring a revolution that brought down a dictator and igniting, it would not be a stretch to say, the broad Arab Uprising. But the Greek man doesn’t have a name. Authorities have refused to release it.

He’s nobody. He’s everybody. Or at least every proud Greek man overwhelmed by financial ruin, unable to provide for family, at risk of losing home and business, distraught by the shame of it, pilloried as a scapegoat for an entire continent’s fiscal writhing.

There is financial suicide: What many accuse Greece of having inflicted on itself by years of deranged spending and a credit-driven economy where the bubble has burst. There is political suicide: What many suspect, even hope, the ruling centre-left PASOK party is in the process of orchestrating with its bludgeoning austerity measures, the hard-fisted taxes and job cuts and pension slashing.

And there is literal suicide: Not a metaphor, not adjectival, but the real thing — taking one’s own life. Greeks are killing themselves, in numbers never before seen and probably more than those numbers show. Recorded suicides have surged since the Greek debt crisis broke open in 2009, according to the health ministry, a nationwide non-governmental social organization and the preliminary results of a study published this summer in The Lancet, the world-leading medical journal.

"Nobody knows the actual number of suicides but we see this from our work, day in and day out," says Aris Violatzis, a clinical psychologist and administrator of the scientific department for Klimaka, the NGO. "The economic environment is the pathogen and suicide is the symptom. "The desperation and hopelessness is a very important factor, combined with people losing their identity — a father who can no longer provide, a mother who can’t raise her children, both feeling that they’ve failed."

Violatzis points to the Lancet study, which was discussed last month at a meeting he attended of the International Association for Suicide Prevention. Data collected revealed a sharp surge in suicides between 2007 and 2009 for Greece and Ireland — a 17 per cent spike for Greeks. Both countries have been in economic free fall. The mean age for those taking their own life has risen from early to middle adulthood and more are married.

Some countries, notably the United States, have higher rates of suicide than Greece, at six per 100,000 residents annually. But Violatzis argues that suicides are greatly under-reported in Greece because of the stigma attached. The Greek Orthodox Church forbids funeral services for suicides unless the deceased was mentally ill. Families often mask suicides as accidents. And in the Greek parliament, the health minister has speculated aloud that Greece’s suicide rate may actually have increased by 40 per cent in the past few years.

Four years ago, Violatzis established a suicide helpline through Klimaka. At first, it received only four or five calls a day. Now it’s upwards of a hundred daily, more than 5,000 through the first eight months of 2011 compared with 2,500 for all of 2010. "The callers are primarily men between the ages of 40 and 60 with families who had led productive lives," he says. "Now they feel destroyed. People get ill and depressed when their self-concept is incongruent with their reality."

That reality is a government that has admitted it won’t reach its deficit targets for this year, despite excessive new taxes and myriad revenue-collection schemes. Reality is 16 per cent unemployment — which is understood to be much higher than that, in fact. Reality is imposing tax levies, for the first time, on the poorest sector of society, those earning as little at $6,700 (U.S.) a year. Reality is pension cuts for anyone drawing more than $1,600 per month.

"Greeks have been raised with the belief that we’re not bad people, we’re not lazy,’’ says Violatzis. "It’s the tourists who lie under the sun. Greeks work under the sun. So we are having a hard time accepting the view from Europe that Greeks are destroying the world, economically. "We have been devalued as a people, as if the rest of the planet would still be prosperous if Greece wasn’t here."

Alongside the angst and resentment is the genuine fear for many over sudden job insecurity and, even for those reasonably confident of continuing employment, a bleak immediate future of straitened circumstances. The daily rotating strikes in Athens are like constant blows to the national psyche, an exercise in futile protest.

"Of course we Greeks got carried away," Violatzis acknowledges. "We believed we were living in an economy that was flourishing because that’s what we were told. We thought the bad days belonged to the past. We hosted the Olympic Games. We had international success in sports. Life was good and now it’s not. But I still do not believe that Greeks have the privilege of being the world’s worst spenders."

How long can Greeks take the strain? The government will be bankrupt by November if it doesn’t receive the next promised tranche of bailout aid. Personal bankruptcies have skyrocketed. On the streets of Athens, a new underclass has appeared of the homeless and hungry, turning to the inadequate network of emergency relief.

"The homeless population has gone up by 20 to 25 per cent," observes Ada Alamanou, program coordinator at a Klimaka-run shelter. "The difference is that these people don’t have an underlying mental health problem or a drug and alcohol problem. They haven’t had run-ins with the law. They have a medium to high level of education. They used to work, in everything from sales to the health profession. They were small-business owners. These are people who never expected to find themselves in this situation."

Effie Stamatogiannopoulou, a nurse at the shelter, says both she and a brother whose business went bust have moved in with their mother. This, too, is a phenomenon of Greece in 2011 — elderly parents supporting their grown children. "The Greek family has always been strong but the pressures now are too great. When the parents die, the pensions they were receiving are gone but the children are still unemployed, so then they have no money to live on. Some have moved into abandoned houses and they come to us for food."

Telling Greeks they have brought this disaster upon themselves elicits a grudging admission — and an argument. "We were drowning in EU money,’’ says Stamatogiannopoulou. "The banks practically begged us to take out loans. Buy a house! Buy a car! Take a holiday! It was all so easy and it became a trap. The debts are still there, the interest rate has gone up, but our income has gone down."

The austerity measures, Stamatogiannopoulou is convinced, are self-defeating. "There is no social justice in these measures. Poor people become poorer." And the message from the nation’s creditors, from the International Monetary Fund and the EU, is like a Greek chorus, she says: "They are saying to Greece — die!"

For some, a growing number, it has been taken literally.

Ailing Greek economy takes toll on citizens' health
by Kate Kelland - Reuters

Greece’s debt crisis is hitting the health of the nation hard, with the number of suicides increasing, more people turning to drugs and prostitution and rapidly rising rates of HIV infections, researchers said on Sunday.

Budget cuts and growing unemployment are pushing more people into severe depression and drug-dependence, and cutbacks in hospital budgets and health-care services mean fewer people can see their doctors or access help.

"The picture of health in Greece is concerning," said David Stuckler, a sociologist at Britain’s University of Cambridge who reported his findings in the Lancet medical journal. "We’re seeing … worrisome trends — a doubling of suicides, rising homicides, a 50% rise in HIV infections and people reporting that their health has got worse but they’re not going to the doctor even though they felt they needed to."

In the past two years, the Greek government has imposed harsh austerity measures to deal with a debt mountain as the country plummeted into its deepest recession in 40 years and was forced to accept an EU-IMF bailout.

Greece is expected to run out of cash as soon as mid-November. Inspectors from the European Union, the International Monetary Fund and the European Central Bank — the so-called "troika" — are currently assessing whether Athens has fulfilled the criteria for more aid.

In the meantime, businesses are shutting down, the public sector is shrinking and unemployment is running at more than 16%. Health budget cuts have also led Greece to slash the prices it will pay for medicines, triggering supply concerns.

Stuckler’s team found that suicides rose by 17 percent in 2009 from 2007 and said unofficial data quoted in Greece’s parliament point to even greater rises, of 25% to 40%. The data mirror grim local news reports.

In tales that have shocked Athenians, a former businessman was reported to have jumped to his death leaving a note saying the financial crisis drove him to it, and the owner of a small retail firm was found hanging from rope tied to a bridge. His suicide note said simply: "Don’t look for other reasons. The economic crisis led me to this."

Lesson To Others
Martin McKee of the London School of Hygiene and Tropical Medicine, who worked with Stuckler on the Lancet paper, said other struggling European nations should take note. "The experience of Greece is a warning of what can happen if there are major cuts to health care in the face of a recession," he said in a telephone interview.

A previous study by McKee, Stuckler and others in July found suicide rates across Europe rose sharply in the two years to 2009 as the financial crisis drove unemployment up and squeezed incomes. Greece and Ireland were worst hit.

In Monday’s paper, the researchers also found a significant increase in HIV infections in Greece in late 2010 and said data suggest that new infections with the virus that causes AIDS will rise by 52% this year compared to last. Rates of heroin use rose by 20% in 2009, and at the same time, budget cuts in 2009 and 2010 meant a loss of a third of the country’s street-work programs designed to help drug addicts and provide them with HIV prevention services.

Stuckler said there were reports of some drug users deliberately infecting themselves with HIV, or human immunodeficiency virus, to get access to welfare benefits of 700 euros (US$940) a month and faster admission into drug substitution programs. "It’s really alarming," he said.

Greece has had a rocky relationship with pharmaceutical companies as a result of the crisis, imposing some of the most draconian price cuts for medicines of any European country, with unpaid bills a further burden for pharmaceutical companies.

Swiss group Roche has stopped delivering cancer drugs to some state-funded Greek hospitals that have not paid their bills, with patients being told to collect medicines from privately run pharmacies as they are more reliable payers.

Roche and other drugmakers have also been forced to accept Greek government bonds instead of cash for some outstanding debts — a move that is expected to increase bad debt provisions, although Greece accounts for only around 1% of the global pharmaceuticals market.

Greeks pay for economic crisis with their health
by Helena Smith and Sarah Boseley - Guardian,

Rising demand and cost-cutting put services at breaking point, while drug addiction, HIV and suicide rates increase

It is 4am on the emergency ward of Evangelismos general hospital - the biggest in Greece - and the stream of patients is relentless. Dr Michalis Samarkos has not stopped working since he started his shift some 14 hours earlier, and he has been besieged by patients unable to afford the tests or the drugs they need.

