Financial Crisis: So much for tirades against American greed

Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts.


Telegraph
London
By Ambrose Evans-Pritchard
Last Updated: 11:22PM BST 01 Oct 2008

It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status". Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary.

By Monday, Mr Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was "staring into the abyss," he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).

Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s. Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe's dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons.

We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have saved Europe.

Most eyes are still on Washington, but the core danger is shifting across the Atlantic. Germany and Italy have been contracting since the spring, with France close behind. They are sliding into a deeper downturn than the US.

The interest spreads on Italian 10-year bonds have jumped to 92 points above German Bunds, a post-EMU high. These spreads are the most closely watched stress barometer for Europe's monetary union. Traders are starting to "price in" an appreciable risk that EMU will break apart.

The European Commission's top economists warned the politicians in the 1990s that the euro might not survive a crisis, at least in its current form. There is no EU treasury or debt union to back it up. The one-size-fits-all regime of interest rates caters badly to the different needs of Club Med and the German bloc.

The euro fathers did not dispute this. But they saw EMU as an instrument to force the pace of political union. They welcomed the idea of a "beneficial crisis". As ex-Commission chief Romano Prodi remarked, it would allow Brussels to break taboos and accelerate the move to a full-fledged EU economic government.

As events now unfold with vertiginous speed, we may find that it destroys the European Union instead. Spain is on the cusp of depression (I use the word to mean a systemic rupture). Unemployment has risen from 8.3 to 11.3 per cent in a year as the property market implodes. Yet the cost of borrowing (Euribor) is going up. You can imagine how the Spanish felt when German-led hawks pushed the European Central Bank into raising interest rates in July.

This may go down as the greatest monetary error of the post-war era. The ECB responded to the external shock of an oil and food spike with anti-inflation overkill, compounding the onset of an accelerating debt deflation that poses a greater danger. Has it committed the classic mistake of central banks, fighting the last war (1970s) instead of the last war but one (1930s)?

After years of acquiescence, the markets have started to ask whether the euro zone has the machinery to launch a Paulson-style rescue in a fast-moving crisis. Who has the authority to take charge? The ECB is not allowed to bail out countries under EU treaty law. The Stability Pact bans the sort of fiscal blitz that has kept America afloat. Yes, treaties can be ignored. But as we are learning, a banking system can implode in less time than it would take for EU ministers to congregate from the far corners of euroland.

France's Christine Lagarde called yesterday for an EU emergency fund. "What happens if a smaller EU country faces the threat of a bank going bankrupt? Perhaps the country doesn't have the means to save the institution. The question of a European safety net arises," she said.

The storyline is evolving much as eurosceptics predicted, yet the final chapter could end either way as the recriminations fly. Germany has already shot down the French idea. The nationalists are digging in their heels in Berlin and Madrid. We are fast approaching the moment when events decide whether Europe will bind together to save monetary union, or fracture into angry camps. Will the Teutons bail out Club Med? If not, check those serial numbers on your euro notes for the country of issue. It may start to matter.

Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status".

the American Superpower Express is racing down the track and like it or not you're on for the ride. hang on tight cause there's no gettin off...lol, FTW...

Always nice to see the Zeuros eating shit.

We may touch down hard, but we will also be the first out. Not so for our Atlantic cousins.

However, are libtards are working over time to tank the economy further. See Harry Ried warning of a major U.S. insurance giant about to fail. That should blow the markets out of the water tomorrow

A phyrric victory, but a victory none the less considering what we have been thru here on this site lately. I would much rather brag about our profits...

LOL

The Telegraph and its manifesto.

He forgets to mention it is a very fucking good thing that the UK is not part of the Eurozone - it has the shittiest banks of any country. Today, the chief of the FSA warned of possible further failed British banks. That would really fuck the Euro.

I can't wait for a run on the Pound: baked beans in Gibraltar will cost €0.10!

Here you go, degenerate genderless Spic who knows about economy only that it is based on free fish, at least in Spain, opines. It is time to do bikini and back wax to your mother in law, retard. Hurry up or they will leave you without the fish meal!

We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have saved Europe.

ROFLMAO!!! Fuck France!

from zee times

European policymakers clashed on Wednesday over how to protect Europe’s financial system from the global credit crisis as France floated the idea of a common fund to deal with bank failures.
Christine Lagarde, the French finance minister, raised the possibility of a European fund “to support the financial sector”. But the idea of a fund, which some European officials said could hold as much as €300bn, was rejected by Germany, and France was already rowing back.

