by David Haggith, The Great Recession Blog:
Nothing is more shameless in a bedazzling sort of way than rich banksters standing on the public curb with their hands out. First, we had the admission this past week by a major French bank that Italian banks are so sick (and so too big to fail) they could cause systemic banking failure throughout Europe if not bailed out by over-taxed taxpayers.
Lorenzo Bini Smaghi — who was a member of the European Central Bank’s executive board and who is now Chair of French megabank Societe Generale — said the only way to save European banks, if they start to fall like dominoes due to Italy’s banking problems, is with taxpayer-funded bailouts.
Europe’s banking market faces the risk of a systemic crisis unless governments accept the idea of taxpayer money as the ultimate recourse in a crisis, Bini Smaghi said. Any intervention should be as swift as possible, he said. (Newsmax)
A French CEO says his massive bank and others could fall like dominoes due to Italy’s problems? That has to be good for his falling stocks. So, you ask yourself, why would he say something to spook an already scared stock market?
Then we had Italy’s prime minister, Matteo Renzi, pressuring Europe to bail out Italy’s banks by pointing out that Italian bank problems with bad loans pale in comparison to Deutsche Bank’s towering derivatives problem over in Germany.
“If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said. (Zero Hedge)
Gee, you’d think they were trying to talk the EU into a panic … as if it weren’t already there. Considering that 17% of Italy’s bank loans have gone sour (which sounds monumental to me), Deutsche Bank must be bad beyond belief at a hundred times worse! That’d be an undoable 1700% bad, which is pretty dang bad!
Italian banks are deep into the sour apple bin because their solution to bad loans during the last crisis was to just roll them along by not foreclosing and hope that future economic growth would make the borrowers solvent again, but that kind of economic expansion never came. That left a lot of decay down in the apple bin after the Great Recession, and not too surprisingly the rot has spread. The amount of decay is now four times bigger than it was back then … and it was deadly then! As horrible as that sour mess is, Italy’s premier tells us Deutsche Bank is a hundred times more dangerous than that!
Why are banksters and politicians taking this beggar-thy-neighbor approach by pointing out how bad other European banks are — the Frenchy pointing at Italy, the Italian pointing at Germany? Statements like “Our own banks are so bad they need immediate bailouts, but they’re only a hundredth as bad as yours” are not statements that former central bankers, current megabuck megabank CEOs and prime ministers usually make when they all live or die under the same economy.
When you see a lot of rats like that scurrying together up the stairs of the ship, you might want to make a move for the lifeboats.
The answer must be that it’s a desperate play. European bankers are scared spitless at the abyss that is opening around them. They need to drive fear like a stake into the hearts of the masses and their fellow politicians in order to get the immediate bailouts they lust after if they are going to save themselves while keeping the masses from rebelling Brexit-style against them. These are desperate words from desperate rich guys who see their own money going down the drain if the public doesn’t rescue them.
Italy’s premier wants to inject state cash into failing Italian banks to recapitalize them. That’s because the banks can’t recapitalize by issuing stock when their stock is nearly worthless. I’m sure that sea chests full of state money would give his wealthiest friends nice chairs to sit above the waterline in the lifeboats, but public bailouts are now against the EU’s post-Great-Recession regulations so he’s trying to scare the EU into bending on the regs.
Shameless are the banksters and shameless are their political pals with their “your money or our lives” piggy bankster terror.
How close to falling off a cliff is the EU now that Brexit has kicked them in the ankles?
As Jeff Gundlach said this week,
Watch Deutsche Bank shares go to single digits and people will start to panic… you’ll see someone say, ‘Someone is going to have to do something’. (Zero Hedge)
They’re not even waiting that long, Jeff. That is what these bankster and politician statements are all about. To keep the masses from revolting, everyone needs to be made intensely afraid of what will happen as the alternative if the dinosaur banks are not given public CPR, and in Deutsche Bank, they have much to be afraid of, as it towers over the world with over $70 trillion of derivatives exposure.
Let’s hope the public has had enough of putting its lips to the dinosaurs’.
Leave it to mega banksters to get the solutions entirely wrong … again
They never learn from their failures, and they’re hoping the public never learns either … or, at least, that the public can be scared beyond its learning curve. (A hope that failed with the brave British exit. So, the banksters are a little afraid now that the smell of revolt fill the air like gun smoke.)
The only solution to the failure of behemoth banks that bloated banksters can come up with is that taxpayers should bail them out in order to save themselves from having the banks collapse on them. It never enters their minds that, if these banks are already known to be too big to fail, the most obvious solution was to break them up a couple of years ago before the bad stuff hit so that they could be parted out in an organized manner. It’s a little late now, but it would still be better than additional conglomeration:
Smaghi wants to go further than just bailing out the failures. Instead of breaking the behemoths up so they don’t roll over and crush entire nations, Smaghi’s answer is to bail them out and make them bigger:
Both Italy and Germany have too many banks that are not profitable and more consolidation is needed, the chairman said.