Many, like the unemployed diabetic man he has just examined, have gone without treatment for several days. "When you see a diabetic unable to afford his insulin you know he is going to die," says Samarkos. "There is no infrastructure to help these people. On every front the system has failed the people it was meant to serve."

Greeks are paying for their economic disaster with their health, according to a new study. In a letter to the Lancet medical journal, a team lead by Dr Alexander Kentikelenis and Dr David Stuckler from Cambridge University and Professor Martin McKee from the London School of Hygiene and Tropical Medicine warns of a potential "Greek tragedy". They point to signs of a dramatic decline in the health of the population and a deterioration of services at hospitals under financial pressure.

Many Greeks have lost access to healthcare coverage through work and social security plans, and rising poverty levels mean growing numbers who would previously have used the private sector are now flocking to state hospitals. Alongside savage spending cuts, the rise has put an immense strain on a chaotic and corrupt system that was already in decline.

Hospital budgets dropped by 40% between 2007 and 2009, say the Lancet authors. There are reports of understaffing, shortages of medical supplies and patients paying bribes to medical staff to jump queues. "There are signs that health outcomes have worsened, especially in vulnerable groups," write the experts. There was a 14% rise in the number of Greeks reporting their health as "bad" or "very bad" between 2007 and 2009.

Suicides rose by 17% during the same period, and unofficial 2010 data quoted in parliament mention a 25% rise compared with 2009. The health minister reported a 40% rise in the first half of 2011 compared with the same period in 2010.

"The national suicide helpline reported that 25% of callers faced financial difficulties in 2010 and reports in the media indicate that the inability to repay high levels of personal debt might be a key factor in the increase in suicides," the Lancet authors write. "Violence has also risen, and homicide and theft rates nearly doubled between 2007 and 2009."

Their analysis is based on data from the EU Statistics on Income and Living Conditions. The pressure that the health services are under may account for a rise of 15% between 2007 and 2009 in the numbers who say they did not go to the doctor even though they thought they should. Long waiting times and travel distances to clinics were among the reasons cited.

GP and hospital out-patient care is virtually free, but many Greeks cannot even afford the €5 (£4.30) fee they are required to pay when visiting public out-patient clinics, and doctors say they are often forced to haggle over fees.

Meanwhile, there has been a marked rise in the number of people admitted to hospital – up 24% between 2009 and 2010 and up another 8% in the first half of 2011 compared with the same period last year.

The impact of cuts on drugs services appears particularly troubling. HIV infections rose significantly in 2010, with injecting drug users accounting for half of the rise. The numbers are on course to rise by 52% this year. Many new infections are also linked to rises in prostitution and unsafe sex. Heroin use reportedly rose by 20% in 2009, according to estimates from the Greek Documentation and Monitoring Centre for Drugs. Budget cuts in 2009 and 2010 have meant the loss of a third of the country's outreach programmes.

Health workers in Athens say the economic crisis has contributed to a surge in intravenous drug use in the city. "Since January 2011 we have seen a more than 1000% rise of HIV among intravenous drug users," says Eleni Kokalou who works in the infectious diseases department of Evangelismos Hospital. "Lack of preventive services at community and primary level and funding cuts for the few existing ones, like the syringes exchange program for IDUs, has contributed greatly to the rise," she said.

"Overall, the picture of health in Greece is concerning," write the Lancet authors. "In an effort to finance debts, ordinary people are paying the ultimate price: losing access to care and preventive services, facing higher risks of HIV and sexually transmitted diseases, and in the worst cases losing their lives. Greater attention to health and healthcare access is needed to ensure that the Greek crisis does not undermine the ultimate source of the country's wealth - its people."

Putting the 'Volcker' Clamps on Banks
by Scott Patterson and Alan Zibel - Wall Street Journal

Proposal Would Sharply Limit Trading With Own Capital; Complaints From Both Sides

Wall Street trading appears headed for an inhibited new era after the U.S. government on Tuesday outlined a rule sharply limiting banks' ability to make bets with their own capital.

Regulators released a 298-page proposal that would restrict how big financial firms can trade securities and invest in hedge funds for their own benefit. The regulations are known as the "Volcker rule," after former Federal Reserve chief Paul Volcker, who has been a vocal proponent of curbing trading at federally backed banks in a bid to prevent a new financial crisis.

The release caps almost 21 months of jockeying by financial firms, with more to come. Final rules won't be implemented until July 2012, when regulations that are part of the Dodd-Frank financial overhaul take effect. Bankers rushed to criticize Tuesday's proposal, setting the stage for further months of fierce lobbying over its final form.

"Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot," said Frank Keating, president and chief executive of the American Bankers Association, in a statement. "How can banks comply with a rule that complicated, and how can regulators effectively administer it in a way that doesn't make it harder for banks to serve their customers and further weaken the broader economy?"

The rule is shaping up as the latest dark cloud for the finance industry. Volcker could cost the biggest banks $2 billion or more in annual revenue, according to analyst estimates, at a time when the industry is struggling with weak growth and hefty costs.

The shares of companies such as Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc. have been under intense pressure amid a soft economy and intensifying European debt worries. New York state Comptroller Thomas P. DiNapoli said this week that New York City could lose 10,000 securities industry jobs by the end of next year.

Highlighting the rancorous debate centering on banks' role in the 2008 financial crisis, the subsequent government bailouts and outsize Wall Street pay, some backers of tougher regulation also found room for complaint. They said Tuesday's outline gives banks too much leeway to interpret the rule as they see fit and could permit exactly the type of activities the rule is supposed to prevent. They worry regulators, under fierce pressure from the financial industry, may water down the rules.

Regulators "didn't seize the opportunity on this rule," said Marcus Stanley, policy director for Americans for Financial Reform, a group that advocates tougher financial regulation. "It's too vague and too broad and there's too much reliance on self-regulation."

The rule bans federally insured banks from engaging in so-called proprietary trading, the practice in which traders use bank funds and deposits to back their bets on the direction of securities, often using borrowed money to amplify the results. The rule also would limit banks from holding a stake larger than 3% in hedge funds and private-equity funds.

Proprietary trading and private equity-like investments generated billions of dollars in revenue for big banks before the crisis. But starting in 2007, as the U.S. housing market slowed, a number of the bets went sour, adding to fears that firms such as Bear Stearns Cos., Lehman Brothers Holdings Inc. and Morgan Stanley were saddled with huge losses that could, if the firms failed, lead to the collapse of the entire financial system.

Under the rule, bank activities would be largely restricted to making loans, taking deposits and buying and selling assets on behalf of customers. Critics say the rule will hurt banks' ability to act on behalf of customers, throwing sand in the gears of the broader economy. The rule will "reduce market liquidity, discourage investment, limit credit availability and increase the cost of capital for companies," said Tim Ryan, chief executive of the Securities Industry and Financial Markets Association, an industry trade group.

Another complaint: the rule will hurt U.S. banks' ability to compete overseas. One concern is that clients of U.S. banks will shift their business to overseas banks that are less hamstrung by regulations. To be sure, Wall Street has found little to like in the Dodd-Frank law. Other components, such as a restructuring of how derivatives are traded and restrictions on debit-card fees, also have met with widespread criticism.

"When is that last time the financial industry didn't see a regulation that they [said] was going to cause a recession?" said Simon Johnson, a Massachusetts Institute of Technology professor and former chief economist at the International Monetary Fund. Mr. Volcker, who has criticized proprietary trading, declined to comment on the proposal.

Many questions remain over how the rule will be implemented and whether it will lead to a safer financial system. The proposal poses nearly 400 questions to industry groups, including questions about what kinds of funds banks can invest in, and even a question about the definition of bank.

A key issue involves whether regulators can draw a line between proprietary trading and acceptable activities, such as market making and hedging against risk. Some worry that a part of the rule that allows banks to hedge against the risk that an entire portfolio could suffer losses could open the door to more aggressive tactics. The Wall Street Journal earlier reported that a draft version of the rule contained such portfolio hedging language.

Regulators appear uncertain about whether the language is too broad. In the final proposal, they ask for comment on whether "certain hedging strategies or techniques that involve hedging the risks of aggregated positions (e.g., portfolio hedging)…create the potential for abuse of the hedging exemption…."

The rule proposal "raises more questions than it answers," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents 100 of the largest U.S. financial firms. The proposal was published by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The Securities and Exchange Commission was scheduled to consider the rule on Wednesday, and the Commodity Futures Trading Commission was expected to issue a similar proposal rule at a later date. Comments on the proposal are due by Jan. 13, and the final rule is expected to be adopted sometime next year.

The rule contains extensive compliance requirements. Banks with more than $5 billion in trading assets will need to keep a detailed set of records about their trading units and provide to regulators 17 separate measurements of their trading operations. The goal is to aid federal regulators in identifying banned trading activity, but the calculations are expected to be complex. "Banks are going to have to invest a fair bit in order to be compliant," said Kim Olson, a principal with Deloitte & Touche LLP and a former official at the Federal Reserve Bank of New York.

Obama criticizes bank, but he takes its money
by Kirk Tofte - Urbandale

Bank of America recently announced plans to impose a $5 monthly fee on its debit card customers. On Oct. 4, President Barack Obama rebuked these plans.
Appearing on ABC’s "Good Morning America," Obama angrily suggested that Bank of America customers would be "mistreated" by such a debit card fee. The president failed to mention, of course, that aggrieved Bank of America customers could always just change banks.

The president’s comments caused the next day to post a story on the matter, "Has Obama Found his Inner Populist?" The short answer to that question is, "Hardly."

Nearly half the cash raised by Obama’s political bundlers for 2012 has come from the banking sector and the securities industry. His cash haul from the financial services sector totals $11.8 million — so far. In 2008, Bank of America employees alone contributed over $250,000 to Obama’s campaign. And, boy, did Bank of America ever get what it paid for in terms of billions of TARP dollars and other aid from the Obama administration.