PADDLE MOTHER FUCKERS

The UK is also sceptical, preferring to tackle crises on an ad hoc basis, although officials at the Bank of England and Treasury are working on a range of plans in case the need for a more co-ordinated approach arises.
French officials said later that France was not pushing a specific plan but the idea of a pool would be discussed among other ideas at a meeting of European leaders in Paris on Saturday.

pffft

I'm back at 2.8 cents away from another 9 n a half million, what am i gonna do with it ? down payment on another building .
slumlord fryer has a nice ring NON and funny how I have no probs securing l/o/c's and loans
cash and hard assests are KING, THEY are rolling over for guys like me right now.

its aboot 9am in tokyo i got my nip girl in a frenzy
I'm pushing my other two targets back and holding. I'm gonna suck the fucking marrow out of dem bones

I ain't even going into work for the rest of the week . I'M GOING RIDING tomorrow morning then gonna go look at some more properties early in the afternoon while the fucking world panics.

Trafalgar wrote:

UK is not part of the Eurozone - it has the shittiest banks of any country.

Tranny the EUnuch,

Oh really? How's them Spanish banks doing, Tranny? How's Spanish real estate doing?! How's the "economic expertise" of Zapo and his brain dead socialist hacks working out, eh?

Spaniards are waking up to discover that their economy is in a free-fall without a parachute.

Indeed, the country is being buried daily by an avalanche of depressing economic news, with jobless numbers spiraling upwards, and growth projections being revised downwards, faster than most Spaniards can say ¡Viva España!.

Spain has been reeling from the collapse of a housing bubble that for the last 15 years has enabled the notoriously uncompetitive economy to post some of the highest growth rates in the European Union. The Spanish Banking Association says that Spanish growth will probably be negative in 2008. By comparison, the Spanish economy grew by 3.8 percent in 2007.

Spaniards are suddenly realizing that Socialist Prime Minister José Luis Rodríguez Zapatero has spent the better part of the last four years peddling economic snake oil. Economists both at home and abroad have warned for many years that Spanish prosperity was based on the shaky foundations of a highly speculative construction sector, and that Spain was especially exposed to global financial turbulence due to its high level of private sector debt, poor competitiveness and dependence on foreign financing. But Zapatero convinced a willingly gullible electorate that they could defy economic reality through the power of positive thinking.

Now even the most hapless among the socialist masses are beginning to have second thoughts about Zapatero’s postmodern feel-good approach to economic policymaking. After all, even the “Champions of Europe” have mouths to feed and bills to pay. According to an opinion poll published by the leftwing Cadena Ser radio station, nearly two-thirds of all Spaniards (64 percent) say the measures adopted by the government to deal with the slowing economy are “insufficient.”

In fact, Spaniards of all political stripes are increasingly annoyed with Zapatero’s now-legendary refusal to acknowledge that Spain is facing an economic crisis. The Socialist government, which likes to make-believe that all problems are imaginary, recently provoked uproar by downplaying the scale of Spain’s economic troubles. In an interview with the Socialist mouthpiece El País, Zapatero asserted that the idea that Spain was actually in trouble was “opinionable.” He said that “it all depends upon what we mean by crisis.”

Considering that millions of once-prosperous Spaniards are suddenly struggling to make ends meet (more than 100,000 Spanish homeowners are expected to default on their house payments in 2008), such neo-linguistic gymnastics are not as amusing as they once were: Zapatero’s approval ratings are now on a downward trajectory for the first time since he was re-elected 100 days ago.

Even the London-based Economist Magazine, which has spent the last four years uncritically singing Zapatero’s praises, appears finally to be parting ways with the beleaguered prime minister. On July 3 it reported that Zapatero’s “popularity is now tumbling, in line with the economy. The litany of bad news has become interminable. Growth is slowing sharply and unemployment is rising. The housing bubble has burst and residential construction has seized up. Prices of petrol, electricity, food and a host of other things Spaniards buy have all gone up sharply, as (on July 3rd) did euro-area interest rates.” Ouch!

www.brusselsjournal.com . . .

Spanish debt default spiral threatens banks

By Andrew Hay

MADRID, Sept 25 (Reuters) - Spain's debt-laden companies and households are among the world's most vulnerable to intensifying credit market turmoil and are already experiencing soaring debt defaults that will hit Spanish banks.

After crises in 1978 and 1993, Spain put in place legal requirements for banks to maintain high reserve levels, and the Bank of Spain says current bad debt provisions could be drained by over half before institutions face any stress.
Strict Bank of Spain investment regulations mean the sector has zero exposure to U.S. subprime debt.