You would think that, if ever there was a no-brainer for what not to do, making too-big-fail banks bigger would be it; but, as I wrote at the start of the Great Recession, even George Bush’s solution was to double down on the size of banks, which he was first to publicly call “too-big-to fail”:
Whenever one of our economic titans teetered on the edge of bankruptcy this past year, the peril from its collapse to everything in its shadow pressured the executive branch to create a deal over the weekend before the market opened again on Monday. The masterminds of mayhem rushed in to pump some “good” news into Wall Street ahead of the market opening to avert disaster. At every turn, the government’s answer to the risk of corporate obesity was to take two weak and wobbly mammoths and cobble them together into some bigger and more ungainly creature. Each resulting conglomeration came out looking like Frankenstein’s monster with all its seams showing. Thus, many of the following solutions were amalgamated during midnight hours in the board room laboratories of the Washington Wunderkind. (“Collapse of the Colossus“)
They’re too big to fail, so solve their problems by doubling them in size? I don’t know how you get any dumber than that even by hitting yourself over the head repeatedly with suitcases full of money. The solution advocated for busted banks that require taxpayer bailouts is, according to Bush back then and Smaghi now, to conglomerate the failing monstrosities into even larger institutions.
History is repeating itself in such a manner that I could just change the names of banks in my article and republish the same article today that I wrote about this nonsense years ago:
J.P. Morgan Chase and Company, a name that was already a mouthful of earlier conglomerations, gulped down a belly full of Bear. I guess that would make them the J.P. Morgan, Chase, Bear, Stearns, and Company company. The Federal Reserve helped prepare the Bear to make it more palatable for Morgan to eat. Apparently that role is the meaning behind their nickname “Fed.” Somehow the Fed thought a dying beast fed on Bear would be an improvement on the “too big to fail” scale. Fat on Bear, you’d think the beast would have been satisfied for a little while, but within a month it felt the need to digest the largest bank failure in world history — Washington Mutual. Again, the Fed cooked the meal. I won’t even try to squeeze that addition into J.P.’s burgeoning name, except to say that the feeding frenzy was mutual. And with that, J.P and Companies acquired a bank that was even a different breed from itself. An investment bank consumed a consumer bank.
Sighs. We never learn a thing … even on the obvious stuff. The worst part is that nearly a decade on, the public keeps sucking this swill up. Well … until Brexit. Let’s hope Brits stay the course and others join their revolt.
Smaghi’s got a smoggy brain if he really believes his own solution, but that’s a group-think peril in the banking industry anyway. It’s ludicrous to believe you can make giant corporations more efficient by stuffing two of them into the same suit. It is far beyond merely ludicrous to think that you can take one extremely unhealthy supersized corporation and make it healthier by stuffing another dying giant inside of it! That’s like curing cancer by feeding the patient a diet of fried tumors.
At an early point, sure, making a business bigger creates economies of scale … if both of the businesses you marry together are reasonably healthy. At some point, however, that nasty old Law of Diminishing Returns I keep ragging about kicks in. The periphery of the corporation becomes too far removed from the center to be well managed. No one really understands everything the business is doing. Employees can hide among the masses to where no one knows someone is not working because no one even knows what that guy’s job is. One branch doesn’t know it is repeating the work of another branch. Etc.
If banksters like Smaghi really believe these banks cannot sink without capsizing all of Europe in their wake, then the responsible thing to do is to begin a “Ma Bell” on them — start tearing them down into smaller, more efficient, profitable companies. Time for reorganization. That way they the worst parts can crash safely on their own later on without any help from the rest of us.
The answer is certainly not to start rerevising all the newly revised regulations, as Smaghi and others are rapidly recommending. Why would we want to return to the starting point of the last massive crash?
Will the public be beggared or buggered … British style?
I wonder if European taxpayers are angry enough yet to revolt against Smaghi’s suggestion. The rest of Europe doesn’t seem as brave as the Brits. Take Greece, for example, which chose to stay in perpetual bondage to its German dominatrix. Even in the UK, the peasant revolt is dicey. Brexit was certainly a vote against this kind of elitist arrogance, but already many Brits are scrambling to find ways to overturn their own democratic decision because massive changes inevitably cause a volatile repositioning in markets. Revolts aren’t tidy.
You’d think after the Great Recession all central banks would have stopped allowing consolidation of the massive banks they oversee. Well, you’d think that if you believed they were really all that concerned about banks being too big to fail. That everything they do continues to make big banks bigger shows all they really care about is getting taxpayers to bail out their cronies.
Because taxpayers have not insisted on breaking up big banks for taxpayer protection, it has not happened. Until they demand it, as the Brits demanded Brexit, it never will happen! It is not a concept that would ever occur to imperial banksters. It is not the way their kept politicians think either.
After a decade of unbearable banking behavior that has spiraled right back to where we started … only higher up for a bigger fall, revolt could easily break out everywhere. But don’t expect the public to be smart. They’ve been completely blind while the banksters buggered them so far. Just expect them to be mad as hornets when you stir up their bin of rotten apples.
Brexit is an organized revolt with a clear objective of extraction from a bloated and failing enterprise, but it will still be incredibly messy. The domino affect of what fails because of the extraction will take months to play out. With surgery, there is blood and there is swelling, and there is pain.
I expect a growing number of simply angry revolts to occur from this point forward that will be far messier. They will look more like terrorist explosions than surgery because people don’t know the right answers. As a result, the public anger at getting raped again is not likely to have much helpful focus. People will be right to be angry — very right — but will they have any idea that size reduction is a big part of what really needs to happen? I think they will just be pushed by fear toward even greater globalization as the only answer big enough to save them.
Sadly, big is the problem.
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