Pensions Wrestle With Return Rates
by Michael Corkery - Wall Street Journal

Turmoil in Europe, the sluggish economy and low interest rates are intensifying pressure on public pension-fund systems to reduce the annual-performance assumptions they use to determine contributions from taxpayers and employees.

Some lawmakers and pension officials are pushing to abandon the roughly 8% annual-return assumption set by many public-employee funds, saying the rate is unrealistically high given upheaval in markets around the world and the preceding financial crisis. "After 10 years of listening to the experts be wrong on the downside more than half the time, I would like to be more cautious," said James Dalton, chairman of the Oregon Public Employees Retirement System.

The pension system, which covers about 325,000 members, affirmed its 8% assumption this summer despite a dissenting vote from Mr. Dalton. Oregon exceeded its 8% assumed rate over the most recent 20-year period but fell short over five years and 10 years.

In Minnesota, lawmakers are considering whether to lower the large state pension funds' 8.5% return assumptions, among the highest in the nation. Pension officials at the Teachers' Retirement System of the State of Illinois are mulling a change to the system's 8.5% return target.

The nation's largest public pension, the California Public Employees' Retirement System, could face pressure to trim its assumptions if the $220 billion fund's monthly returns are disappointing. Calpers is set to release those results this week.

The assumed rate of return is critical because it determines how much a city or state and its workers must contribute to a pension system. As with many other investors, optimism prevails among many pension-fund managers. "We are in a low-return environment with a lot of downside risk," said Joseph Dear, Calpers chief investment officer. Nevertheless, Mr. Dear sees little reason to change the fund's 7.75% assumption, because that target is achievable over the long term, he said.

Since the financial crisis, at least 19 state and local pension plans have cut their return targets, while more than 100 others have held rates steady, according to a survey of large funds by the National Association of State Retirement Administrators. But to keep meeting these assumptions, pension funds might be tempted to take on more risk, some officials and analysts warn.

"To target 8% means some aggressive trading," said Jeffrey Friedman, a senior market strategist at MF Global. "Ten-year Treasurys are yielding around 2%, economists say we are headed for a double-dip, and house prices aren't getting back to 2007 levels for the next decade, maybe." "Good luck to them," Mr. Friedman said of pension managers still striving to hit longstanding targets.

The Teacher Retirement System of Texas reaffirmed its 8% annual return target after its consultant said the pension system, with about $100 billion in assets, should expect a median rate of return slightly greater than 8% over the next decade.

The consultant, Hewitt Ennis–Knupp, also noted that, during the past 20 years, the Texas pension fund earned a rate of return of 8.9% on invested assets. Brian Guthrie, executive director of the Teacher Retirement System of Texas, said he hasn't "looked under the hood" of the analysis, though pension officials checked with their actuary to make sure the target is in line with most other pension funds'. A spokeswoman for EnnisKnupp declined to comment.

"It doesn't matter what your assumptions are," said Laurie Hacking, executive director of the Teachers Retirement Association of Minnesota, which supports sticking with its 8.5% target return assumption. "It is what that market delivers that matters and how you react to that."

Ms. Hacking said Minnesota reacted to big investment losses after the financial crisis by cutting back on pension benefits and increasing contributions to the fund from employees and school districts. Those moves had a greater impact on the funding level of the teachers' system, now a relatively healthy 78%, than lowering return assumptions, she said.

But tweaking the number could have immediate, real-life consequences. Many public pension funds use their assumed rates of return to calculate the present value of benefits they owe retired workers in the future. So the lower the rate, the greater the obligations appear.

This spring, the New Hampshire legislature put off implementing a decision by the retirement board to lower the rate to 7.75% from 8.5% this year. The move by lawmakers was meant to spare New Hampshire cities and towns from having to make additional contributions to the fund without much warning, even if it means keeping return assumptions few people expect the fund to meet.

"It's a tough decision," said Jeb Bradley, Republican majority leader in the New Hampshire State Senate. "We knew we had to lower it, but we were trying to give ample warning" to cities and towns, he said. Many unions representing New Hampshire public workers objected to the delay in reducing the assumed rate.

In Minnesota, legislators last year reduced cost-of-living adjustments for retired public workers until the funding level of the pension system improves. Lowering the rate of return could lower the pension system's funding level and potentially delay when the cost-of-living adjustments are restored. Some state lawmakers say lowering the rate will benefit the system over the long haul.

"A new day has dawned," said Morrie Lanning, chairman of the Legislative Commission on Pensions and Retirement in Minnesota, who wants to lower the return target. "It may have made sense in the past, but it's not realistic anymore."

US jobless epidemic masked by government statistical shenanigans
by RT

For Americans enduring rising unemployment and falling living standards, Capitol Hill seems out of touch. Thousands are joining demonstrations against poverty and corporate greed as the country struggles to deal with the ongoing economic crisis. The anti-Wall Street protests that have grown in New York over the past few weeks are spreading to other major cities, including the capital.

Our world is now ruled by finance
by Albert Nerenberg - Montreal Gazette

Its presence has displaced real value in the economy
Occupy Wall Street, which began as rag-tag bunch of protesters sitting in public squares complaining about "corporate greed," has swiftly spread to cities around North America, including Montreal. It seems to be contagious. Suddenly people everywhere are asking, "What is this about?" The best explanation? It's about the financial system driving us all to the brink.

Sure. That might makes sense, except it's hard to see with the naked eye. It's even harder to prove. Few would argue unregulated Wall St. greed and excess aren't a problem. But when was the last time you got mugged by banker or came home to find a stockbroker stealing your stuff ? How do we know we're not making Wall St. a convenient scapegoat for our problems?

Here's how. It was laid out in the 2010 Oscar-winning documentary Inside Job. The film carefully revealed how the U.S. subprime-mortgage fiasco really was a criminal racket engineered by key players in the financial industry for which the regular people of the world paid, and paid dearly. Due to the abstract and confusing nature of the crime, the guilty were largely rewarded with bonuses and their institutions with bailouts.

But eclipsed in the film was a more disturbing and perhaps profound fact. Only 60 years ago, the financial industry was a much smaller part of the North American economy. It has since exploded. While necessary for business, finance generally doesn't make anything except for bland glossy brochures. There's a revealing chart based on statistics from the U.S. Bureau of Economic Analysis that suggests a stunning transformation. The corporate profits of the financial industry ballooned from eight per cent of the U.S. economy in 1948 to 45 per cent in 2002.

In short, the financial industry is suddenly dominating the North American economy. Now, if you want an easier way to see the problem, look up. Think of the skylines of our great financial centres - New York, London, Frankfurt, Tokyo and Toronto. You will see they are almost entirely dominated by finance. Most of the gleaming towers are banks, brokerages, finance companies and the legal firms that service them. There's nothing intrinsically wrong with working as a broker, banker or even a mutual fund adviser. These people have the same hopes and dreams as the rest of us.

But a glaring problem is hiding in plain sight. Although it towers over us all, the financial industry doesn't actually make anything. You can't eat a mutual fund or build a house with derivatives, and the glossy brochures don't burn very well. The sudden explosion of finance has displaced real value in the economy. It's arguably itself a kind of massive stock market bubble. Now we have continuous economic volatility and stock markets like casinos because at the very core of Western economies, there's just a glossy brochure.

So when we see the spectacle of people in streets of New York screaming "we have to stop being a debt economy and go back to being a production economy," they have a point. It used to be city skylines were the domain of industries constructed by people who built cars, planes, bridges, cities, people who grew stuff, invented stuff, created stuff, marketed stuff and needed towers for administration and sales.

But something happened. Since the '80s, money itself has become an industry, possibly the largest. That's dangerous, and we're seeing the results now. Finance exists because when you boil it down, somebody owes money to someone. The bigger they are, the more they're owed. We need banks. There's nothing inherently wrong with having businesses that don't make tangible products. The trouble comes with scale.

Imagine a small town with stores, gas stations, barbershops and factories. Now, imagine that same town with a monolithic 20-storey bank building looming over it. The people in that town would be likely be rushing around stressed, pale and in debt. That's probably the town we live in today.

It's no coincidence the dramatic rise of the financial industry corresponds with longer workdays, workaholism, "debt slavery" and parents who don't play with their kids. Whole societies are running like rats on a wheel to keep up with a system that has no real human or environmental measure.

Because of it's epidemic nature, a study released this week by the British Chartered Institute of Personnel Development named stress the "Black Death of the 21st century." People are hitting the breaking point trying to keep up with a machine that has to keep ratcheting up the pressure. Everyone is caught in it in some way. It burns people out while it literally burns up the Earth, heating up the atmosphere and driving us all to a dangerous, uncertain future.

Maybe it is time to stop for a moment and ask if it really needs to be this way.


Nassim said...

el g,

Do you have any hints regarding viewing TAE with an Android?

With me, it seems to never finish loading the main page because of all the adverts and so on.

I know Greenpa thinks "that's a whole shipload of folks out there with a lot of money to blow on non-essentials. ", but I have to keep up with my potential customers.

Ash said...

El G (from last thread),

Just judging by the scope and timing of rhetoric over the past year, military action against Pakistan cannot be assumed to be too far behind action against Iran, and I'm sure China is aware. I have a feeling the escalating rhetoric over the Chinese currency bill (now passed by the Senate) is more of a function of geopolitical tension than strictly trade tensions in the immediate-term (although the latter is certainly a huge medium to long-term factor). After all, there is almost zero chance the bill ever gets presented to Obama and signed into law.

scandia said...