What could cause problems for banks, and deepen Spain's economic crisis, is if the rise in defaults is higher than expected and the paralysis in world money markets drags on.

Having run up the world's second biggest current account deficit, the private sector faces the bulk of debt repayments in 2008 and 2009 as Spain slides towards its first recession in 15 years and cash flows dwindle.

"The banks can survive for at least a year, the principal problem is the level of bad debts coming in," said Intermoney Chief Economist Jose Carlos Diez.

SHIFTING RISK

Servicing debt has become a problem due to Spain's reliance on foreign funds to balance a current acccount gap that hit 100 billion euros ($147 billion), or 10 percent of GDP, in 2007 and was second only in absolute terms to that of the United States.
Firms and households gorged on cheap euro zone credit between 2002 and 2005 in the heaviest period of private sector borrowing in modern Spanish history as a property boom peaked.

The boom imploded this year after chronic overbuilding, forcing Spain's biggest property company Martinsa Fadesa to file for administration.

Defaults hit a 10-year high 2.15 percent of all outstanding bank loans in July.

There is high risk among home owners who took out variable rate mortgages at the height of the market and face a record 5.45 percent Euribor interest rate, falling house prices and the fastest rising unemployment in Europe.

"Spanish family debt has reached a dangerous level," the ASGECO consumer rights group warned on Wednesday.

Since the credit crisis began 13 months ago, the country's four principal banks and savings banks have reinforced reserves by restricting lending, capturing more savings and selling stakes in major industrial holdings.

By protecting themselves, they have passed on risk, said Diez, adding that the banking system faced no threat while giants Santander, BBVA, Caja Madrid and La Caixa remained sound.
"The problem is that they have removed risk from the banking system and put it in the real economy," he added.

The result, says Spain's FUNCAS savings bank consultancy, will be a threefold increase in the default rate to around 6 percent by late 2009 and a rise in unemployment to 16 percent by 2010 from a current 10.4 percent.

Such a default rate can easily be absorbed by banks, but the level may go higher, said Funcas analyst Angel Laborda.

"There is a very serious risk a lot of companies go bankrupt and thousands of workers lose jobs, but it will not take down the system," said Laborda.

NO BAILOUTS

Convinced Spain's banks can withstand the credit shock, Spanish Prime Minister Jose Luis Rodriguez Zapatero sees debt problems concentrated among property and construction firms which together hold 25 percent of all outstanding debt.

"We have very high solvency and provision levels, higher than those of the financial systems in any comparable country," Zapatero told U.S. business leaders in New York on Wednesday.
Business lobbies and analysts warn around half of all corporate debt is held outside the housing sector and household credit problems are worse than the government admits.

"It's inevitable you're going to get more corporate bankruptcies and I'm sure that will swing back and affect the banks," said economist David Owen at Dresdner Kleinwort.

Spain's biggest business group, the CEOE, has warned of systemic corporate failures and the loss of a million jobs unless firms are offered state bailouts.

"Companies are going to collapse, one after the other," CEOE President Gerardo Diaz Ferran told Spain's El Pais newspaper.
Economy Minister Pedro Solbes says Spain's default rate remains relatively low and refuses to socialise corporate losses via loans from the ICO state credit agency.

He says a possible recession would be a more effective means of tidying up corporate balance sheets and cutting economic over-dependence on construction and housing.

"If it helps clean up the economy and bring recovery, it's of no importance," Solbes recently told Congress, when asked about the risks of negative growth.

www.guardian.co.uk . . .

And all Zapo can do is beg the European Central Bank-see Germany-for handouts. Zapo the moron can do nothing to help Spain short of shuffling the deck chairs on the titanic.

On the other hand, UK banks have HM's Treasury and the Bank of England on their side, if necessary. (Those are British instututions just in case you forgot...)

But what do you care? I'm sure pool boys can always start begging German tourists for a few pennies on the beaches of Majorca!

Bring on the free fish


An economy fueled by resort construction - lol - suck it spictards.

Santanders banks(spanish) are buying english banks. So,how it is possible in your opinion ?

I did not understand well aig,europe and 300 billions.

Otherwise,it is obvious their economy is fragile.It is based a lot on the real estate.Not the case of France.

France will be obliged to nationalize several banks probably and partially and not definitively.

BAL ,you created this crisis but you keep your arrogance ?

What does it mean ? If you are not reliable,europe must stop making business with you ?

the only way to protect us?

Otherwise,it is obvious their economy is fragile.It is based a lot on the real estate.Not the case of France.

