July 25, 2012

Breakdown of trust at the heart of euro crisis

Posted in Irish Independent · 149 comments ·

Where has all the optimism gone? A few weeks ago, the EU seemed to be back in the driving seat. The Council, driven by Italy and Spain, had extracted a major concession out of Germany and there was a sense that the interest of the European Union as a whole had been put for once to the fore.

Now this all looks like old history. Spain, the country with the worst unemployment — apart from Greece — looks to be shut out of the bond markets completely in the days or weeks ahead. This means another massive injection of troika funds, but more worryingly will also put Italy under the spotlight again, and so we will be back to square one.

Recent data indicated that Europe is heading into recession, quickly. For example, yesterday’s survey data on France showed that manufacturing was at its weakest since 2009. As the economies of Europe contract, something odd is happening. Despite all the deficit-tightening going on around the eurozone which is aimed at bringing down the overall debt levels of the member countries, the actual debt/GDP ratios are going the opposite way. Latest numbers show that the actual debt-to-GDP ratio in the EU went up this year to 88pc from 86pc a year earlier. The economies are slowing quicker than governments can cut back.

But while most of the commentary in Ireland today will be focused on the bond yield in Spain, the real worry for the euro is not the meltdown of the bond markets but the melt-up from the bond markets to the short-term interest rates. Spanish short-term interest rates are now above 6pc. This means that the financial markets expect big risk in Spain not in the next five or 10 years, but in the next five or 10 weeks.

It is clear from the movement of short-term interest rates in Germany, Austria, Netherlands and France — all of which are now in negative territory — that investors are preparing themselves for the breakup of the currency. In all the above countries, investors are now paying the governments to be able to lend to them. We are at the stage where the return of capital is the new return on capital. Getting your money back is the name of the game, not getting a return on your money.

Obviously the opposite is the case in the periphery, where short-term rates have moved out again.

The question for everyone is how long can this last. The IMF has recently published a report suggesting it is losing confidence in the eurozone experiment. In Spain the region of Valencia has said it needs financial support to pay its employees. Will it be the last? Greece is back saying it can’t keep to its targets and in Italy there are reports that Silvio Berlusconci is thinking of running again in the election to be held in six months — and just for good measure, its bond yields are over 6pc too.

There is real pressure now on Mario Draghi to introduce another round of central bank buying of government bonds via the banks. This is termed the LTRO or as others call it the largest “cash for trash” scheme in the world.

However, when you look at the lack of any permanent solution for the eurozone it does come down to what seems to be a total breakdown in trust between the creditor and debtor countries. The creditor countries around Germany don’t believe that the debtor countries will stick to their word. In addition, when they look at countries like Ireland and anticipate a wave of mortgage defaults, they must consider how it will end.

From the perspective of the peripheral countries, there is a real grievance that the creditor countries don’t appear willing to accept their responsibility for careless lending in the boom. Someone needs to knock heads together. The euro’s economic problem is recession and no growth; its financial problem is too much debt; and its political problem is that there’s no one to knock heads together.

Many people look to Angela Merkel, but those who watch her closely confirm that she is a very cautious politician and never moves far from her electoral roots. Her grassroots are telling her they’ve had enough of these bailouts. So she has a choice in the next few months of bulldozing through something that’s unpopular in Germany or doing nothing. Given that she is a politician who also faces an election next year, what do you think she will do?

This implies that the only person who can act to stabilise the situation — because believe me the euro is in serious trouble — is Mario Draghi. Spain and Italy can’t deal with these interest rates, particularly as it is the euro that is causing these countries to be penalised. If you doubt that interpretation, compare the interest rates in the UK with those in Italy and Spain. British interest rates are heading towards negative territory despite the fact that Britain is in a recession and has a debt burden comparable to Spain’s. Nobody believes it will default and hence the low interest rates.

The reason this is the case is that it has its own currency with its own central bank and the market knows that the Bank of England will and has been stepping in to buy Gilts when it has to and it will let the currency fall to whatever level is necessary. The problem with Spain and Italy in a nutshell is that they both use someone else’s currency. If you can’t print or change the value of the currency you use, then it’s not yours, period.

And because they do not use their own currency, their debts are by implication in a foreign currency. Therefore, there is always a risk of default because they can’t control the value of their debts. In Ireland, we are in the same boat, but have even higher overall debts, public and private.

Unless the ECB opens up its balance sheet and makes a commitment to buy all Italian and Spanish debt, the end of the euro is a very real prospect.

  1. I notice there are zero comments as I type. I’m doing this to see if I can be the first to leave a comment before about a zillion more follow and it becomes like an army of ants.

  2. stargios

    It should read: Spain, the country with the worst unemployment – including Greece – and any other OECD country.

  3. lar

    Debt and Unemployment:

    Today, almost every country in the world has such huge debts that governments are now forced to either borrow more, spend less, or print more to meet their budgets. Realistically, none of these options are sustainable.

    Printing money devalues the currency, meaning you can buy less with it. Also, since it enters the economy as a debt, it is subject to interest. Since the money to pay this interest doesn’t even exist, it ultimately requires another debt – and more interest!

    Public spending cuts ultimately means job cuts, creating further unemployment, while private companies continually replace staff with machines that can work faster and cheaper, to increase their productivity and profits.

    Paid employment is the oxygen of the monetary system. Without it, all you get is more debt. This unemployment and debt cycle will ultimately bring about a global monetary collapse.

  4. DarraghD

    Just read this today:


    I think that it’s certainly the mother of all ironies, that the Inspiration for the € symbol itself came from the Greek epsilon (Є)[note 1] — a reference to the cradle of European civilization — and the first letter of the word Europe, crossed by two parallel lines to ‘certify’ the stability of the euro.

    Isn’t it just ironic beyond belief that inspiration for the symbol for the Euro currency, came from the very same nation that it’s looking like will be the cause of the end of the same currency?!?

    • SMOKEY

      Truth is stranger than fiction. Amazing find.

    • Brian

      I notice that the lit up euro sign outside the ECB in Frankfurt has only 12 gold stars around it (http://en.wikipedia.org/wiki/Euro_sign#Usage).

      Odd that the 17 euro countries, minus Greece, Ireland, Portugal, Spain and Italy would have a star each.

      Time for us five to leave by any chance?

    • bonbon

      That’s nuts, the “inspiration” for the Euro is Robert Mundel’s recipe from the 1960′s, based on the Bancor idea of Lord Maynard Keynes which was rejected by FDR as a post-war policy at Bretton-Woods.

      Ironically that the Euro is essentially a British project (ask Thatcher and running boy Mitterand). Even more ironically, Tiger’s (Conor Cruise) played along with it. But not ironically FG now serves a foreign power.

  5. Kof

    I’m so fed up with the whole rotten construct I’m glad things are coming to a head – and I’m not just talking about international finance, or the capitalist model. Our lunatic nation is in need of a radical overhaul, one that would not occur without an existential crisis.

    After the crash, perhaps a phoenix?

    I live in hope.

    • Deco

      We need to abandon the entire veneer culture, and get real.

    • bonbon

      Reminds me of the Academy which Gulliver visited. Why was the landscape in ashes he asked – why the Academy believe a real beginning can only occur after the old regime is destroyed.

      That’s the Pol Pot ideology from the Sorbonne. I wonder how much Swift knew?

    • Today the news reveals that Ireland has returned to the bond markets and that there are 900 new jobs being created by start ups

  6. Deco

    Wow. That, I reckon is a very accurate reflection of th predicament of the Euro.

    It is down to the ECB.

    David made a very important reference to Ireland’s debt problem.