@Ilargi, I really liked the article from the Montreal Gazette, " Our World is Ruled By Finance ".
A construct that has appeared on the skyline during my life time is the casino. Another arm of the finance world. I see the establishment of government controlled casinos as a marker in society, a sure fire force that consumes the body politic from within.
Whenever I raise my objections I am invariably told the " money goes to charity ". Alrighty then...So let's take a look at charities. Hm-m-m ,seeing lots of organizations that look awfully like corporations, some even making succession plans.
How would things be if casino goers took 25% of their " gambling money " and gave it directly to people in need. What if granny, shoveling quarters into the slot, paid a dental bill for her nephew? And notice it is now perfectly reasonable to have a budget item called " Gambling Money ". My dear departed mother had just such a gambling money stash in the top drawer of her dresser. It was common sense to my mother that to win you have to be a player.
Follow the money. We all leave a trail, a trail of dreams...a skyline.

Zeke said...

Good comment by scandia. The solution is, always, to blame somebody for life's problems, the real culprit is all of us. Presently the great monster is Wall Street. My problem with that fault finding is millions of us did not take the loans and are not drowning in debt. We are the forgotten in this orgy of blaming. No banker "made" anyone sign their name. All the banker did was provide an avenue to pursue our own greed. The entire American system (only one I've lived in) is based on doing exactly that and has been for a long time.

As far as income disparity, while it may well be worse at present, it has always, from the get go, been American. In fact all systems as far as I can tell. The name of the human game is to walk the fine line of an elite controlling nearly all money while dribbling enough to the masses to keep them in check. Credit was a marvelous tool for this.

The foundation of this country stands on the bones of those from whom we stole land, exploited their labor, the poor and the rest of the long list we blissfully ignore. We very willingly, cheering all the way, walked into the disaster many of find ourselves in. It is as old as history and will happen again.

Now the solution, by an increasing number of commentators, is we forgive the debts of the irresponsible so we can start the circus again. One thing I never forget. As an American, I live at the top of the human pile. Billions live in poverty beyond my comprehension. Untold numbers die/become refugees so I can ride my motorcycle.

snuffy said...


Good stuff today,the clip with a quiet explanation of why...and the essay"Sounding the Deeps"made for some interesting ideas about time frames and severity.
.I hope the gentleman is right,that we have a year or so before everything goes _seriously_ south.
I ,regardless of the preps,the farm,the tools ect....I don't think I will ever be truly "ready".I can be more prepared,but the shit-storm headed our way will be so off the charts,I honestly feel that those who "Want" this to happen have some personal issues to deal with..I can see the kinds of choices I will have to make,and fear what circumstance may force me to do to care for me and those whom I shelter.

I think this will be break-your-heart BAD folks...We have walked all over the rest of the world for a long time.Lots of those folks "over-there" will say "Its about time"."Its overdue.".We have not been heroes for a long time now.

The mis-allotment of resource by those elites that are so blinded by ideology that they have lost part of their humanity..they have forgotten that they and theirs will pay a terrible price for their "specialness"..and their core belief in crony capitalism.

Its funny,when I am out on the road,is when I sometimes see things I am too busy at home to really notice.What I am seeing now is that time-is-short.Period. Very short.

Bee good,or
Bee careful


Ash said...


"All the banker did was provide an avenue to pursue our own greed."

I believe you and others have valid points about individual complicity in the formation of our present predicament. However, I also believe the statement above is misleading and comes close to the Randian Libertarian perspective, which woefully underestimates (or misdiagnoses) the nature of our broader reality.

We exist in an institutional system of capitalism that brings negative emotional and instinctual reactions to the forefront of our daily lives, such as fear and greed. Instead of being intrinsic and strict attributes of "human nature", these inter-related emotions and drives should be understood as adapting and evolving to the surrounding material and immaterial environment.

The evolved system of capitalism constrains our degrees of individual freedom and choice, coercing us to participate in our own collective enslavement up to a certain point, until it is subsumed by even greater fores (which are taking hold now). So, yes, we have pursued our own greed and the bankers have aided us, but this is not all that's going on here. In that sense, we are not destined to repeat the same process and, perhaps more importantly, we are not destined to live with the same institutional economic system, as the "free market libertarians" would have us believe.

Ash said...

@Dave and others interested,

It appears that Credit Suisse has just performed a "bottom-up" banking analysis on the Chinese banking sector, along the lines of what you were aiming to establish. I maintain my position that such an analysis will only take us so far when attempting to determine the specific threat posed to the global and highly inter-connected financial system at this point, but, from what I can tell, the report seems pretty thorough (and much more reasonable than that Reuters Eurozone "stress test", because it actually tells us how they are applying the assumptions, the shortcomings of their model and how they deal with some of the uncertainties).

Link to the report

Needless to say, their resulting estimates are nothing short of devastating for Chinese banks. From the report:

"A view on China’s banks is completely a call on the potential impairment. Hence, weattempt here to dig deeper into the various sources of credit risk, both on- and off-balancesheet. Real estate, manufacturing, local government and SMEs are the four main sourcesof risk. They account for about 55% of the loan book, in our view, and are expected tocontribute more than 80% of potential NPLs. We revise our overall NPL ratio forecast to 8.0–12.0% (from 4.5–5.0% earlier) of loans in the next few years, and NPLs would workout to 65–100% of banks’ equity. Still, we note that this is at best an estimate, and the impairment range could vary, depending on the economic growth and backdrop."

soundOfSilence said...


I have a Droid X. My wife got it last Christmas. It's convenient in some ways but do I need it -that's another topic that I can boil down to "not really."

Anyway it can take a bit... but TAE will almost always be completely loaded within 30-40 seconds. About the same length of time it takes to load ZH by way of comparison with another site that has a lot on its pages.

I'm probably stating the obvious but there's a "status bar" over the address bar. Does that (the status bar) "finish?" Perhaps there's something based on geographic location were the ads periodically refresh making it look like the page is not finished loading (just a guess).

lautturi said...

Financial times has gotten their hands on "COMMUNICATION FROM THE COMMISSION: A roadmap to stability and growth" -report. Lovely, who can disagree with that LOL

A note from history books:
January 24, 1939, Robert H. Hemphill, credit Manager of the Federal Reserve Bank of Atlanta said:

If all the bank loans were paid no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous: if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

Ruben said...

Can we start a conversation about debt jubilees?

As Zeke says, this is a call made by an increasing number of commenters. And yet I sent "Sounding the Deeps" to a friend, and he was enraged by the idea of a jubilee--the irresponsible and profligate sheep get to keep what they don't deserve, while the moderate and cautious keep paying rent.

I was pre-approved for a $600,000 mortgage and I didn't take it. Why should the next person get to keep the house I knew was insane to purchase?

His solution was a payout for debt-free people. The average Canadian family has $100,000 debt. So if they are going to get $100,000 forgiveness, how about giving me $100,000 cash?

That idea does reduce my own anger at the unfairness. But is any of this at all possible?

It seems like a de facto jubilee is inevitable, just from collapsing institutions and lost paperwork, not to mention popular uprising. What are the chances of a legislated jubilee?

Is there a meme we can start--like a payout to the debt-free--so the responsible among us are not solely saddled with the bad choices of others?

But where would governments get the cash for payouts?

It makes me wonder if what we need is an ownership jubilee--all property that is not free and clear is returned to government to be re-sold at current market rates. Or the debt is not jubileed, just reset at a lower level, maintaining the same percentage of equity.

Please give your thoughts.

p01 said...

Jubilee will not work except to destroy whatever rule of law there still is. In a feudal system it could be done. In today's system, I can assure you it will destroy the very fabric of the society and put neighbor against neighbor and father against son. I'm firmly against such an ideea.

Boris said...

"We exist in an institutional system of capitalism that brings negative emotional and instinctual reactions to the forefront of our daily lives, such as fear and greed."

Hi Ash,
Firs thank you for your writings on the board. I have learned a great deal from them.

Q: What do you think of Social Credit and works of C.H. Douglas?

Thanks again

Ash said...


My opinion, as I implied earlier in response to Zeke but did not clearly state, is that a debt jubilee should be valued according to its ability to undermine the current oppressive system and its "free market" institutions. It should not be valued according to the libertarian idea that it will only reward irresponsible people for their greed, while punishing responsible people for being financially savvy. That very concept relies on some extremely faulty assumptions about "human nature" and how modern society has evolved, and leads us down the wrong path in terms of what future systems could and should look like. Debt forgiveness is an integral step in the right direction, IMO, and, like you said, will occur one way or the other.


I am not really familiar with the details of Douglas' social credit theory. After looking at his Wikipedia page, my initial impression is that it is a very good idea in theory, similar to Marx's "dictatorship of the proletariat", but quite unworkable at the scale of modern economies. It actually seems even more unsustainable because it would be implemented within the capitalist system of production, only implementing relatively minor tweaks for the benefit of workers.

That's all I got for now.

NZSanctuary said...

Ilargi said:
Alternatively, both should be held accountable by their voters on November 1, when it will be crystal clear that the crisis has not been resolved.

You forget that the language of politics is never wrong. They will present the plan to solve the crisis by the end of the month, not actually solve it by the end of the month. Of course the plan will be a prolonged effort that will extend well beyond their terms in office. Any failure in the long term will be blamed on outside forces.

Ric said...

Amusing quip from the Zen Master, Dmitry Orlov, at a recent excellent lecture: Here.

To paraphrase: "Before USSR collapsed, almost no one saw it coming. After the USSR collapsed everyone said it was inevitable." Yup.

Snuffy says, I honestly feel that those who "Want" this to happen have some personal issues to deal with..