Simple, why do you keep repeating this nonsense? I've posted this article from The Economist before:

In Europe, prices have long been at dizzy heights in Ireland and Spain, but over the past year have also spurted at rates of 9% or more in France, Italy, Belgium, Denmark and Sweden. Both France (15%) and Spain (15.5%) have faster house-price inflation than the United States.

www.myprops.org . . .

France is going down, Simple. Don't live up to your screen name by denying the obvious.

"Both France (15%) and Spain (15.5%) have faster house-price inflation than the United States."

And then ? it is a question of supply and demand. And it is 110% of increase in 15 years i think.

But do you know it is 220 % in uk in 15 years ?
So what,everybody will explode ?


I don't think so.

simplefrench wrote:

Santanders banks(spanish) are buying english banks. So,how it is possible in your opinion ?

It is ONE bank, Simple. It is also tiny by US, UK and Japanese standards.

simplefrench wrote:

I did not understand well aig,europe and 300 billions.

"AIG Europe says that it provides insurance to more than 85 percent of the European companies on the European FT 500, a broad index of large companies, and many other small and medium-size businesses.

According to a filing in late June with the U.S. Securities and Exchange Commission, AIG had written $447 billion worth of credit protection on such securities, approximately $307 billion of it to institutions in Europe."

www.iht.com . . .

AIG has its hands throughout Europe's economies, and France as well. It's failure would have had huge reprecussions for France.

simplefrench wrote:

BAL ,you created this crisis but you keep your arrogance ?

You mean we forced European banks to invest in crazy US real estate schemes? Interesting theory, Simple...

simplefrench wrote:

the only way to protect us?

Number one is to withdraw from the European Monetary Union and return to the Franc immediately; then support French entrepreneurs, fund research and development of all types; make English mandatory in schools. But for God's sake forget trying to pursue the myth of "europeanism" and think of France!

In the short term, get every free handout from the ECB that you can

FTW

unclebernie, I agree. KOTR for a saying I have not seen since I got out of the service




FF lol

"AIG has its hands throughout Europe's economies, and France as well. It's failure would have had huge reprecussions for France."



not only for France.For europe. And if what is said is true,it is obvious it has repercussion.


But you know, normally, an insurer is supposed to assure( a protection in short), not to be in bankruptcy. LOL


And they offer "credit protection" .What kind of protection please ? it is not enough precise.

The loans in France are rather safe. if you don't have serious incomes,you can't have a big loan(an house for example). Almost impossible.

Bal

Often,when there is a very serious world crisis, in general,there is a War after.See 1930's.

hear specialists,it is not something to exclude totally.


You imagine, a war because you sold 3 millions of houses to supertramps ?

simplefrench wrote:

Bal

Often,when there is a very serious world crisis, in general,there is a War after.See 1930's.

hear specialists,it is not something to exclude totally.

Given your statement, it seems perfectly clear that France should get better "specialists", and as soons as possible, Simple.

Don't worry. NATO has been keeping the peace in France and Europe for over 60 years. That's not going to change.

Wait a minute. It is France or italy who sold 3 millions of houses with shitty loans to insolvent people?

And 25% of the houses have been bought only for speculation.


About AIG. you should let them go in bankruptcy.And even better, all your companies who have to supply foreign countries after a deal,you put them all in bankruptcy and you keep the money.


Perfect idea.that's it.

Corruption in the European banks shouldn't surprise anyone.

soon,you will blame europe for your flood in texas g3S3b. be serious

simplefrench wrote:

soon,you will blame europe

You're the one blaming the US for your problems. We'll wipe our ass, you wipe yours.

you are right. But for that,our economies have to be uncoupled. Otherwise,it is too easy.

But in the long run, if you fuck all permanently,people will refuse to make business with you.

We had a hurricane about the size of france hit my area that knocked down many of the exposed electrical lines simplefrench, the flooding was closer to the Texas coastline.


Crystal Beach, Texas on the Bolivar Peninsula

An other piece of anti-european crap. The guy is talking about a worlwide banking system collapsing and he spends time in childish things ...

What's happening is that we can watch THE END OF ARROGANCE when

America Loses Its Dominant Economic Role

By SPIEGEL Staff

The banking crisis is upending American dominance of the financial markets and world politics. The industrialized countries are sliding into recession, the era of turbo-capitalism is coming to an end and US military might is ebbing. Still, this is no time to gloat.
There are days when all it takes is a single speech to illustrate the decline of a world power. A face can speak volumes, as can the speaker's tone of voice, the speech itself or the audience's reaction. Kings and queens have clung to the past before and humiliated themselves in public, but this time it was merely a United States president.

Or what is left of him.

Readt the rest ...