Posted on February 27, 2013 by lucas2012infos | Leave a comment
bailouts in the Eurozone, like bank bailouts elsewhere, have made
owners of otherwise worthless bank debt whole through a circuitous
process where, in the end, taxpayers transferred their money to
investors. Even in Greece, investors were coddled. Even Proton
Bank that had siphoned off $1 billion in a scheme of fraud,
embezzlement, and money laundering was bailed out at taxpayer expense [European Bailout Fund For Greek Money Laundering And Fraud].
By contrast, private-sector holders of Greek government
debt, such as hedge funds who’d bought this crap for cents on the euro,
got ugly haircuts of over 70%. Public-sector holders, like the ECB, got
off scot-free. It wasn’t fair. But fairness had nothing to do with it.
These were bailouts! That’s how it was done. Until now.
SNS Reaal, fourth largest bank and insurance group in the
Netherlands, cratering under a huge load of rotting real-estate loans,
was bailed out on February 1, after already having been bailed out in 2008, and nationalized with a €10-billion package.
A collapse and bankruptcy “would have unacceptably large and undesirable consequences,” explained
Dutch Finance Minister Jeroen Dijsselbloem, confirming that bank
bailouts would be the norm in the Eurozone. Only question: to what
extent would taxpayers be sacrificed? In the SNS bailout, all depositors
were made whole. But stockholders were wiped out. And so were holders
of junior debt!
Tremors went through the system. Stories surfaced of individual
holders, such as artists, who’d lost their savings because they’d bought
these crappy bank bonds that had been touted as safe. Alas, that junior
debt would have been worthless anyway in a bankruptcy, retorted
Dijsselbloem and stuck to his semi-hard line—semi-hard because holders of senior debt and covered bonds were still bailed out by taxpayers.
On Monday, the Dutch Council of State blessed
that procedure and thus set an example for the rest of the Eurozone:
when a bank is bailed out and nationalized, owners of its debt can lose
their entire capital. The unwritten government guarantee on bank debt is
A government finally drew the line on one of its big banks, instead of flailing about to justify why taxpayers had
to bail out bondholders who’d benefitted from the yields that had
compensated them for the risks. Why tolerate a situation where the
capital “at risk” wasn’t at risk?
That exotic theory is already spreading. Dijsselbloem is President of
the Eurogroup that approves country bailouts. And the German government
has been toying with the idea of going after bank investors for months.
At issue: the bailout of the banks in Cyprus. But there, it’s more …
delicate. These banks didn’t issue a lot of debt. They didn’t have to;
they were flooded with deposits from rich Russians, Russian companies
with mailbox subsidiaries in Cyprus, and even Oligarchs [Cyprus, ‘A Money Laundering Machine For Russian criminals’].
As more stories about the Russian connection surfaced, the unwritten government guarantee of uninsured
bank deposits has been fraying around the edges. The Cypriot
government, unlike the Dutch government, cannot bail out its own banks.
It’s bankrupt too and needs a bailout. So, which bank stakeholders get
bailed out and which get sacrificed will have to be negotiated with the
Troika. Even deposit accounts aren’t sacrosanct anymore, and their
owners, the “rich Russians,” are being prepped for a haircut, a mild one
presumably, not a crew cut. Nevertheless, it would break another
Next? Senior bank debt. Its unwritten government guarantee has not
yet been broken, and any attempts to do so would be met with determined
opposition by the banks themselves. Once investors in senior debt
realize that they could lose their capital, they would, in theory,
demand higher yields to compensate them for the risk—thus raise the cost
of funds for banks and squeeze their margins.
So far in the Eurozone, it has just been one major bank, but not a
TBTF bank, where junior debt holders lost their shirts. More such bank
bailouts would have to take place before investors accept them as
reality and price that risk into the equation. Then, they might actually
try to look at the crap these banks have hidden in their basements.
In theory. In practice, central banks rule. Their money-printing
operations and asset-purchase programs have distorted the markets. Risk
has been wrung out of the equation. If a bank is TBTF, it wouldn’t be
the taxpayer to bail it out directly, but the central bank, as the Fed
had done, beyond the reach of democratic processes or controls, with
amounts that dwarf what the taxpayer could do, generating huge profits
for bailed out investors and those betting on these bailouts, and in the
process devaluing the currency for everyone else.
Deutsche Bank is mired in “matters” from Libor rate-rigging to
carbon-trading tax-fraud. Now a new “matter” seeped out: the bank had
known for years about the impact of commodities speculation on food
prices and the havoc it wreaked on people in poor countries. And it lied
about it to the German Parliament. Read…. Lies, Damned Lies, And Banks: Deutsche Bank Caught Again.
www.testosteronepit.com / link to original article
Thanks to: http://lucas2012infos.wordpress.com