    And the Irish should not forget, that Ireland is the most indebted of all the countries in the Eurozone. After a decade of being obsessed with our significance, and what others might hink of us, we have finally an “achievement” to “celebrate” as we go completely off the charts for debt excessiveness.

    In the following link, if you view the first picture, you see Ireland finally getting the signifant position that so many idiots in this country wanted to get to.


    It amazes me is that we can work up higher debt levels in every category than our peers – the other PIGIS.

    As evidenced by many events that have transpired in the last twelve months, we are probably as bankrupt intellectually, and morally as we are financially. And that is before we discuss peak oil, crime, or corruption.

    Just make that each of you, for your own sake are long term prepared for what is occurring.

    How did so many, become so idiotic, so quickly, and so comprehensively ?

    Probably because they were trusting of the Irish gombeen establishment, and their persistent deceit.

    My advice to you all, is to not be naive.

    A frightening level of naivity is at the root of this mess that we have created for ourselves.

    • cooldude

      Thanks for that great article Deco. I hope everyone reads it because it lays things out very clearly.

    • “How did so many, become so idiotic, so quickly, and so comprehensively ? ”

      Maybe they thought that the decisions they made were rational at the time

    • Tim

      Deco, Thanks for that article. Excellent contribution, as usual. The Govt/media/banking/corporate axis successfully hides the real issues only if we don’t communicate and spread this kind of information sufficiently widely.
      Given good information, good people make good decisions.
      The corollary has been true in Ireland for too long. The old mantra of “Location, location, location” must be replaced by “Education, education, education”.

      Let’s keep at it….

  7. Deco

    After an awful lot of dithering, the ECB now has to make some very tough decisions.

  8. Egg Timer

    Please read the instruction on your appliance for perfect results :

    ‘the financial markets expect big risk in Spain not in the next five or 10 years, but in the next five or 10 weeks.’ ;

    ‘she has a choice in the next few months of bulldozing through something that’s unpopular in Germany or doing nothing.’ .

    Do I see a Craic…Crack …..what will come out of the Egg ?

    Which comes first , the chicken or the egg ?

  9. Adam Byrne


  10. lar

    In today’s world, a handful of people have enormous wealth, influence and freedom, while the vast majority are burdened with debt, labour and poverty; with little or no say in world affairs. This imbalance is clearly unfair and can no longer just be accepted as normal.

    Millions of people every year are born into a life of poverty and starvation, even though we have the resources and technology to feed and shelter everybody if we want to.

    Wasteful manufacturing drives an insatiable appetite for limited natural resources like oil, copper, gold etc. Since these scarce resources are only found in certain countries, exploitation or cross-border conflicts inevitably result.

    Some areas of the world suffer extreme weather conditions and a lack of arable soil or drinkable water, yet are largely forgotten by richer nations as they have nothing of value to contribute to the world economy.

    Money, by definition, creates inequality and injustice.

    • bonbon

      Quaint, like something from Brer Rabbit.

    • Tony Brogan

      Money, by definition, creates inequality and injustice

      So nobody should have any.

      Here is a definition of money

      Aristotle defined the characteristics of a good form of money:

      1.) It must be durable. Money must stand the test of time and the elements. It must not fade, corrode, or change through time.

      2.) It must be portable. Money hold a high amount of ‘worth’ relative to its weight and size.

      3.) It must be divisible. Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be ‘fungible’. Dictionary.com describes fungible as:

      “(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”

      4.) It must have intrinsic value. This value of money should be independent of any other object and contained in the money itself.
      For 5000 years gold and silver have been thought the best form of money with the above characteristics

      gold can now be traded and exchanged electronically by such as http://www.goldmoney.com and can be easily used as with a debit card in any amount of grams or decimalized amounts of a gram.

      “Bad Money”, by definition, creates inequality and injustice, whereas the use of sound money such as gold leads to prosperity, freedom and equality.

      • Tony Brogan

        #5 to add. money should be relatively rare, not easily produced. This removes volutility and provides stability

      • bonbon

        Strange archaic Aristotelian notions. We live in an agro-industrial age, with capital investments, manufacturing, energy, transport that Archimedes would understand, but not the priest of the first European central bank, the Oracle. As far as I know Aristotle way a Pythian, in other words a Persian spy in the Macedonian Palace of Philip, Alexander’s father. Alexander who had him for 15 years as house teacher, was not fooled and destroyed the Persian Empire. This cannot be traced to Philip, rather to his mother. Anyway Aristotle was a fop, poisoner, and an all round awful character, very clearly linked to the poisoning of Alexander.
        The use of money goes way back, the notion of “intrinsic value” of an internationally run monetarism has been used to subjugate.
        The first clean break with this archaic notion is Alexander Hamilton’s Public Credit for improvements in the General Welfare, a totally different concept.

      • bonbon

        NY Metropolitan Museum of Art has Rembrandt’s Aristotle contemplating the Bust of Homer. Homer, nominally stone conveys life, while Aristotle’s aspect is dead. An ironic counterpoint only art can convey.

        This shows a motion, in the mind, conveyed by a static picture. Credit as the economic gestalt conveys a motion, future, opposed to a dead static “money”. Credit is a living thing. (Of course abused by powerful forces at various times such as now), but it has in it motion, it implies a future. That is why pursuit of happiness must be a driving economic principle, not mere property as the Confederates tried to re-write. That is why Aristotlean “sound sound” money is not suited to a rapidly progressing world.

  11. idij

    Notwithstanding David’s comment on the Euro being a foreign currency, surely if you lend to a country in the currency of that country, and get paid a special interest rate based on the risks specific to that country, then you can only expect to get paid back in the currency of that country even if they move it out of the Euro basket.

    People are not lending to Spain or Ireland at either German, or common Euro interest rates, so why should there be any expectation or obligation that they would get paid back in German or Euro currency in the event of a breakup or single nation leaving?

  12. So I’m curious: anybody got a view on how this will happen in practise? The result seems to have been clear for some time: Germany, Netherlands, Denmark and a handful of Baltic, Central European and Nordic countries will keep trading the Euro, with France in tow for political reasons, and the rest will depart the EZ.

    Just don’t see how we get there. Ireland, for example will never jump. The Irish establishment has made it fairly clear that they are incapable of even contemplating a disruption of the status quo. The leadership in Spain and Greece may face the prospect of serious political violence, even revolution sometime soon, which may guide their motivation.

    There exists a stable state, the one we are in, but which is unsustainable. We will move to another, probably the one I have described above, and which I have basically stolen from David, as he and others have said as much in the past. In physics, the transition of a system from one stable state to another generally involves high energies and short timescales, as nature abhors imbalance. In other words, a period of extreme violence. Whats the historical precedent for the break-up of currency unions?

  13. Total Recall

    Today is the 7th Day B4 the Full Moon .

    Go Slow …..Slow Down ….Stop

    Watch your local cinematic life unfold all around you and enjoy it .

    Hibernate your senses while remaining awake

    Suck Sucktion …and Dyson hoovers around the Earth for next 7 days becomming stronger …and stronger …and stronger ….where Economics fails something greater fills the vacuum.

  14. Deco

    Ireland’s crooked establishment, incompetent state, and the culture of arrogance held by those who get into positions of authority, contributed very signifigantly towards pulling down the Euro.

    And we have not fixed any of these things.

    Instead official Ireland, has produced endless deceit and pretence.

    Should we honestly expect the Greeks or the Spanish authorities to do any differently ?

    The compromises that occur on the road to imperial grandeur, eventually grind the whole scheme to a halt. Then it gets really ugly.

    • bonbon

      The Euro is crooked from the start. Those signing up became crooked – like a disease of the mind.
      By comparison the Ranch of the Crooked E (Enron with a similar icon) was a warm-up.