I agree. Anyone who's been through real pain would never wish it on another--and I mean "anyone" (sociopath or not).

Ruben said...


Well I am more of an anarcho-syndicalist, and that end of the spectrum certainly blurs with some libertarian ideas. I also research behaviour change, so my reference to sheep is important. I am well aware that flocking may be the most important factor in many financial decisions.

That being said, there will be a lot of pissed off people if debt is jubileed willy-nilly. I am wondering how debt forgiveness could proceed in a way that seems fair and palatable.

zby said...
This comment has been removed by the author.
message_in_a_bottle said...

The majority of citizens did not engage in fraudulent home buying or excessive, irresponsible consumption leading to unserviceable debt.

From this premise it does surely follow, as p01 says, that a debt jubilee would indeed end the rule of law such as it still exists.

message_in_a_bottle said...


The time practiced "palatable" form of debt jubilee is an engineered inflation.

TAE believes it cannot be done.
I believe it can be done and will be done.

zby said...
This comment has been removed by the author.
zby said...

Ad. USSR collapse - I was a teenager at that time and in only in a satellite country - but in the last years of communism I did had a feeling that it was over. People laughed at it. I now see a similar joyful streak in OWS.

p01 said...

Since we're talking jubilee, I'll take this moment to remind you of a much more likely alternative:

Nationalization. Far more likely. And it pisses-off a smaller amount of people.
I don't advocate it, but it's far more likely and less irresponsible than a jubilee.

Jerry McManus said...

The Economic Collapse - How It Will Happen

Oddly, this ends up being an ad for stockpiles of freeze dried food (a la Matt Savinar), but here are the 13 steps to economic collapse as articulated by a coupla cute lil' furries:

One Imports to the country increase drastically as exports decrease.

Two Federal reserve introduces more money to lend as the number of individual and corporate borrowers soars. The stock market goes up, saturated by investment money as the bubble gets bigger.

Three Imported goods are preferred over domestic goods, mainly because of price but for other reasons as well. Borrowing continues to increase.

Four Money pours out of the country as more and more imports pour in. Credit becomes tighter as there is not enough money left to keep the economy running as it should.

Five The reduced amount of money causes a reduction in capital expenditures which in turn causes recessions. Many businesses close or downsize and layoffs increase.

Six Banks stop lending money because they are afraid of the increasing bad debt.

Seven Credit dries up. Many small businesses go bankrupt. Unemployment increases as more and more people get laid off.

Eight The stock market bubble pops and plunges into a deep bear market as conditions become worse.

Nine People with paper money start hoarding it and not putting it in banks. Some people withdraw their savings from banks to keep it on hand. As paper money stops circulating and disappears, then economic depression sets in.

Ten Cash becomes scarce as banks limit withdrawals in an attempt to prevent runs.

Eleven Many banks fail due to bad loans and bank runs. Inflation rises dramatically.

Twelve People with paper money start getting rid of it in exchange for hard assets. Suddenly there is more money in circulation than there are goods to be purchased, which causes hyperinflation.

Thirteen The government tries to allocate scarce resources and the black market for goods increases.

At this point the economy as we know it will have collapsed entirely.

If I understand the thinking at TAE correctly, it is advised that people attempt to time steps Nine and Twelve.

That is, hoard cash now, wait for the bottom of the deflation-depression, then dump the cash for hard goods before everyone else has the same idea and hyperinflation-collapse gets going with a vengeance.

Or, you could just buy gold. No?


Ash said...


I don't think it can be done in a "fair" manner any more than environmental protection can be done in a fair manner. Perhaps some specific policies are more "palatable" to the developed and [formerly] rapidly developing middle class than others, but none of them involve a relatively rapid return to sustainable economic growth, and therefore will fail their most basic expectations.

We all need to understand that we are going to pay for the the excesses of global human society, one way or another, regardless of whether we are net producers or consumers. The only question is who are we going to pay (each other or some concentrated elite class) and what kind of basic confidence in humanity are we going to be left with to rebuild our communities from. I believe a systemic policy of debt forgiveness will be an important step towards purging human civilization of parasitic systems and institutions (economic and political) while we still have some sense of humanity left.

I understand that you are seeking to establish specific details of a debt jubilee policy that will maintain the rule of [property] law, and I simply believe this is the wrong question to ask. Any attempt to legislate confidence in the system back into existence will have major drawbacks and create unintended consequences, many of which will be unpredictable beforehand. So that's not what debt jubilee is about for me - it's about the opposite of that.

I see the "financially responsible" gaining a net benefit physically (economically) and mentally, as individuals and oollectives, from wiping the slate clean of the global debt-dollar financial system. That's why I also see hyperinflation of the dollar as a much more favorable outcome than a prolonged deflation. That is, of course, a "natural" debt jubilee mechanism which wipes out the value of all currency-denominated debts. People who lose their savings are and will continue to be pissed off no matter how debt is destroyed, but I believe a period of reorganization will approach more quickly with more chances of favorable outcomes if it is done on the borders of our current system, rather than well within it.

That being said, I understand your theoretical underpinnings are not quite the same as mine, and also that it makes sense to find the best practical means of transitioning to any new system. I'm sure others are willing to provide you with what you seek to establish. There is always room for mitigating the damage, but that's invariably much harder than it sounds. As of now, my philosophy for most financial policy is no policy at all. Rip the band-aids off and think about how much it used to hurt later.

jwhands4u said...

The serpent has eaten all its children,... WAIT that last tail looked alarmingly different; why the serpent is starting to gag..., will it survive?

Ruben said...


I would love to rip the band-aid off, and move to a post-capitalism agri-life as much as anybody. But there is zero chance of that happening. Sorry--a very minute chance of that happening. I believe Stoneleigh is right when she says the elite will try to retain power as long as possible, and along with that will be private property.

So, as I also believe the collapse will happen in a stair-step sort of fashion, I am curious what the stairs might look like. The fact that respected commentators like Steve Keen are calling for a jubilee tells me we have stepped down.

As an analogy--Stoneleigh also cautions against getting swept up in anger. I think there is a much greater chance of diffusing or redirecting the anger if we spend some time thinking about the likely stories, and coming up with other stories--different ways to explain what has befallen us, and different stories of how we will find our way out.

Ash said...


"So, as I also believe the collapse will happen in a stair-step sort of fashion, I am curious what the stairs might look like. The fact that respected commentators like Steve Keen are calling for a jubilee tells me we have stepped down."

Well, I would point out that economically intelligent people such as Dr. Keen have been calling for some sort of debt repudiation policy for at least a few years now. I think this policy has just about the same amount of chance of actually happening as our leaders intentionally hyperinflating the currency (almost 0% in the short to medium-term), because they are intimately related and extremely destructive to the current system.

So, I really don't see such a policy being any of the stairs on the way down to a post-capitalist society. At least, not for the masses. Low interest rate policy, of course. "Refinances", sure. Some minimal stimulus and "safety nets", probably. Systemic debt forgiveness via legislation, no way. HI will come before that does.

"I think there is a much greater chance of diffusing or redirecting the anger if we spend some time thinking about the likely stories, and coming up with other stories--different ways to explain what has befallen us, and different stories of how we will find our way out."

That's true enough. Agreed.

Gravity said...

Many people assumed their now unserviceable debts in an induced state of manic optimism inherent in the bubble dynamic of the financial industry, consequently some were purposefully misinformed of the interest accruing functions of this debt.
Not all unservicable debt is the result of irresponsible overconsumption, some people have become indebted at first only to maintain a tolerable living standard as a result of decreasing wage-based purchasing power, although some did falsely assume luxuries to be essentials, as promoted by the projection of consumerism as a value system in conjunction with personal greed.

There are relatively blameless groups of debtors who have indebted themselves not to procure luxuries but to maintain access to essentials, credit such as student loans must be seen as being used to procure an essential good in the old paradigm, wherein culturally distorted valuation of debt-utility was prevalent.

Gravity said...

Sometimes when you write about the negative attributes of capitalism, I feel that you neglect to differentiate it from its mutant offshoots, consumerism and corporatism, which operate with complementary economotive logic.

But then I assume you don't think these are different systems, and that consumerism and corporatism are essential behavioral subsets of capitalism, that those concepts describe the behavioral effects and insitutional manifestations of capitalism at different scales of organisation, is this so?

Ash said...


Yep, pretty much. Consumerism and fascism are essentially social, cultural and political mechanisms of offsetting diminishing returns to capital and complexity. Perhaps it's not quite that simple, but that's the essence. There is an extensive base of "structuralist" and "post-structuralist" philosophy that has dealt with these and other institutional manifestations of capitalism. Of course, there is disagreement within it and a good deal of it is actually structured as a critique of Marx's specific critique of capitalism. However, the common thread between most of them is that they adopt the basic premise of private capital's exploitation of labor and its natural tendency towards ever-greater periods of crisis.

p01 said...

Thank you immensely for Orlov's lecture.

Jack said...

News from the Caucasus

Armenian military parade 2011

Baku ups defense budget

The ugly truth

Starcade said...

Zeke: That (that the problem is "all of us") is why this probably now must end with a forced population contraction (of a fairly high amount).

If we are to blame, the only real penalty is contraction to the point which can be realistically sustained.

Nassim said...


Yes, it does have a status bar and today it took perhaps 3 minutes to finish loading TAE. While playing about with it, I found out how to turn off pictures so I guess that is one possible approach.

I read recently that in China there are more "tablets" and suchlike than the population of the USA - clearly I am behind the times. I also read elsewhere that young people don't have email addresses any more - they use Facebook etc.

