Friday, April 19, 2013
Thursday, April 18, 2013
Sunday, April 14, 2013
"Wise Men" Propose Theft to Bail Out Banks
Far be it from bondholders or banks that caused the debt crisis to be punished for their sins, German ‘Wise Men’ push for wealth seizure to fund EMU bail-outs.
Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.Professors Lars Feld and Peter Bofinger said states in trouble must pay more for their own salvation, said arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. “The rich must give up part of their wealth over the next ten years,” said Prof Bofinger.
The two economist are members of the Germany’s Council of Economic Experts or “Five Wise Men”, a body that advises the Chancellor on major issues. There is no formal plan to launch a wealth tax but the council is often used to fly kites for new policies.
Prof Feld said a new survey by the European Central Bank had revealed that people in the crisis countries are richer than the Germans themselves. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.
Study Details
Supposedly the median or midpoint wealth level, stripping out the super-rich is as follows:
- Spain €183,000 for Spain
- Italy €172,000 for Italy
- Portugal €102,000
- Cyprus €671,000
- Austria €265,000
- Germany €195,000
- Holland €170,000
- Finland €161,000
One look at the data is all it takes to conclude the report does not pass the “sniff test”. A closer look shows the study was also undertaken before the Spanish property bubble imploded and that it ignores pensions.
Yet, the “Wise Men” embraced the study. Why?
The answer is simple. The study gave them the incentive to propose what they wanted to propose all along: theft to bail out failing banks that made stupid loans.
As Ambrose Evans-Pritchard points out in his article “Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich.”
Indeed. So just how wise are the alleged “wise men”?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
"Wise Men" Propose Theft to Bail Out Banks
Thursday, April 4, 2013
Only a Tiny Percentage of Americans Opposed to Breaking Up Big Banks
A new Huffington Post/YouGov poll finds:
Sixty-one percent of respondents said that banks and other financial institutions have become too large and powerful ….
A Rasmussen poll conducted last month found that:
A new Rasmussen Reports national telephone survey shows that 50% of U.S. Adults favor a plan to break up the 12 megabanks, which currently control about 69% of the banking industry. Twenty-three percent (23%) oppose breaking up the largest banks, while another 27% are undecided.
While polls show that Democrats favor breaking up the big banks more than Republicans, many Republicans point out that the big banks would fail on their own if the government stopped bailing them out. Indeed, a Harris poll from last year shows that 87% of Republicans are against bank bailouts. In other words, the percentage of Americans who favor breaking up the big banks – either directly through government intervention or indirectly by pulling the plug on their taxpayer life support – is probably more like 90-99%.
The 27% of Americans who don"t yet have enough information to decide whether they are for directly breaking up the big banks may want to note that the following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:
- Current chairman of the Federal Reserve, Ben Bernanke
- Former chairman of the Federal Reserve, Alan Greenspan
- Former chairman of the Federal Reserve, Paul Volcker
- Former Secretary of Labor Robert Reich
- Current Vice Chair and director of the Federal Deposit Insurance Corporation – and former 20-year President of the Federal Reserve Bank of Kansas City – Thomas Hoenig (and see this)
- Chief Stability Officer at the Bank of England, Andrew Haldane (and see this and this)
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
- Nobel prize-winning economist, Paul Krugman
- Former Federal Reserve Bank of New York economist and Salomon Brothers vice chairman, Henry Kaufman
- Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
- Former chief economist for the International Monetary Fund, Simon Johnson (and see this)
- President of the Federal Reserve Bank of Dallas, Richard Fisher (and see this)
- President of the Federal Reserve Bank of St. Louis, Thomas Bullard
- Deputy Treasury Secretary, Neal S. Wolin
- The Congressional panel overseeing the bailout (and see this)
- The former head of the FDIC, Sheila Bair
- The head of the Bank of England, Mervyn King
- The Bank of International Settlements (the “Central Banks’ Central Bank”)
- The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
- Economics professor and senior regulator during the S & L crisis, William K. Black
- Leading British economist, John Kay
- Economics professor, Nouriel Roubini
- Economist, Marc Faber
- Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
- Economics professor, Thomas F. Cooley
- Economist Dean Baker
- Economist Arnold Kling
- Chairman of the Commons Treasury, John McFall
- The Director of Research at the Federal Reserve Bank of Dallas, Harvey Rosenblum
- Director, Max Planck Institute for Research on Collective Goods, Bonn, and Professor of Economics, University of Bonn, Martin Hellwig
And the head of the New York Federal Reserve Bank – and former Goldman Sachs chief economist – William Dudley says that we should not tolerate a financial system in which certain financial institutions are deemed to be too big to fail.