      The Euro is the bank of the crooked E !

  15. Philip

    If the Euro breaks, that’s it – curtains for a lot of the mechanisms of a “normal” day to day life for a typical westerner or middle classer. This will seriously damage all “modern” economies

    You know, when you see a lot of poverty around you and you are flying in and out of it, you tend to distance yourself. What happens when you are one of them suddenly?

    The day when you could consume without truly appreciating the labour and impact on the environemnt and the politics behind it is drawing to an end. I think this is a good thing.

    Not sure about the childish nature of lot of humanity and the way it constantly clings to the apron strings of conventionalism.

    Lets be pragmatic. Is is good to see root and branch evaluation of waste in public expendituire. It is good to see CO2 emissions dropping becasue of the reduced demand for consumer goods. Maybe nature is forcing us to correct ourselves before we do further damage.

    • http://www.irishtimes.com/newspaper/breaking/2012/0726/breaking7.html

      “ECB will do ‘whatever’ to save the Euro”

      Whatever dude, whatever.

      • Tony Brogan

        Central Banks manipulate interest rates all the time.
        now they are buying government debt to pretend there is a demand.
        constant interference in the monetary markets leads to gross ditortions and misleading economic signals.

        no wonder the sytem fails as it is not allowed to function.

        wghere the central banks lead the commercial banks follow. All are manipulating all market functions.

        Barclays is the sacrificial lamb, others will follow.
        Central banks pretend to be the solution
        They are the problem.

        Get rid of the central banks!!!
        Return monetary policy to Treasury.

  16. joe hack

    David was looking for the lost optimism, it right here David, it’s called “no growth” is the most optimistic you can get.

    no! oh my! the call for growth is so strong that those that want it so bad will get it and with it will come a new money rush to the head it will be in the driven seat again, the junkies need their fix.

    The methadone is not working the detox of austerity is just too much to handle, they will find some must have trinket to manufacture.

    A new boom will follow the debts will not a appear to be a burden, the borrowing will start again and the bust will follow with a bigger hangover, and the following stronger doses of austerity will pain even more.

    It will not improve the life mankind it will rape the planet it will cause more wars, pain and suffering, welcome to Easter Island on a global scale.

    Who will be,
    Who will cut the last tree down to service the Money God.

    “that’s the Capitalism Drug”

    Logic defies the junky

    • bonbon

      You sure you doo not work for Dope Inc (HSBC)? What’s all this drug talk?
      Growth in banking activity right now is fuelled by dope, they are addicted.

      Growth, in population density, energy density, and intensity is what we do, much as Dope Inc would prefer otherwise.

  17. joe hack

    The ides of the Euro are upon us, the suspense is too much to bear, on the island of “the lord of the flies” fear abounds the void needs to be filled we need to blood let, we need to kill the pig, to slash its throat, to bash him in.

    A ides are upon the empire now, will the emperor turn thumb to instruct the gladiator to kill the beast, will some of the mob bay for its blood, the release , the climax, it is too much to bear; the tension is building, the blood thirst is flowing in every vain of the mob, as the gladiator slowly turns to eye the emperor the eyes of hoard slowly follows,their pupils dilate more, a deeper more intense silence befalls the empire, the mob sense a release, they sense a climax is close, all eyes are fixed on the chancellors’ and the ECBs outstretched, stretched hand……..

  18. molly

    The gates of insanity are wide open and thoes who want to hold on to power will do so unless we the people stop the madness .
    Change is on the way and it will come to late for most of us.

  19. Alf

    The fundamental problem is that we do not control our own currency. We, as a nation must borrow the currency that we use to facilitate trade. Because borrowed, like anything else, it must be paid back (with interest). Without a lender of last resort, this practice could only end one way. The shennanigans of the banks merely brought this to a head quicker. The US and UK will come out of all this much better because of this single fact alone. Sovereign nations have the right (and obligation) to print currency as and when needed. Complaining about inflation is a waste of time. Inflation is built in and expected with any central bank system. Zero inflation is a red-herring, inflation is needed and part of a functioning currency. This may shock some people but today’s currency systems are not created for savers, low levels of inflation are optimum and needed where interest must be constantly borrowed. If you want better management of inflation, elect different politicians.. but, ultimately, inflation is needed or the system breaks down. Savers do nothing for the economy, they save others borrowings (debt-money) and expect interest for it! However, there is no free lunch and banks must get interest from somewhere. This is why we are where we are.

    • martino

      That was a good read.

      Thanks Alf.

    • paddythepig

      Funny that the German economy is so successful and they’re a nation of savers. How could they have got it so wrong?

    • Tony Brogan

      sound money systems do not rely on credit and the money is not borrowed into existance at debt with interest payable.

      There is no inflation with a sound commodity money system. Savers are useful at providing for the investment into capital which drives the growth of the economy

      We need a national currency and change to a sound money system.

    • cooldude

      Alf I have to disagree with your take on inflation and the idea that the UK and US will escape from this debt saturation that is prevelant in all western economies. I agree with you that inflation is to be expected with our system of unbacked currency and central banking however I would contend that this system is inherently flawed and causes the excess liquidity and the asset bubbles that have been so common over the last 41 years. Inflation is a part of a malfunctioning economy and ALWAYS occurs when the currency is being debased. This exact phenomenon occurred in the Roman empire when they constantly debased the silver content of the denarius until inflation was rampant and eventually the coin was rejected throughout the empire and finally in Rome itself. All of this has happened many times before and it all stems from debasement of the currency system and it always produces inflation and eventually economic and social disorder. I agree with you that this is how our modern economies are designed but history tells us that a monetary system which is constantly debased always leads to economic chaos. In my view all of this is a deliberate fraud on the ordinary working citizens who are being robbed of their wealth through these deliberate asset bubbles and the constant inflation which forces them to to place their money into these bubbles. To show how deliberate it is here is a quote from the high priest of all this gobblegook economics Lord Keynes himself
      “A sentiment of trust in the legal money of the State is so deeply implanted in the citizens of all countries that they cannot but believe that some day this money must recover a part at least of it’s former value. To their minds it appears that value is inherent in money as such, and they do not apprehend that the real wealth, which the money might have stood for, has been dissipated once and for all.
      If however the government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of reach of all but the rich, the WORTHLESSNESS of the money becomes apparent and the FRAUD upon the public can be concealed no longer.”
      Economic Consequences of the Peace 1920

      There you have straight from the horses mouth. The only people who are going to be shocked are those who expect this corrupt ponzi scheme to last forever. I see the Bank of International Settlements are making gold a tier 1 asset. These guys know the gig is finished and they are preparing themselves for whatever comes next.

      • bonbon

        Keynes, British, is far too clever to be taken so simply. The fraud he was referring to was the Versailles Treaty, arbitrarily imposed by Britain on Germany, leading to 1923 hyperinflation. The Bank for Internatonal settlements, BIS of Basel, was created to deal with this looting. The head of that Bank became Hitlers Economics Minister, Hjalmer Schacht, infamous for austerity. So who was the bankers boy?
        The fraud today is bank bailouts, a Versaille II, arbitrarily imposed on transatlantic nation-states, not to mention the Euro fraud. We have imposed bankers running EU nations right now. And Germany again under a Versaille II onslaught.

        Glass-Steagall is the way to deal with fraud, as calls across the globe reflect now, posted below. Citi’s Sandy Weill has shocked the entire banking world with a mea-culpa, calling for immediated restoration. Britain’s FT the same, NYT, LAT also.

  20. gizzy

    There seems to be a mistaken view in some quareters that austerity is an end to capitalism as people are forced to get real.

