In Europe, Banks Get Bailed Out and Countries Get Austerity

Posted on May 22, 2012

While everyone’s attention was elsewhere, last Fall EU members bailed-out Dexia bank. This bank, on paper, is worth more than the GDP of Greece. Apparently, that makes it somehow more deserving. For Dexia, it is business as usual and billions of Euros to stay afloat (this is in addition to what the bank received in the 2008 bailouts):

The bailout plan for Dexia came after German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Europe’s crisis-hit banks needed to be recapitalised.

Dexia also secured state guarantees of up to 90bn euros to secure borrowing over the next 10 years. Belgium will provide 60.5% of these guarantees, France 36.5% and Luxembourg 3%, the bank said in a statement…

Meanwhile, Greece was being forced into austerity:

Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece on Tuesday to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

The complex deal wrought in overnight negotiations buys time to stabilize the 17-nation currency bloc and strengthen its financial firewalls, but it leaves deep doubts about Greece’s ability to recover and avoid default in the longer term.

After 13 hours of talks, ministers finalized measures to cut Athens’ debt to 120.5 percent of gross domestic product by 2020, a fraction above the target, securing a second rescue in less than two years in time for a major bond repayment due in March…

During the 2008 crisis, Dexia borrowed nearly $60 billion from the US Federal reserve to stay afloat:

Since Dexia had a New York banking office they were eligible for various bailouts from the US Federal Reserve. At its peak Dexia had borrowed $58.5 billion…

Additionally, it wasn’t just ‘simple’ banking losses due to the downturn. A big percentage of their problem (read idiocy) was because they gave a pile of money to Bernie Madoff:

According to the financial services provider Bloomberg Dexia lost €78 million through the Ponzi scheme of Bernard Madoff…

Did Dexia deserve a second bailout after not doing the most basic due diligence?

Apparently, austerity is for countries, not the profligate and idiotic banks who created the mess.

Why am I not shocked?


I am cross-posting this from DU.

Standard & Poor’s Plays Politics

Posted on April 19, 2011

People used to rely on Standard & Poor’s to follow the debt rating of stock, bonds, and other financial instruments. Since 2008, their credibility has been flushed down the toilet after the exposure of their role in giving the magic AAA rating to various questionable real estate products.

Today, Standard & Poor’s has managed to take one step further down the road to ignominy. Not only did they downgrade Ireland’s debt, but they downgraded the outlook on US debt citing the US government’s inability to come to terms with the budget by 2013.

Can these moves be seen as anything but a brash attempt to push the ideology of austerity on the United States and Europe? What is really disgusting is they are making these moves in relation to a problem they played a key role in making!

Wall Street would like nothing better than to see job growth stall and a probable victory by a Republican for president in 2012. Standard & Poor’s is playing by that script. The only question which remains is will the American people do what is right for the country, or what is right for Wall Street and Standard & Poor’s?

Standard & Poor’s isn’t practicing economics, it is practicing blatant extortion by threatening to hold hostage a jobs recovery for the ransom of an American austerity program.

It is simple politics, not economics.

Technorati Tags: , , , , , , , , ,

Setting Son

Posted on February 19, 2002

Japan has never been a good place for the Bushes. Nearly shot down by one of their fighters and later vomiting in the lap of the Prime Minister made the country one of those places George Bush, Sr. would rather forget. Like his father before him, George W. comes to Japan at a crossroads in his political life. Having ridden the popularity of a war of revenge against terror he has seamlessly reached the heights of Presidential power, yet his power wanes at the hands of a sagging economy and the nagging specter of Enron.

With this as the backdrop, the challenge W. faces in Japan will be daunting and perhaps even greater than the challenges brought to the fore by the terrorist attacks of 9/11. Japan’s banking system stands on the precipice of a total collapse.

“If the Asian imbroglio does spread, it could lead to a world recession as severe as that of the early ’80s – the last time when world trade actually declined. It could spark currency crises in Brazil and other developing countries that could imperil banks in the United States and in Europe. It could also inspire governments to adopt the kind of monetary autarky and trade protection that prolonged and deepened the Great Depression of the 1930s.” These words from the New Republic in 1998 sound almost prophetic today. Over the past few months the world has seen the collapse of the Argentine banking system and a new crisis in Venezuela.

We are mired in a recession that is partially the hangover of the Asian Crisis combined with America’s crisis in leadership. Despite America lowering interest rates, Japan’s economic woes continue.

Currently, Japan is debating what measures to take to combat deflation and a 1.0% GDP contration for the year ending in March. The only real solution is for the Japanese government to take on public debt. However, this hardly seems an option when government debt is already 130% of GDP. PM Koizumi’s latest plan also includes measures to prevent a rush on banks by nervous savers when the Government caps an unlimited guarantee on deposits at ¥10 million ($147,600) from April.

If George W. Bush fails to help guarantee the liquidity of Japanese banks, the resulting failure may bring about a 1929 style global depression. A failure to act dooms the U.S. economy, at the very best, to the kind of long-term stagnation that Japan itself is experiencing. No doubt there will be many platitudes exchanged and the word ‘reform’ mentioned.

However, nothing will happen. Besides, reform in the Bush lexicon means an unconditional surrender to American Corporate Imperialism. Instead, expect another fine foreign policy failure: simply another one from the setting son.


Technorati Tags: , , , , , , , , ,