Federal Reserve Board governor Daniel Tarullo also backs a cap on the size of banks, and Former Treasury secretary under Reagan and George H.W. Bush, Nicolas Brady, says that we need to put a cap on leverage.
The undecideds may also want to note that many top bankers are themselves calling for a break up, including:
- Former Citi CEO Sandy Weill
- Former Citi CEO John Reed
- Former Citi chairman Richard Parsons
- Former Merrill Lynch chairman and CEO David Komansky
- Former Morgan Stanley CEO Philip Purcell
- Former managing director of Goldman Sachs – and head of the international analytics group at Bear Stearns in London- Nomi Prins
- Numerous other bankers within the mega-banks (see this, for example)
- Founder and chairman of Signature Bank, Scott Shay
- Former Natwest and Schroders investment banker, Philip Augar
- The President of the Independent Community Bankers of America, Camden Fine
Click here for background on why so many top bankers, economists, financial experts and politicians say that the big banks should be broken up.
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Only a Tiny Percentage of Americans Opposed to Breaking Up Big Banks
Saturday, March 30, 2013
The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks
Continuing my series of banks ready to “Cyprus” their depositors, I offer this reader contribution from Don from Canada 2013-03-29 23:11:
Source: budget.gc.ca/…/…
Page 145
“The [Canadian] Government proposes to implement a “bail-in” regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants. Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.
This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are ‘too big to fail’.”
A depositor is an unsecured creditor to a bank. The Canadian government presents its position to be one of shielding the taxpayer from the need to pay for bailing out a failing bank. As a taxpayer that is comforting.
However as a depositor, the phrase “rapid conversion of certain bank liabilities into regulatory capital” concerns me. My deposit is the bank’s liability. Could depositors’ funds fall under the definition of ‘certain bank liabilities’?
I searched the entire 442 page document and I cannot find where the term ‘certain bank liabilities’ is defined.
The prudent approach I believe would be to assume that under certain conditions, certain bank liabilities will include depositors’ funds; at least those funds in excess of CAD 100,000 which is our so-called insured amount.
Even if it has noble intentions now, under a credit and derivatives collapse scenario, it is conceivable that the Canadian government could be coerced or bullied by external agents into grabbing depositors’ funds just like what is happening in Cyprus.
I find the newest ‘bail-in’ term being used since the Cyprus debacle quite amusing. It reminds me of the ‘sit-in’ and ‘love-in’ terms of the peace/hippie generation.
We all seem to be floating on the bathwater of fiat currency liquidity. The tub is being drained at the opposite end from where we are floating. The EU is circling the drain. The central banks are feverishly trying to replenish the tub with thimbles full of water, but it appears inevitable that some will go down the drain, whilst others will be left high and dry. The central bankers only have thimbles, not a drain stopper.
A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers.The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.
By “bailing in” uninsured bank depositors, it would also involve more foreign investors, especially from Russia, some of whom have used Cyprus as a tax haven in recent years. That would answer criticism from Berlin in particular, where politicians are calling for more drastic action to stop the island being used for money laundering and tax evasion.
Labelled “strictly confidential” and distributed to eurozone officials last week, the memo says the radical version of the plan – including a “haircut” of 50 per cent on sovereign bonds – would shrink the Cypriot financial sector, now nearly eight times larger than the island’s economy, by about one-third by 2015.