    The problem is the wrong people are havinga new reality forced upon them. Those at the top of the tree who invested in bad banks are having a new reality the no lose investment. This is where the austerity needs to hit. This is where the biggest adjustment needs to happen.

    Those at the top will claim to be wealth creators and they are but for themselves, no one else.

    We now have a situation where the sovereign States answer to the markets. Who do the market answer to,
    themselves and the investors.

    David uses the heading a breakdown of trust, it is not, it is a fundamenatal abuse of trust. People should be able to trust their elected governments to work for them not the markets. They have created such an imbalance and they hide it now behind the Euro and make it out as a Germany v Spain or some other play. It is not. That is a symptom. It is those with the money and power v the rest.

  21. ‘ The ECB will do whatever it thinks to preserve the Euro’……Draghi

    That is a qualified statement .

    It makes no attempt to be inclusive in statement and it lends itself to being extractive .

    Extractive means a selective process that is a hat trick to be inclusive for some and not others .

    So maybe new lines are being drawn and does history tell us anything ?

    • Deco

      Maybe we have entered the “comical ali” phase.

      Or maybe the entire saga is a comical ali production…..

    • bonbon

      I’m keeping my Euro in a frame too. Why should Draghi be the only one? A nostalgic reminder…

      • I think David is confusing the words ‘ Trusts and ‘Omerta ‘in this context .

        Omerta is a mindset of Draghi where everbody must not look behind their backs or face the consequences .

        Trusts has no currency with Draghi only the fools follow a mirage of illusions and Noonan belives he is the good boy in the EU class room under the tutilage of Draghi.

        Draghi is a master of the unspoken and gives lip service to the spoken to be heard by the herds of bulls noonan , gilmore and kenny all taureans …where no leader can be seen.

    • gizzy

      ‘whatever it takes within its mandate’

  22. bonbon

    Game Changer: Sandy Weill, the “Shatterer of Glass-Steagall,” now wants to restore it.

    In carefully-prepared remarks that immediately sent shock waves through the financial world and the halls of Congress, former Citigroup head Sanford Weill called Wednesday for the break-up of the biggest banks along the lines of the Glass-Steagall Act.

    “What we should probably do is go and split up investment banking from banking, have banks be deposit-takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill told CNBC’s “Squawk Box” program.

    Within minutes, Weill’s comments were picked up by other news outlets, who noted, as did the New York Times, that Weill had “essentially” called for a return to Glass-Steagall. The Times remarked that Weill’s belated conversion to Glass-Steagall “was an admission rich with irony,” noting that, “Among his most notable possessions was a huge wooden plaque bearing his portrait and a list of his accomplishments. One of them read simply, ‘The Shatterer of Glass-Steagall.’”

    In his CNBC interview, Weill argued that if the U.S. is to be the world’s financial leader, the big banks will have to be broken up, which will, he said, make them much more profitable than they are at present. “The banking system is really very, very important,” he declared. “I think that the problem that was created was created by too much concentration in investments in the banking system, way too much leverage, very little transparency with lots of off-balance-sheet things that didn’t really count. And I think that a lot of those things have to change. But even after the problems, there is really no other country in the world be the leader of the world yet.”

    “So, it really falls on the United States to still be the leader. And if we are going to be the leader, we have to have a financial system that can help us be the leader, and that is not happening right now.”

    The investment banks must be spun off “completely” from the commercial banks, Weill insisted, saying that “they can invest their money as they like,” but that, “They would be entities on their own, as they were 25 years [ago].”

    Andrew Sorkin, one of those interviewing Weill, declared himself “speechless” from Weill’s statements and exclaimed, “I’m blown away.” Another interviewer asked Weill how long he had been thinking this through. “For a long time,” Weill responded, explaining that “it is something I’ve been thinking about a lot over the last year, and I really wanted to get my thoughts together before I said anything.”

    And in a comment which will resonate with anyone who has followed Lyndon LaRouche’s repeated requirements for a restoration of FDR’s original Glass-Steagall, Weill declared that he thinks what needs to be done, “we can do in two or three pages.”

    See http://www.cnbc.com/id/48249789

  23. bonbon

    Glass-Steagall Faction in the U.K. Attacks City of London Boss

    The editors of the {Financial Times} today attack the head of the Financial Services Authority (FSA), Lord Turner, because he opposes Glass-Steagall. In an unsigned editorial today (thus attributable to the editor-in-chief), the FT says that, regrettably, Lord Turner “showed little interest in the full-fledged separation of retail and investment banking that this newspaper has advocated.”

    • Deco

      Will state bodies, and private banks be more “honest” about their activities when all of this is over ?

      Or will they continue to strive to deceive ?

      • joe hack

        Ah Human Nature don’t change, better policing is the only way “trust” and confidence can be restored-it what the Germans say want?

        • joe hack

          Ah Human Nature don’t change, better policing is the only way that “trust” and confidence can be restored, it what the Germans said that they want-a banking union?

          • bonbon

            Actually not Germany but the EC (Juncker too) :
            EU Commissioner Barnier: A “Banking Union” Before We Die May 30, 2012
            Do you think “belonging” to a supranational European Union whose Council can dictate your nation’s budget and investment is bad? How about getting to “belong” to a “European Banking Union” which can also order your nation to bail out banks anywhere?

            This was the imperial vision offered by a desperate financial elite to desperate governments, in the Bloomberg interview this morning with Michel Barnier, EU commissioner for financial services.

            Barnier pronounced that at this moment of unstoppable Europe-wide bank crash, a European banking union must be created! “We must go further, and create at the level of the European Union this banking union, with a certain number of tools or reforms, some of which are already on the table”.

            The “tools” or, as Barnier wishes, the rules discussed are 1) a Europe-wide FDIC, with powers for bank resolution which sound like those claimed for the U.S. Financial Services Oversight Board created by Dodd-Frank, and with trans-Atlantic-wide bank premiums paid for the insurance; and 2) power for the EU, where countries lack the means to bail out their banks on the scale they need it (as in Spain now), to compel other countries to transfer that money to the country which lacks it.

            Number 1 has already been under discussion in meetings in London which have included the FDIC. Tying this to the U.S. taxpayer, the May 22 London Financial Times reported that behind the scenes, “the Bank of England, the [British] Financial Service Authority (FSA) and the American Federal Deposit Insurance Corporation (FDIC) are studying a ‘top-down bail-in’ mechanism, in which combined authorities take control of a bank in difficulties.” Sounds like a Churchillian “English-speaking banking union.” Estimates of bank runs waiting to happen in “peripheral” countries go up to EU 350 billion in mass withdrawals.

            As for Number 2, perhaps NATO would enforce it…

  24. joe hack

    When a politicians/bureaucrats make big sweeping statements, beware “the ECB will do what ever needed to save the EURO”? only if it let by the paymasters?

  25. joe hack

    Trust will come when the people witness proper policing in the banking system and so far very few bankers have been taking to task.

    You may have noticed David on this Blog and if this blog was a sample poll well that would be a high percentage of people putting money into metals some are even buying tinned foods and some are growing crops, O’dearest mattresses are a better bet than the banking system etc. you must remember the add for that brand of mattress.

    The politicians you can be certain are as unsure as the general public only a very select few have an insight as to what might be going on in the backrooms.

    It is obvious what needs to be done to get people to trust, in called transparency, but it not forthcoming as yet, but the the fragile OPTIMIST in me believes that some form of banking union will come as was mentioned at the last optimistic euro summit.

    The paper you write for had a headline a few weeks back which stated that house prices had risen by 0.2 % they made it sound like this was official, vested interest no doubt, the estate agents,in fact house were falling as your paper was in print, yes, falling by 1% according to CAO three or so days ago, David where the trust? Fact not opinion in so called “newspaper” would be a good start.