The gadget cost me only $150 and it can be put on the business so that its real cost is around $50 in cash-equivalent. I mean, that is only 35 litres of petrol here or 20 litres in Europe. Quite amazing when one thinks about it.

Gravity said...

Also, I've heard people suggest that the OWS movement is inherently 'statist', not by being co-opted but naturally so, but I don't have a clear definition of that concept, other than that 'statism' always uses the fixation of big government to define and control problems.

When assuming that political statism comprises an embedded value-system of big government that is structurally unable to recognise the problems it itself creates, and that this statism resonates throughout otherwise dissimilar political ideologies, then the traditional antagonism between the socio-economic philosophies of corporate fascism and state-socialism/national communism becomes a false dichotomy, these are resolved into opposing manifestations or polarities of the same statism, both propagating economic oligarchy by governmental coercion, thus creating indissolveable political institutions which become the primary determinant of social relations.

The only difference between state socialism and corporate fascism is then the precise collectivist strategy followed by the oligarchy to subsume all private and public capital into itself.
If this is true, then the only possibility of socio-economic progress must be anti-statist philosophy, which could only yield organisational imperative in absense of government policy and institutional cohesion, but this may be an oversimplification.

Nassim said...

The factoids I mentioned above came from issue 58 - something I am trying out.

Here are some snippets:

Only 18% of traditional TV campaigns generate a positive ROI?
● Direct mail and email response rates are down 90% (in past 5 years)?
● Phone book and newspaper ads are nearly obsolete (but still expensive!)

Email is rapidly losing ground to mobile texting and video chat services like Skype. I’ve seen reports that the under 20 age group has moved so completely to texting that most of them no longer even have email addresses!

There are already more mobile internet users in China than there are people in the USA. Very soon mobile browsing will overtake PC internet usage worldwide.

Always assuming that the current financial problems will be overcome by Merkel and Sarkozy :)

Archie said...

Sanguine observations from the inimitable Chris Floyd:

Changing of the Guards: The New Road of the Occupation Movement.

Oh, the comments section is well worth reading too!

sumacarol said...

Ilargi you consistently present a very understandable analysis of the overall situation as it is evolving -- much appreciated.

Re Keen's observation that high private debt is a key problem: if this is true, then it perhaps highlights why Canadians like myself can't feel too complacent with our total debt at about 260% of GDP compared to the U.S.'s 300%.

progressivepopulist said...

Decreasing marginal returns on increasing complexity:

I was 35 before I was explicitly introduced to this concept. I might have understood this on an intuitive level as I did the axiomatic principle that perpetual exponential economic growth on a finite planet was an impossibility. It was only in the last few years that I became more intimately acquainted with the details of what our exponential growth had wrought in terms of remaining physical resources and by extension an idea of the imminence of our collective quandary.

We've all seen the graphs of parabolic rises in levels of resource consumption, growth of debt, population, Carbon emissions, toxic emissions, species extinction etc. In some cases as in Martenson's Crash Course we see them superimposed one upon the other. What we don't see is the graph of decreasing marginal returns on increasing complexity in relationship to these parabolic markers of our increasing unsustainability.

My great-grandmother was born in 1905 (she passed in the late 1990's). In the course of her lifetime she witnessed the advent of and/or widespread application of: electricity, the automobile, the airplane, the telephone, nuclear power, manned space flight, the list goes one and on. When I was younger, I used to ponder this and imagine what kind of changes I might witness in my lifetime. And I have in 35 years (tomorrow 36), witnessed a great many innovations and some rather dramatic social and cultural changes. But I now know that the changes I will be likely to witness should I live a long life will be of a very different nature. And I recognize that the ways and degree to which technological advances have altered my way of life don't really begin to compare to the developments that occurred in the first 36 years of my great-grandmother's life. Decreasing marginal returns on increasing complexity.

And as I was thinking about this, I wondered, how might this situation be different if the world were twice as large as it is. What might the population be in 2011? Would we still be experiencing this phase of the crisis now, or would it be 5, 10, or 20 years in the future. Would it still be inevitable and unavoidable, or would a few years of extra time and additional resources buy us the time to come up with some amazing technological/scientific advance that could avert catastrophe? Pointless speculation, I know, and though it might make for some illustrative number crunching for the Club of Rome or the Ecological Footprint Network, it's a bit too complex for back of the envelope calculations. All the same, thought I'd mention it.

progressivepopulist said...


I couldn't make the link to Orlov's lecture work. Could you tell me the title and location and/or date so that I might search for it.


ogardener said...

Blogger progressivepopulist said...


I couldn't make the link to Orlov's lecture work. Could you tell me the title and location and/or date so that I might search for it.


You can get there from here:

progressivepopulist said...

ogardener, thanks. I don't check cluborlov on a daily basis as I do TAE as he doesn't post as often, and doesn't have the same kind of world class comentariat.

Nassim said...

Rather appropriately, the name of the Governor of the Banque de France is Noyer - the verb to drown. As a noun, it means walnut.

Joe in NC said...

Are the numbers getting bigger & bigger?

BlackRock CEO wants $2 trillion European bank plan

Ash said...

Iranian Plot 'Demands Reaction' From Obama'

"The idea that they would attempt to go to a Mexican drug cartel to solicit murder-for-hire to kill the Saudi ambassador, nobody could make that up, right?" Clinton said this week in an interview with the Associated Press. Perhaps not, but experts wary of war talk from Washington say it's also uncharacteristically amateurish behavior for Iranian intelligence.

...The left-wing Berliner Zeitung writes:

"Clearly, this scheme wasn't hatched by Tehran's best and brightest. It does seem certain, however, that there were sponsors in influential circles in Iran. This is what makes the case so interesting. The plans could mean the Iranian regime is eroding from within. That's relevant because parts of the world with minimal government control -- certain restless border regions come to mind -- risk becoming breeding grounds for terrorism. Think about the ties between the Pakistani intelligence service and the Taliban."

"America's case for retaliation has received a significant boost. The debate surrounding Iran's nuclear program has quieted down. Finally, Washington can expose its nemesis Tehran on the international stage. Even the way this case has been presented by the US isn't without apparent ulterior motives. Americans were never in real danger, yet Washington has everything to gain from a major scandal."

Actually, Sec. Clinton, someone could easily make that up, so don't protest too much. 17 out of 20 of the foiled "terror plots" since 9/11 were manufactured by the FBI by their own admission.

Jack said...

That Iranian story so fake.
It is a matter of a few weeks before they start to bomb targets in Iran.
The thing here is that if you are anti America than be ready for it.

Jack said...

If you look at the empires of the past,if there was a place they wanted than they just attacked and conquered it.

Ash said...


"And as I was thinking about this, I wondered, how might this situation be different if the world were twice as large as it is. What might the population be in 2011?"

At the risk of sounding like a broken record (and where's SA when you need him?)...

I think we must frame the notion of diminishing returns to complexity in terms of the specific system involved, i.e. has the global economic system reached its limits or has the entire world ecosystem, including human societies, reached its limits. Given the realities of peak oil and climate change (as well as a few other major environmental threats), there seems to be a legitimate argument that the latter system is approaching some kind of evolutionary limit in the material sense.

However, it is also quite clear that the diminishing returns to economic complexity are much more imminent and clear at this point. There is also a very good argument that these limits to economic complexity are what give the appearance of limits at a broader scale. If that's the case, then the more important question may be "how might our ecological situation be different if our capitalist economic system was half the size that it has come to be right now?".

We are thus re-framing our desires and goals away from a bigger planet, more resources or better technologies and towards better systems of socioeconomic and political organization. Here is a short article about this issue from George Magnus on The Globalist:

Malthus, Marx and the Globalization Debate:

"This change was precisely what the English ruling class feared. Marx, for his part, was more concerned with the nature and class ownership of the means of production, distribution and exchange. To Marx, it wasn’t the pressure of population growth on limited resources that was the issue, but rather how the capitalist mode of production put pressure on population growth.

Why, if population growth is 1% per year, are pollution, power demand, congestion and the use of pesticides rising at six times that rate? For Malthus, misery and destitution were caused by excessive population growth. For Marx, they were the result of unjust and class-ridden institutions.

Fast forward to 2008, and we might reasonably ask whether much in the debate has changed. Malthusians think population expansion is taking us to dark places. Aficionados of Marx think those dark places loom not because of population growth — but because of the last 30 years or so of unfettered, laissez-faire globalization that has served to mainly benefit the wealthy."

Also, a more detailed analysis written back in the 1970s:

Marx vs. Malthus on Population

Now, I'm pretty sure you're already well aware of all this, and, like Ruben before, perhaps just trying to establish a "storyline" that we can discuss given the unlikelihood of us transitioning to some new system before population stresses on available energy/resources and the environment lead to some really bad situations. Still, the way I think about it is, if we really can't radically change our organizational systems soon (or they don't change by themselves soon), then any other attempts to address these broader issues on a large scale are rendered moot.

FB said...

@ Gravity

I love it when you finish speculations containing 77-word sentences with "but this may be an oversimplification".

Have you done any research on the perceived difficulty of written sentences as a function of their length (word count)? Anything above 17 words is considered difficult in English-speaking countries (14 in the U.S.). The numbers are higher for other languages, notably the European which range from 25 to 35.

My point is that 77-word sentences are difficult in anyone's book.


Ash said...

You don't have to understand Italian to know who and what they're protesting against over there...

john patrick said...

On debt jubilee...

If our debts were wiped out, it seems that the entitlements (debt owed to us individually) would have to be wiped out, as well.

It sounds like a good idea until you realize that pensions, social security, bank IOU's to you (checking/savings) would also be forgiven.

It works both ways.