Senior EU officials who have seen the document cautioned that imposing losses on bank depositors and a sovereign debt restructuring remain unlikely. Underlining the dissuasive language in the memo, they said that bailing in depositors was never considered in previous eurozone bailouts because of concern that it could lead to bank runs in other financially fragile countries.
But the authors warn such drastic action could restart contagion in eurozone financial markets…
In what appears to be drastically worse than many had hoped (and expected), uninsured depositor in Cyprus’ largest bank stand to get no actual cash back from their initial deposit as the plan (expected to be announced tomorrow) is:
- 22.5% of the previous cash deposit gone forever (pure haircut)
- 40% of the previous cash deposit will receive interest (but will never be repaid),
- and the remaining 37.5% of the previous cash deposit will be swapped into equity into the bank (a completely worthless bank that is of course.)
So, theoretically this is 62.5% haircut but once everyone decides to ‘sell’ their shares to reconstitute some cash then we would imagine it will be far greater. Furthermore, at what valuation will the 37.5% equity be allocated (we suspect a rather aggressive mark-up to ‘market’ clearing levels).
Critically though, there is no cash. None. If you had EUR150,000 in the bank last week (net of insured deposits which may well be impaired before all is said and done) you now have EUR0,000 to draw on! But will earn interest on EUR60,000 (though we do not know at what rate); and own EUR56,250 worth of Bank of Cyprus shares (the same bank that will experience the slow-burn leak of capital controlled outflows).
In the post “EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive – Bank Risk, Reward & Compensation“, I offered a way to calculate what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity??? To bring things up to date, up the haircut to 63% and you will find that no bank in the world will compensate you for the risk you assume in banking there. Banco Posturepedico shares: Strong BUY!!!!
- The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $ 100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?
- The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC.
- The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual
- The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $ 8 Billion of Losses with Just a $ 2.26 Billion
- The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis
- Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!
The Banks Are Bigger Than Many of the Sovereigns
Ready! Set! Bank Run!!!
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Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46)
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The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks
Friday, March 29, 2013
Canada Discusses Forced Depositor Bail-In Procedures for "Too Big To Fail" Banks in 2013 Budget
Inquiring minds in Canada managed to slog through a massive 433 page budget proposal and discovered Depositor Haircut Bail-In Provisions For Systemically Important Banks.
Sure enough. Right on page 145 (PDF page 155) of the Canada Economic Action Plan for 2013 We see …
“The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail- in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.”
In case you are unfamiliar with bank parlance, deposits are not “assets” they are “liabilities”. A plan that would turn “certain bank liabilities” into regulatory capital is a plan to confiscate deposits.
As noted in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand? I believe guarantees on deposits are inherently fraudulent. But at least the Reserve bank of New Zealand is upfrnot about the situation. Canada is not.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
Canada Discusses Forced Depositor Bail-In Procedures for "Too Big To Fail" Banks in 2013 Budget
Thursday, March 28, 2013
Canada Discusses Forced Depositor Bail-In Procedures for "Too Big To Fail" Banks in 2013 Budget
Inquiring minds in Canada managed to slog through a massive 433 page budget proposal and discovered a Depositor Haircut Bail-In Provisions For Systemically Important Banks.
Sure enough. Right on page 145 of the Canada Economic Action Plan for 2013 We see …
“The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail- in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.”
In case you are unfamiliar with bank parlance, deposits are not “assets” they are “liabilities”. A plan that would turn “certain bank liabilities” into regulatory capital is a plan to confiscate deposits.
As noted in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand? I believe guarantees on deposits are inherently fraudulent. But at least the Reserve bank of New Zealand is upfrnot about the situation. Canada is not.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mish’s Global Economic Trend Analysis
Canada Discusses Forced Depositor Bail-In Procedures for "Too Big To Fail" Banks in 2013 Budget