    The people might trust if banks are policed in the same we police the man who steels a loaf of bread or man who can’t afford to pay the household poll-tax for example…

    I sense know this but I HAVE not seen you write about it?

  26. joe hack

    I said it before and I will say it again…I said it before and I say will say it again… I said it before so I wont bother you with it again.

  27. bonbon

    To get trust back on the rails, we need to trust banks. And the way to do that is to keep them honest.

    European Media Cover Glass-Steagall Call: “Break Up the Big Banks Says Ex-Citi Chief Weill”
    - FT banner headlines.

    “Mr. Weill’s intervention adds to a growing chorus of regulators, politicians and bankers calling for a return to the separation of investment banking that existed in the U.S. before the 1990s”.

    {Daily Mail} : Ruth Sunderland wrote that when publications like {The Economist} and {Financial Times}, and even Adair Turner of the Financial Services Authority, start using the term “bankster,” the bankers should start worrying. She reminds her readers “It is a coinage that dates back to the Pecora Commission, a series of hearings into the causes of the Wall Street crash of 1929″.

    {Guardian} coverage in the financial pages, “But it is now the subject of debate on both sides of Atlantic following the taxpayer bailouts of banks during the 2008 crisis.” Financial editor Nils Pratley wrote,

    “There shall be joy in heaven over one sinner that repenteth, but utter astonishment may be the first reaction above to news that Sandy Weill thinks big banks should be broken up”.

    Germany’s {Frankfurter Allgemeine Zeitung}, {Die Welt}, and Switzerland’s financial daily {Neue Zürcher Zeitung}, all cover the call from the reformed Weill.

    The game has changed. There may be joy in heaven, as the Guardian writes. Break up these banks a.s.a.p.

    • Tony Brogan

      Who would trust a bank if they continue to peddle the wallpaper called fiat paper money. guaranteed to lose 2% of is purchasing power as a minimum each year. Better they issued money that is to be trusted to hold its buying power. Then people may trust the banks again.
      To keep the banks honest , they would have to deal with honest money!

      • bonbon

        Honesty is not a trait of an inanimate object, paper or metal, rather people. Sandy Weill of Citi, possibly the most dishonest of all TBTF banks has had a “Damascus Road conversion” and with a widely reported “mea-culpa” said very clearly Glass-Steagall kept banking honest.

        Honestly Sir, human nature being what it is, sound enforced rules help. We all agree on Stop signs, speed limits, traffic lights. Sound auto’s are diven by real human beings.

  28. Dorothy Jones

    Loss of trust alright. Today’s Frankfurter Allgemeine Zeitung states that Draghi is more than capable of putting aside German concerns:

    Mario Draghi deutet Anleihekäufe an EZB wird „alles tun, um den Euro zu erhalten“


    …and there’s a sense of nervousness here now which I hadn’t sensed heretofore.

    • bonbon

      If Super-Mario’s ECB does not deliver a big sovereign bond buying binge, “financial markets would likely be thrown back into chaos,” warned the Wall Street Journal. “By using strong words, he is inviting creativity and fantasy in financial markets on what they can put on their wish list” for ECB action, said Carsten Brzeski, economist at ING Bank, to the Journal. If disappointed next Thursday, “markets might go wild.”

      Draghi invented a new ECB mandate : “To the extent that the size of the sovereign premia [inter-country spreads] hamper the functioning of the monetary policy transmission channels, they come within our mandate”.

      Austrian central bank head Ewald Nowotny then re-floated the ultimate super-inflationary (Geithner) idea of the “leveraged ESM”, in which the ESM bailout fund is given a banking license and proceeds to borrow trillions from the ECB and the Fed, making it a $5 trillion “bailout bazooka”.

      It appears this is what DMcW thinks will work.

  29. joe hack

    Could Draghi be for the chop if he can’t even appear to deliver on his ‘do whatever it takes’ out burst, rarely do central banks make statement before actions plans are already in place ‘do what ever it takes’ is not a plan, heads of central bank don’t usually say much same with finance ministers.

  30. coldblow

    Everyone is aware at least at some level that the underlying issue is whether, in the end, they will be looked after or thrown to the wolves. There are doubtless good intentions all round, but ultimately our leaders are looking to save their own skins. But they will want to have appeared to at least have tried. They want to do well, to be seen to do well, but not that badly. From health service, to national govt, to EU: when it’s all about PR there’s not much room for anything else.

    • joe hack

      I think Draghi statement is the ray of optimism that David was searching for, on balance’s Draghi may have support for euro-bonds from a majority of euro-zone Central Banks, he may be trying to push the German Central bank on side by publicly and personal flying Kites, but that is normally the job of politicians/leaks and such, who knows he may putting himself in the firing line or he may already know what is about to happen,
      I am sure we will soon know????

      It is fun speculating it could become a national sport?

  31. Philip

    We are 6 handshakes away from everyone else. Make no mistake, this is utterly true.

    So far, no one has had their comfort zone touched. What a lot of this illustrates is that in spite of all the TV and Internet and you name it, there is a profound disconnect between people who are leading and those who are suffering. That is changing.

    As the middle classes start to get squeezed, the elite will find they have handshakes from many that were afraid to say hello before. Reality is beckoning as friends and relatives make their presence felt.

    We are all human. We like our habitual stroll down to our local. Does not matter who you are. We will strive to maintain that unless there is something wrong with us. Imposing change on others is all fine and dandy provided it does not impact our own back yard. Looks like Germany back yard could be under threat.

  32. coldblow

    For anyone unfamiliar with Kunstler this link might be of interest. He is apocalyptic but very funny.


  33. bonbon

    Peeling the Onion.

    Feeding into the Congressional mobilization for Glass-Steagall this week was a report released July 20 by, ironically, the New York Federal Reserve Bank, and noted by New York Members of Congress :

    “Peeling the Onion: A Structural View of U.S. Bank Holding Companies”, was covered July 23 by Bloomberg News :

    “Critics including Thomas Hoenig, a Federal Deposit Insurance Corp. board member, say the biggest firms are too complicated to manage,” Bloomberg noted. “The 1999 repeal of the Depression-era Glass-Steagall Act was the main catalyst for the biggest banks getting bigger, the Fed study concluded. The assets of the largest lenders have since tripled to $15 trillion.

    “Hoenig has called for reinstating Glass-Steagall, which separated investment and commercial banking, while [Sen. Sherrod] Brown’s proposal would limit asset size.”

    What the NY Fed study showed is that after Glass Steagall was weakened by Greenspan leading to its repeal, the biggest U.S. bank holding companies started to explode their subsidiary units — typically from 100 or 200 (mainly for cross-state and foreign banking), to 2-3,000 by 2011, by buying and creating huge networks of subsidiaries subject to overlapping but different regulatory regimes. This is historically typical of investment banks, the NYFed authors note, and Goldman-Sucks and Morgan Stanley lead the pack with 3,000 or more subsidiaries each, matched by JPMorgan Chase among the huge formerly commercial banks.

    The six biggest U.S. banks created more than 10,000 subsidiaries overall, “using the legal structures to pay lower taxes and escape tighter regulation.”

    Even more importantly, as the study shows with charts, after Glass-Steagall repeal the big bank holding companies shifted capital and assets from their commercial banks into the growing maze of securities, derivatives, hedge fund, wealth management, etc. units. By 2011, some 23% of BoA’s $2.15 trillion in assets were in such “casino” units; 32% of Citigroup’s $1.875 trillion in assets had gone gambling; and 14% of JPMorgan Chase’s $2.265 trillion in assets.