Punxsutawney said...

From Golem XIV:

Regarding Greece,

This is a government that like all governments through history that has lost all legitimacy with its own people, eventually seeking military support from outside forces with which to supress its own people.

Ash said...

John Patrick,

A debt forgiveness policy does not have to wipe out any and all debts ever created. If such legislation somehow were to be proposed and implemented (not gonna happen), it would most likely target mortgage debt and/or student loan debt (as it should). Any attempts by states to enact these policies would be immediately challenged and most likely stricken down as unconstitutional under the "Contract Clause":

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

So it would have to be done at the federal level. That would also be challenged as violating the due process clauses of the 5th and 14th amendments, but I'm sure Congress could get around such challenges by constructing the legislation somewhat carefully and as an indirect way of nullifying burdensome debts. It would help that the federal government now holds a sizeable portion of mortgage debt-assets and also student loans.

jal said...

If you remember, last year, I mentioned that my barber had raised the price of a haircut by $2.00.
Well it looks like that he needs more money.
I went by yesterday, and saw that he had just raised his prices by an other $2.00.

He is intending on keeping his lifestyle for as long as possible at the expense of my lifestyle.
hehehe I wonder when he will figure out that I no longer support his lifestyle.

scandia said...

I just learned that the park being occupied in NYC is owned by a Cdn RE firm, Brookfield. Duh...a park, a public space privately owned? Is this common in the US? Never heard of such a thing in Canada. Perhaps it is time for us to check to see if any municipalities have our parks on the asset items for sale.
Was that NYC park ever the commons?

scrofulous said...

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

Why does this ring my [G20] bell?

Maybe from reading articles about that illustrious company, the G20, who wish to contain the contagion by putting flesh on the bones of the firepower in their toolbox so that, as Geithner has been saying ... Europe can clearly move towards a Crisis Package?! LOL

jal said...

"Crisis Package?! LOL"

Don't laugh ... Its being made in heaven by those doing God's work!

Its a wonderful idea!

Countries and banks, with no money, are contributing, borrowed money, money that they don't have, to a fund that will be leveraged to heaven and thereby assure immortality for the whole financial system.

Ash said...

It's easy to tell other countries to come up with some half-wit scheme to create billions and trillions in credit money capital out of thin air, but not so easy to do it yourself:

"Proposals to double the size of the IMF as part of a broader international response to Europe's debt crisis immediately ran into resistance from the United States and others, burying the idea for now and firmly putting the onus back on Europe.

The outlines of the plan, that had the backing of several developing economies, emerged as G20 finance ministers and central bankers began meeting in Paris to discuss a world economy under threat from European nations mired in debt.

One G20 source said some policymakers backed injecting some $350 billion into the International Monetary Fund. Other options under consideration included loans, special purpose vehicles and note purchase agreements.

Treasury Secretary Timothy Geithner wasted no time in shooting the idea down. The IMF's dominant shareholders, including the United States, Japan, Germany and China, are content that the fund's $380 billion worth of resources is enough. Canada and Australia also voiced opposition."

john patrick said...

@Ash--thanks for additional info.

On debt forgiveness (and I do favor it on certain things), but it seems the general investment strategy is based on neighbor-based usury. I.e., grandma has a retirement income because she invested in funds that collect from student loans, mortgages, etc.. If the usurious practices are wiped out, so is grandma's income. And everyone elses future entitlements.

I just don't see how this problem can be fixed, because while the banks may have been the middle-man, supply and demand based on human greed is the engine running the machine.

Certainly, with a more community-based investment, everyone knows who is paying their entitlement and it would challenge the players moral standing.

Eh. Not sure any of this makes a difference at this point. But I do appreciate the thoughts/ideas presented on this blog.

snuffy said...

Hi folks

I got to thinking {scary,but I do this from time to time}about the absurdity,of our old Not-friends ,the Iranians doing a stupid like what has been put on their door,I.E murder most foul on a diplomat, fer Christs sake...

This smells like 2 week old fish,or like some thing the dog killed and I missed giving a sanitary disposal...Its bullshit.

My guess is the O-man,and his owners are getting worried about OWS,and the way it has spread like wildfire over the country.They are seriously for real worried now...note the vitriolic,deadly serious note in the voices of the conserv-o-bots,as well as seeing the cracks forming in the euro-zone...they need a scapegoat [bigtime] to blame the monster-like shitstorm on the way.

Its time to do whatever you planned on doing for a war...cause its coming...along w/gas rationing and other real fun stuff...

I would call them fools,but that would degrade,and slander a honest idiot.

Bee good,or
Bee careful

[I have got to move quick while someone is minding the store]


john patrick said...

What are we protesting? OWL, etc..

I like what Heinlein had to say, brilliant guy. TINSTAAFL--There is no such thing as a free lunch.

Ten good people sitting around a tree. All needs are met. But at one point, someone tries to leverage the future. Make a deal on a future event. But, the future has its own life and is not bound by rules of present or past.

And maybe that is why some great teachers of past told us to live in the present. To do otherwise, is to put a usury rate on events of the future. Or demand payment of something that does not exist.

Gravity said...


Point taken, periods are my friends. It was badly written. It did provide an apt illustration of diminishing marginal return on sentence complexity.

Still, I'm intrigued by this concept of statism, and wonder what kind of insititutions, ideological or hierarchical systems may be encompassed by statism, whether libertarianism or anarcho-systems may perfectly oppose it.
Maybe the rule of law itself always becomes a statist instrument at larger scales, including in democratic government, unless perhaps when constrained within a constitution specifically configured to optimally limit government statism. Otherwise, constitutionalism could itself be made to propagate statism.
Statism would be antithetical to a free market and free exchange of ideas, the propagation of its structure as a function of complexity would increasingly distort commerce and discourse and diminish societal returns.

Some of the OWS people, a vocal minority perhaps, are demanding state socialism, to abolish capitalism and seize private property and wealth for redistribution.
When demands for state socialism appeal to similar dominant government coercion as corporatism already uses, it could be called an institutional expression of bifurcated statism.
Wall street, banks and especially the Fed are probably the most statist institutions in the contemporary corporatist mode, which most serve economic oligarchy, so OWS protesting against the dominance of these institutions would be anti-statist.
But appealing to the stratified political system with demands to restrain such institutions might conform to statism again, equally advancing the jurisdiction of governmental bureacracy into protected domains of properties [with legislation].

Statism could merely be another manifestation of oligarchical complexity within various modes of economy, if oligarchy necessitates dominant government fixation to define and control law, especially those laws regulating finance, commerce and property-rights.
Any constitution able to restrain government statism would then also restrain the formation of oligarchy, and perchance set gravitational limits to societal complexity.

The concept of statism may otherwise describe some organisational memeplex that has better descriptions elsewhere.

Ash said...


"Statism could merely be another manifestation of oligarchical complexity within various modes of economy, if oligarchy necessitates dominant government fixation to define and control law, especially those laws regulating finance, commerce and property-rights.
Any constitution able to restrain government statism would then also restrain the formation of oligarchy, and perchance set gravitational limits to societal complexity."

I believe your analysis is correct. Statism is a function of socioeconomic complexity that expresses itself in both capitalist and socialist modes of production at large scales. The latter may garner benefits from publicly-owned infrastructure in systemic phases of economic collapse, as illustrated by Orlov when comparing collapse in the Soviet Union to a future peak oil inspired collapse in the US. It is also likely that a true global model of socialism, operating outside the framework of private property rights, would have increased and maintained complexity for a longer period of time than the global capitalist model.

Therefore, it is not a rights-based constitution which would prevent oppressive statism and also set limits to complexity, but a radically different system of organization at manageable and sustainable levels of complexity that would provide a constitution with an ability to restrain statism. Systemic complexity is the root factor that must first return to sustainable levels, allowing equitable sociopolitical models to take hold.

seychelles said...

Snuff seeing (and smelling) clearly as usual.

Nassim said...

One thing is for sure: the debt will have to be dealt with – either repaid or written off. In the meantime there will be less economic activity and prosperity than there was while the debt was being built up.

That’s because the bubble lifestyle of that 25 years was all about borrowing prosperity from the future, and the future has now arrived.

Greenspan shrugged

IMHO, when a mainstream publication sounds like TAE, the alarm bells should be ringining.

lautturi said...

Punxsutawney had Golem link about EU "riotsquads". Here's one about New York police, a bit along the same line of thinking...

What a world we are living in. History does rhyme (0_o)

el gallinazo said...

I am starting to reenter the land of the living from an illness which symptoms, it turns out, mimicked appendicitis to an unwelcome and alarming degree. I did learn from the experience that pain is not my friend.


If periods are your friends, you still must be feeling quite lonely. Recommend a few Hemingway novels :-) If your style is difficult for FB, who may well be the most sophisticated, professional linguist on this site, you can image what affect it has on a blockhead like myself.


I know very little about Android other than it appears to be a very viable competitor to iOS. My two mobile devices are an old, barely functional Nokia and an iPod touch 3rd gen. But the one thing which I learned from the iTouch is that web pages are downloaded into the dynamic ram in these devices which forms a limit to what they can do. My iTouch has 32 GB of flash memory but only 256MB of dynamic memory of which around 50 is in use by the OS.

Since, as opposed to Apple, Android models are on a large variety of manufactures whose dynamic ram may vary, it might be productive to give that parameter when discussing this problem with other Android users. Not that I know anything about it really. Just guessing. I currently have 3 large web pages tabbed on the ipod, including TAE, with a warning that the memory is low, yet a utility reports that I have 90 MB free. Which just goes to show that I don't understand these gadgets.