    The NYFed authors don’t make the point as such, but here is the origin of the huge “shadow banking sector” of 2007 notoriety. As for the pure gamblers permitted in 2008 to have bank holding company licenses — Goldman Sucks and Morgan Stanley — they have 89% and 90%, respectively, of their assets in securities, derivatives, casino banking generally.

    Bloomberg’s coverage, again citing Hoenig, also took up the implications for the Dodd-Frank Act’s so-called “power to resolve” (wind up) such huge banks failing in a crisis. “It’s harder for regulators to use such powers to scale back the largest financial firms, rather than specific laws that would disassemble them, such as Glass-Steagall, Hoenig said. `In good times, it’s very hard to break them up. Anything but very bad times, it’s very hard to justify the breakup, because it requires the presumption that they will bring the system down. That’s a very significant judgment.’”

    Repealing Glass-Steagall, as Sir Alan Greenspan produced “irrational exuberance” – see above what he referred to. Deregulation did this, libertarians were given a free hand. Out of this did not spring any spontaneous order, but chaos. To even fantasize that some trick like “sound” or non-destructible money could in any way rain on this parade is pure insanity.

    That is why we need to put Glass-Steagall back in effect now.

    • Tony Brogan

      “libertarians were given a free hand. Out of this did not spring any spontaneous order, but chaos. To even fantasize that some trick like “sound” or non-destructible money could in any way rain on this parade is pure insanity.”

      Another deliberate smear campaign from bon bon.
      So called liberals may have wanted to free up the regulations but you can not lay the blame for the banking debacle at the feet of libertarians, who believe in personal freedom and are opposed to all the nefarious schemes of the central banks and their offspring the commercial banks. Put the blame where it belongs. With the banks.
      The central banking system is for control and interderence in the market. The twisting and manipulation of the bond markets, the interest rates the increase in the money supply. This is the mark of collectivism not libertarians.
      you bob bon spread your dislaike of liberty and libertarians through inuendo.
      Nobody has suggested that the implementation of sound money would fix the current debt problem which has to run its course of default or hyperinflation. It.s purpose is to be in place to provide the stabilty in the monetary systen that will prevent another such debt cycle from taking place.It is not a “trick”" but a historically proven devise for a sound , honest economy not inhabited by liers,cheats ans frauds.

      Neither will the implementation of a Glass/Steagal type act solve the current debt problem. It is unlikely to solve the future problems either. The Irish banks went down as commercial banks because of bad lending practices not because of anything that may have been prevented by a Glas/Steagal law.
      The horse in any event is out of the barn. too late to close the door now.

      You are one of those who define gold and silver as barbarous relics of a bygone era. You will be proven wrong and already two thirds of the world disagrees with that suggestion.
      India and China are avid buyers as is Vietnam and South Korea as well as the Arab people, Turks and Iranians.
      You can disagree if you wish but lets be rid of the derision and sneering when discussing these issues.

      • bonbon

        Anyway the bankers themselves have now realized the mistake of libertarianism, Ron Paul better read the press clips I post below very quickly. Is he opportunist enough to now call for Glass-Steagall regulation as up to 1999 (he apparently did not vote to repeal it)?

        This is the test of character, arriving now on a press headline near you.

        • Tony Brogan

          Oppotunism may be a characteristic you desire in a politician. but what’s to trust about that.
          I prefer the integrity of Ron Paul. Steadfast in the storm. I can trust that.
          Glass Steagall may have had some effect as you desire but better that a bankrupted bank should go under.
          The sham of consummer protection of the deposit is the reason given for the bailout.
          If we have to have deposit protection insurance (I debate that) the the government could have bailed out the depositors directly and let the bank go to the wall. GS or no GS.
          There are recent commercial instutions gone under and no reimbursement has been offered to the depositor.MF Global and Peregrin for a couple.

          • bonbon

            It is getting a bit late for Paul. He had a blog on Glass-Steagall a while back, but di no or could not move on it. Anyway this decisive move was in Britain, who actually own the financial system. Ron Paul does not seem to realize that (never mind Mitt or Obama).

            This blindspot, in my opinion is caused by a devotion to his particular economics school.

  34. The first and most valuable investment for any Irish person is a new 10 year express Passport .

    Check your expiry date now because that date might be your real expiry date in life too .

  35. Dorothy Jones

    Angela Merkel…not only ‘a cautious politician’ ‘who never moves from her electoral roots’…but also not a ady who allows a minor detail such as the fall of the Berlin Wall affect her weekly routine…nice little piece of trivia on this sunny day :) :) Same behaviour in the face of this crisis. Anyway…from The Guardian Nov 5 2009:

    ”’Angela Merkel: I took a sauna while Berlin Wall fell”’

    Pragmatic German chancellor reveals that she stuck to weekly routine despite momentous events in 1989


    • bonbon

      Well she will not have the liberty of a sauna on the Euro-Titanic. Others from Leipzig walked to Berlin, foregoing sauna for principle. The Zig-Zak Kanzlerin is now in a squeeze, making statements with Draghi (great leader) and sidekick Hollande, from the bunker. Add to that the Constitution Court deliberations and ESM delay.

  36. bonbon

    This is how things are done in the real world. More banking elite have now moved to save themselves and everything – to stubbornly continue to consider the Glass-Steagall call “marginal” is in danger of blowing the world up. So Britain made the move, followed by US coast-to-coast huge “mea-culpa’s”.

    CRISIS ALSO CONVERTS THE {NEW YORK TIMES}: Editorial for Glass-Steagall.

    LOS ANGELES TIMES EDITORIALIZES: We Need Glass Steagall, not Volcker Rule.


    Posted here is Citi’s ex-chief’s mea-culpa picked up by all major press outlets.

    Extracts from editorials :

    NYT In a July 26 editorial on how banker Sanford Weill has remarkably converted to supporting restoration of Glass-Steagall, the New York Times announces, “We do, too.”
    The editorial is titled, “The Big Banker’s Change of Heart”:
    “Sometimes, in a great national debate, the most powerful voices can be those of the converted…. Now add to the list Sanford Weill, the financier who led the charge for the repeal of the 1933 law that separated commercial banks from investment banks….

    Los Angeles Times editorial titled “Breaking up the Megabanks” urges Congress to act to protect the nation from another banking meltdown, with Glass-Steagall, not the Volcker Rule.
    “Former Citigroup honcho Sanford I. Weill is widely seen as the man most responsible for the rise of `too big to fail’ banks …. This week, however, Weill shocked the financial industry when he said that megabanks should be broken into smaller pieces, separating the arms that take federally insured deposits from the ones making bets on Wall Street.

    FT lead editorial “Sandy Weill Stages an Epic,” with the kicker, “Better to restore Glass-Steagall than a weak Volcker Rule,” congratulates former Citigroup CEO Sandy Weill for his call for a return to Glass Steagall.
    “By standards of conversion, Mr. Weill’s change of mind must qualify as being up there with St. Paul’s on the road to Damascus” …

    Just a small clip from the real world. Draghi meanwhile …

  37. bonbon

    Finance Watch, an international association formed in 2010 by 22 members of the European Parliament to reform financial regulation and present proposals to the public and to lawmakers, Publishes List of International Bankers Calling for Glass-Steagall Separation of Banks.


    states July 26: “Here is a list of senior bankers calling for the complete separation of retail from investment banks. Some, such as former Citigroup CEO Sandy Weill, have reversed their previous opposition in what the Financial Times has dubbed an epic conversion. They join the chorus of commentators calling for simple, structural reform that goes beyond the US’s Volcker and UK’s Vickers proposals. Some of the more notable names are below…

    ** Sandy Weill, former CEO Citigroup
    ** Andrea Leadsom, British Conservative MP and former senior banker at Barclays
    ** Nikolaus von Bomhard, CEO of Munich Re
    **Luigi Zingales, professor at the University of Chicago Booth School of Business
    ** Liam Halligan, chief economist at Prosperity Capital Management and Daily Telegraph economics columnist
    ** Peter Hambro, chairman of Petropavlosk and scion of Hambros Bank family
    ** Lord (Paul) Myners, former British Labour MP and City Minister, former CEO, Gartmore Group
    ** Financial Times editorial 3 July 2012
    ** Terry Smith, CEO Tullet Prebon
    ** John Reed, former Citigroup chairman
    ** Stanislas Yassukovich, former chairman Merrill Lynch Europe
    ** Lord (Nigel) Lawson, former British Conservative MP and chancellor during big bang
    ** Sir Brian Pitman, former LloydsTSB chairman
    ** Mervyn King, governor of the Bank of England

  38. bonbon

    American Banker Magazine Says Weill’s Call Rivets Washington, and Glass-Steagall Issue Raised by LaRouche No Longer “Marginal”

    July 27, 2012 (LPAC)–American Banker Magazine, a financial daily with 10,000 bank subscribers, reported on Wednesday that both Democratic and Republican congressmen were thunderstruck by Sandy Weill’s comments, “suggesting a new openness to the argument that the nation’s largest banks should be broken up.”

    Citi is the poster child of the Too Big To Fail problem, the center of the crisis. I’ll bet my last Euro (framed nostalgic relic) Draghi reads this. And Geithner.

  39. bonbon

    Draghi, Hollande and Merkel in the Bunker

    July 27, 2012 (EIRNS) — ECB President Mario Draghi donned the Nazi helmet and Hitler moustache yesterday and announced that the ECB will lead the euro to “final victory.” He was followed in goosestep by French President François Hollande and German Chancellor Angela Merkel, who did the same thing. That is the meaning of Draghi’s announcement in London yesterday that the ECB will defend the euro “at all costs,” and of statements by Merkel and Hollande to the same effect after a phone conversation among the oligarchy’s three stooges.

    Draghi has put himself in the same situation as his predecessor and mentor at the Banca d’Italia, Carlo Azeglio Ciampi, who in Summer 1992 squandered $48 billion in defense of the lira from speculativ assaults, before surrendering and leaving the European Monetary System.

    The situation of Italy’s central bank in the EMS at that time is comparable to the ECB’s situation in the EMU today. Central banks can defeat speculation only by banning derivative contracts, future sales, and implementing capital controls. In other words, close down the private monetary system.

    As the Banca d’Italia offered up the lira on a silver platter to the Soros-led speculation in 1992, today Draghi is offering the euro on a silver platter to basically the same interests. By announcing that he will defend the indefensible in the coming speculative assault, Draghi is guaranteeing huge profits to his former colleagues at Goldman Sachs, etc., who will place winning bets against the euro.

    The ECB has limited options and limited resources. It can theoretically rely on the Eurosystem (the system of national central banks of the Eurozone), but this must be activated and might find resistance, for instance, at the Bundesbank. What Draghi can do is: buy government bonds (probably Italian bonds) on the secondary market, parallel to the EFSF (as mooted in an article in France’s {Le Monde} today); issue another LTRO, maybe at longer term than three years.

    That looks like a few V1-V2′s against a massive invading force.

  40. bonbon

    Question : has any of this toxic interest rate swaps been going on here?

    Prato City Councilman Calls for `Baltimore’-Style Class-Action Lawsuit vs. LIBOR Fraud and Action for Glass-Steagall

    July 27, 2012 (EIRNS)–Prato, Italy City Councilman Nicola Oliva has called on the Prato city administration to follow the example of U.S. cities such as Baltimore, and lead an Italian class-action suit against the banks responsible for manipulating the LIBOR rate and selling toxic interest swaps to local Italian governments, authorities, and utilities, including the City of Prato itself.

  41. bonbon

    Amazing that Draghi invites a major speculative attack with such public statements. It must be desperation not to realize he onslaught is about to happen. Bets already placed.
    Draghi’s financial “Wunderwaffe” mutterings from the bunker could ruin us.

    Refreshing to hear bankers themselves instead calling for breaking up the TBTF’s at the center of this mayhem, with a huge mea-culpa.
    Are Draghi, Merkel, Holland capable of adopting this call? Can they step out of the bunker?

  42. bonbon

    Collapse of Euro, Return of Peseta Discussed in Spain

    In recent days, Spanish media have been portraying scenarios of a collapsing euro, and of Spain then being forced to return to its old national currency, the peseta. Jose Luis Gomez, a leading columnist at the news daily El País, wrote yesterday in his blog that a total failure of the euro and a return to the peseta cannot be excluded.

    Today, the media (including Spanish ones in Ibero-America) report about a brand new survey done by the research department of BBVA (Banco Bilbao Vizcaya Argentaria), one of the biggest banks of Spain, investigating the total collapse of the euro, and the “return of each country to its original currency.” Other big international banks active in Spain have done calculations as well, on a return of the peseta: Japan’s Nomura believes the Spanish currency would depreciate against the euro by 35.5%; Switzerland’s UBS, Citigroup, and the Dutch Rabobank expect depreciations in the range of 40 to 60%, during the reintroduction period of the peseta.

    El Periodico del Aragon reported (07/22/12) under the headline “From the Euro to the Peseta?”, that Kai Konrad, Chairman of the Council of Scientific Advisors to the German Ministry of Finance, told some 200 Spanish bankers and businessmen a week ago, that “we cannot guarantee that the Eurozone will be sustainable.” Konrad, invited by the Aragon businessmen’s association, ADEA, said that a break-up of the euro would be costly, but people overestimate what Germany, with its own debts, can do financially, and there will be no bailout of Spain like that of Greece or Ireland. Hence, El Periodico’s headline.

    This just shows that whereas leading politicians like German Chancellor Merkel, French President Hollande, and ECB President Draghi are still launching big propaganda for the “rescue of the euro,” bankers and others are already preparing for the failure of the euro, and beginning to think about something else (some of them even warming up to the idea of bank separation now).

    • bonbon

      So preparations are underway for both Glass-Steagall bank breakup and the breakup of the Euro. Draghi, Merkel, Holland must realize this, so what’s their game?

  43. Tony Brogan

    This sudden interest in the reapplication of a glass/steagall legislation has had me baffled.
    I have considered it a red herring disguised as a solution to the banking problem while allowing the banks to continue their plundering of society.
    In my opininion the real problem is the central banking system itself ans its over load the BIS and it hirling the IMF aided and abetted by the UN and various political committees and organizations.

    Searching for a connection to Libertarianism and the repeal of G/S all I have come up with to date is

    President Clinton and a coterie of Republicans and Democrats passed the legislation to repeal GS. Hardly the hideout of closet libertarians or overt ones either.

    And a discussion on a libertarian blog on GS. Here it is

    Of note to me was this paragraph

    This point from Tom Woods:

    When we recall that stand-alone institutions, both commercial and investment, also failed during the crisis, and that all of them acquired mortgage-backed securities (which they had always been allowed to do, by the way), the Glass-Steagall “repeal” looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place.

    (The problem with those who point to Glass-Steagall is not that they’re radical. It’s that they’re not nearly radical enough. They think the system as is, shot through with moral hazard at every level, and presided over by a market-defying central bank, is of its nature stable and without fault; we just need a few regulations.)

    As usual with matters involving the Fed, there’s more here than meets the eye.