Along the same lines, for anyone using iOS (iPhone, iTouch, iPad) to browse the web, I cannot recommend iCabMobile highly enough. Simply blows Safari out of the water. Best $2 IT investment you could make.

Jack said...

Canada becoming more and more of a police state.
They are fining pedestrians for crossing red lights.
I am hearing this from many people
This is just one example
I think in a short time the police will start terrorizing people just to look tough and show posture.

ogardener said...

Lots of excellent reading about the worldwide occupy movements in CounterPunch weekend edition.

Gravity said...

The Iranian plot is unrefined bullshit, but rumors are strengthening that an imminent israeli attack to facilitate WWIII has been politically greenlighted.

Although such rumors have floated before, there's unusual veracity to some, that military mobilisation of US assets in the gulf has already begun towards this end. The political destabilisation that the OWS movement is accelerating, together with the pace of general collapse, might require the staging of an overwhelming distraction and overriding imperative to purge dissent on behalf of the oligarchy.
Any such war of mass destruction could only be fomented by clustered sociopathy, an emergent property of complex society expressible solely as a function of [evil] insanity.

Gravity said...

Gravity is the soul of weight.

Do not think you will necessarily be aware of your own enlightenment.

Nassim said...

el g,

I am sorry to hear that you have not been well. I imagine the differences between appendicitis and Montezuma's revenge are superficial. Get well soon!

Thanks for that information about tablets and so on. I think that since TAE is already planning some sort of migration, it may be a good time to remember that an awful lot of people - a rapidly growing number - seem to use these devices. I have done some reading on the subject and the consensus seems to be that you have to have an entirely different layout and design of the website so as to cater for these small screens. I guess it is good news for website developers. Actually, TAE should be especially interested in those users since the content is almost wholly text.

Joe in NC said...


Regarding your comment on the difficulty of implementing a half-wit scheme to create billions and trillions in credit money capital out of thin air - this has me confused. I thought Timmay and asshats like Larry Fink were on the same page.

BlackRock CEO wants $2 trillion European bank plan

What makes throwing money at the IMF so much different than throwing it at a "European bank plan"? Or has Timmay changed his ways?

Jack said...

Turkey is likely to breakup from taking a negative stand towards America and Israel.

They would like to become a super power in that region.

Maybe super power of the world.

However they are a derelict state.
Almost the entire world has recognized that the Armenian's were massacred by the Ottomans but they say that is not true.

Jack said...

el g
I always try to find a natural way to cure myself and it always works
In Canada the doctors are free but I try not to go there
Thank God
Only dentist 2 times a year
If there is a way I can help than that will be a pleasure for me to help you.

Ash said...

Joe in NC

The difference for Timmy is that he won't be held directly financially or politically responsible for the waves of social unrest that will surely follow any major expanded/leveraged/insured EFSF with bank recap mechanisms and the massive losses such a fund will take on its operations (in the name of the European people). Expanding the IMF, on the other hand, opens him up to those risks and that's why rejects such plans right away and that's why we know that Timmy doesn't care about "solving" Europe's problems in any sustainable may, but merely buying them time so he can continue the 99% wealth transfer uninterrupted on both sides of the Atlantic (for a few hours or days, perhaps).

el gallinazo said...

Joe in NC

I think Timmah would rather let Benny fund it in secret. Just that simple.


Re smart phones and reading blogs

One of the things that make blog sites readable on smart phones is the common practice of having a condensed central column with ads on the left and the right. One can just center the page and expand it to fill the window in the horizontal and the font size becomes quite readable. (In my case having 5X eBay glasses and the ipod a foot from my nose helps).

Not to turn this site into a personal medical, bottoms up odyssey, but a near universal symptom of gastroenteritis is explosive diarrhea. This can occasionally be a symptom of appendicitis, or one may be normal or constipated as well. In my case, I was normal. When appendicitis starts the abdominal pain is quite generalized but becomes centered after some time halfway between the navel and the right hipbone. This did not happen in my case, to my relief. I spent a lot of time studying it as best I could on the internet. I still do not have an explanation. Not having a large portfolio or insurance policy with a disaffected wife eliminates other potential causes. One thing I did learn was that properly diagnosing apendicitis in the best medical facilities is problematic and requires a lot of medical skill.

Re the current Iran stupidity

The good news is the shear incompetence of the Obama administration in constructing a false flag. The bad news is that it looks like they are going to start a war along with Israel with Iran. Crude at $250.

Ash said...

The OWS movement will eventually be forced to fizzle out or escalate, and if the latter, then the words of the modern world's greatest revolutionary may come to mind:

"At the risk of seeming ridiculous, let me say that the true revolutionary is guided by a great feeling of love. It is impossible to think of a genuine revolutionary lacking this quality. Perhaps it is one of the great dramas of the leader that he or she must combine a passionate spirit with a cold intelligence and make painful decisions without flinching. Our vanguard revolutionaries must idealize this love of the people, of the most sacred causes, and make it one and indivisible." -Che Guevara

ben said...

the nyt did a short video in which they got a wall street guy to sit down in a cafe with his stylistic opposite and talk through their differences so that we can all feel better about it.

warm and fuzzy Occupy piece (ad alert)

and i dunno about that kid and his paper cawfee cup but that suit from brooklyn, not williamsburg, is keeping it real with the snapple. saving the schools one sugar high at a time. nevermind who owns it now. here's another snapple hero (entertainment.) (right?) (note the the upper lip in the thirtieth second - smart move.) i went to Public School 104 and i guess ten years of hard work paid off though as i remember when snapple was trying to get vending rights to the schools back in '94. i was a quarter water (exact rhyme) man myself.

ben said...

crude at 250: can they just change the title on the tulip bubble chart?

Joe in NC said...


Last question. Last I remember, the US covers about 20% of the IMF stuff. I thought that in the past, the US was all for the expansion of IMF "funding". Is it possible the OWS movement has made any difference in Tim's position?

Ash said...

Joe in NC,

As we get closer and closer to November 2012, it is quite clear that US fiscal and monetary policy has been rendered practically or politically impotent to a large degree. An expansion of IMF bailout capacity (i.e. another US bailout of European banks with money we are already borrowing) is simply too politically charged. That, and I'm sure the increasing OWS movements around the country are a part of the equation too. That's why US officials are so hell bent on getting Europe to concoct some major EFSF bailout plan that will calm financial markets (which still seems unlikely despite Merkel's consistently ambiguous "concessions")... because the US policymakers only have a very few bullets of their own left and need to conserve them carefully, only firing when there is no other perceived option.

Joe in NC said...


I think El G's reply just turned on a very large lightbulb close to my brain and I kinda get it now. Thank you for the previous answer to my other question...but it would be difficult for me to arrive at any other conclusion than El G's to the second question. I'm all ears if you do have a different idea.

Joe in NC said...


Wow....excellent explanation. I think I'll combine your reply & El G's and sleep well tonight.

Skip Breakfast said...

I find Jim Rogers to be an interesting case. He is super rich. He is not a beliver in towing any line, but he does adamntly believe in a rampant inflation scenario from the "inevitable" central bank money printing.

He's always so cock-sure and everyone else is (in his view) so plain stupid, I can't help disliking him. But I also can't discount someone who consistently makes as much money as he does. If he's wrong, he's going to be a very high profile case of the super-rich going super broke.

When guys like him are so sure of the opposite to what I expect, then it makes me wonder if I should hedge my bets a little too.

Why did money printing lead to rampant inflation in the 70s but will not today? Unless the inflationi n the 70s had more to do with a demographic baby boom and nothing at all to do with money printing.

Starcade said...

Ash: I agree. But the thing that really makes them impotent is the rising number of people who believe they should fire THEIR bullets (and not necessarily at the policy-makers) in fairly short order.

Do you think "the 53%" want to continue to subsidize "the 47%", as one example?

And that won't stop unless the shooting starts, and people need to know that.

Starcade said...

Ash: (Re: Occupy)

That's just it: you hit it on the head. You're beginning to see the push-back here. At some point, it will either fizzle (and the American people will continue to be exposed as the absolute sheep they are -- willing to give everything as long as they get to watch football, Dancing With the Stars, and American Idol/X-Factor) or it has to escalate and eventually go violent.

I mean, here's the thing: I do believe most people realize that they are little more than pawns in the game, at this point. It's just a matter of how many are going to accept that fate and play along to be able to stay alive when TSHTF...

jal said...

I remind everyone that there is a history of hiring "provocateurs" to disrupt democratic demonstrations such as OWS.

I hope the organizers are prepared to disrupt the "provocateurs"

p01 said...

@Skip Breakfast
Rogers is wrong on multiple fronts. Money does not make people smarter and certainly not wiser. He will get eaten in Singapore, speaking mandarin or not.

Ash said...


"But I also can't discount someone who consistently makes as much money as he does."

How much money he makes in the markets, at best, a function of luck and irrelevant and, at worst, a sign that he has inside access to a global criminal syndicate. So it's quite easy to discount the views of someone who makes a lot of money in this environment, when said views are otherwise erroneous.

You should obviously hedge your bets if you can afford to, and in several different ways. For example, if dollar HI (NOT the same as high inflation or stagflation) were to occur soon, you could hedge with both PMs and physical preparations that make you more self-sufficient.

But don't do anything because of Jim Rogers... he simply doesn't understand what's happening now. This is not the 1970s.

el gallinazo said...

Charlie McGrath gives a good, hard hitting interview on RT.


Pepe Escobar of Asia Times gives a solid analysis of the Iranian hit stupidity.

And not only are the RT girls prettier than Fox's, but their heads have 60% less air stuffed in them.

Ilargi said...

New post up.

Political Solutions for a Financial Crisis