    • Tony Brogan

      over load the BIS
      Should read “overlord the BIS”

    • bonbon

      That’s the Barney Frank argument cited below. He spoke on the Floor to repeal GS and now says it is not needed. About as powerful an argument as “you cannot put the scrambled eggs back in the toothpaste tube”.

      Various FED quotes are also cited below. No need to look for some weird thing. Glass-Steagall is on the table since July4 FT’s headline from Britain where they have decided to move on this. They sprung it on everyone, a standard tactic. Sandy Weill did it too. That’s why sombre crystal ball gazing statements about the future are utterly incompetent. History works differently, as demonstrated.

  44. Tony Brogan

    You want someone to trust? Well this isn’t it

    27 July 2012

    By Greg Hunter’s USAWatchdog.com

    Once again, Syria is at the top of the News Wrap-Up. Russia is sending a large contingent of marines to Syria. They will park off the coast, ready to go ashore if needed. I told you this was not going to go down like Libya. Russia has a naval base in Syria and is a big ally of the Syrian government. Now, Iran is saying it will come to the help of the Syrian government and will not permit a regime change. This is a bloody civil war that has claimed the lives of nearly 20,000 Syrian citizens. There is no end in sight.

    Treasury Secretary Tim Geithner was in the Congressional hot seat this week. Geithner was grilled with questions as to why he did not call a halt to the multi-trillion dollar Libor global rate rigging fraud. The big bankers are going to say Mr. Geithner, who was at the New York Fed when this started, basically gave his tacit approval for the fraud. I look for him to be sacrificed by the bankers over this mess.

    Former CEO of Citi Group, Sandy Weill, says the big banks should be broken up. What? He was one of the architects of the big bank “supermarket” model. What do you want to bet the banks will shave off the productive assets for investment banks and leave taxpayers with the debt and toxic garbage to clean up? What a weasel!!!

    Ron Paul got his “Audit the Fed” bill through the House with a lopsided 327 to 98 vote. I don’t think it will make it past the Senate, but if it does, Obama will surely kill it with a veto.
    You want to know how $1.6 billion of client money can be “vaporized” in the MF Global bankruptcy and not a single charge be filed against CEO Jon Corzine? Well, it was revealed this week that MF Global was a client of Attorney General Eric Holder’s former law firm. We have a nation of men, not laws.

    Finally, you think the government does not censor the news? Think again. The New York Times published a story two weeks ago that admitted most mainstream news organizations (including the Times) allow the Obama and Romney campaigns to approve quotes. I call that censorship, and that is from the New York Times. You wonder why sites like this one are growing and the MSM is shrinking. Greg Hunter gives his analysis of these stories and more in the Weekly News Wrap-Up.

    Link for analysis –


    • bonbon

      The NYT “newspaper of record” is usually so controlled by banking interests, like the FT, that when a coordinated transatlantic (and L.A.) repeated call for bank breakup occurs, one knows a powerful banking faction has decided to act. This opened the door for mea-culpa’s from Sandy Weill, the main banker pushing Larry Summers, Sir Alan Greenspan and Barney Frank to repeal GS. Poor incoherent Frank, sputtering, was not informed of the move by his patrons. But then that is the way Britain does things, what?

      Obama and Romney maybe are too dim to realize their owners have just changed the game.

  45. bonbon

    Some are “baffled” at the international calls for Glass-Steagall that Britain decided was the only way to survive with the July 4 FT headline.

    Citi Bank chief Sandy Weill’s Glass-Steagall Call Drives Barney “Wall Street” Frank Wild

    Mass. Rep. Barney Frank, Ranking Member of the House Financial Services Committee, gave a rage-filled interview to CNBC’s Maria Bartiromo July 26, responding to her question on whether Sandy Weill were right, with a sputtering, lisping, spitting howl that “This is not a useful time to be talking about [Glass Steagall]. You can accomplish much of what Sandy Weill is talking about” with the Volcker Rule.

    When Bartiromo said that no one is even clear on what the Volcker Rule is or how it’s supposed to work, Frank became even more agitated, insisting that this is not true, and that it of course includes provisions that banks shouldn’t be involved in non lending activities. But as for bank separation, he said, growing more apoplectic by the minute as Bartiromo pressed him,
    “it’s not good to do something so drastic.” If Sandy Weill thought this was a good idea two years ago, he complained, “he should have fed it into the debate” about Dodd-Frank. Frank was beside himself by the time he finished the interview.

    Recall that it was Bailout Barney who spoke from the floor of the House in 1999 in favor of repealing Glass-Steagall, and who now lies that Glass Steagall “wouldn’t have made any difference” to the ensuing global speculative bailout. Bob McTeer, former head of the Dallas Fed, spouted the same line in a July 25 article in {Forbes} entitled “Glass-Steagall Has Nothing to Do with the Financial Crisis,” going so far as to claim that “this is the second crisis wrongly blamed on [the absence of] Glass-Steagall, the first being the Great Depression, which gave rise to it.”

    Wow that a powerful argument against Glass-Steagall! I will cite now more powerful arguments from bankers in total psychological disarray after Sandy Weill’s shocking headline, to help the “baffled” : “You can’t put the scrambled eggs back in the toothpaste tube”.

  46. bonbon

    For the “baffled” about Sandy Weill’s call for breaking up banks, ye are in good company!

    Shell-shocked incoherent psychological disarray from opponents of Glass-Steagall.

    A July 27 Reuters wire, headlined “Banks bristle at breakup call from Sandy Weill,” cites an unnamed former top banking executive saying that “unscrambling the egg” is one of the main difficulties in any plan to separate the banks, with the familiar exercise of setting up a straw man–presenting the issue as the {size} of banks, as opposed to the {types} of banking activity they engage in–to then argue back and forth about “the benefits of being big.” JP Morgan’s former head William Harrison is cited attacking Weill: “I don’t buy it. It gets back to management and risk- taking, and you can screw that up at a small bank or a large bank.” Harrison added that he would “hate to see the anger toward bankers lead to a breakup of big banks and the efficiencies they bring to the U.S. financial system,” Reuters wrote.

    Retired Wells Fargo CEO Richard Kovacevich preferred word play: “Why this concept that investment banking is risky? Investment bankers are risky, not investment banking”–an approach one journalist described as “Rumsfeldian existentialism.”

    And then there is retiring Sen. Chris Dodd (D CT), who certainly knows what side his frank is buttered on: It’s unrealistic to think about breaking up the banks, he told CNBC. And anyway, Weill’s real message is that banks will be worth more if they break up into smaller pieces. Examiner.com’s Dominique Doms also engaged in a bit of “What Weill really meant to say was…”: “What Mr. Weill meant was that the current financial structure of both US and international banks needs an adaptation mechanism… There really is no need to turn the clock back in time.”

  47. bonbon

    Frankfurter Allgemeine Zeitung in Defense of Suicidal Bankers, Opposes Weill

    Reporting on the Weill interview, but not in much detail, the {Frankfurter Allgemeine Zeitung} today tries to downplay his remarks, alleging they are driven by mere envy, because of the bad market performance of Citigroup compared with other big banks–which he, the article claims, want to change by carving up these banks, such as Bank of America or Wells Fargo. The latter are the ones, the FAZ writes, that have also benefited the most from the repeal of Glass-Steagall, which gave the banks generally more freedom to develop. The real problem is not the size of banks, FAZ claims, citing William Harrison, the former CEO of JPMorgan Chase, who views banking separation as “nonsense,” arguing that “what counts, is the management of the risks one has engaged in, and that can be messed up just as much at a small bank as at a big bank.”

    Quite a difference, between the pro-Weill position of the {Financial Times} in London during the past days, and the anti-Weill position of the mouthpiece of apparently suicidal German bankers, the FAZ.

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