Sunday, July 10, 2016

History Rhymes; "The chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks."

The ultimate result of shielding men from the effects of folly
is to fill the world with fools

Herbert Spencer
Coined the phrase “Survival of the fittest”

"What he didn't say is that the US bailout took place nearly a decade ago, in the meantime Europe's financial sector was supposed to be fixed courtesy of "prudent" fiscal and monetary policy.

It wasn't.

If the government habitually bails out overextended businesses
is it good business to overextend?

",,,A €150 billion program should be enough to help European banks recapitalize," said David Folkerts-Landau. He adds that the decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a "dangerous" deflation.

"Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," said the chief economist.

If a bank had $1 trillion in assets and $900 billion in liabilities
loses 50% on $500 billion of commercial and residential real estate
is now worth -$250,000,000,000
and liquidation could cause trillions of financial sector losses
should capital injections benefit share and debt holders
if operations, equity and debt values
are dependent on systemic risk mitigating government intervention
at taxpayer expense after the chief economist publicly begged for the bailout?

The Deutsche Bank expert said he is particularly worried about Italy and the condition of local banks, where the €40 billion in funding needs is said to be "conservative."

Should new bailouts designed to fix large, complex predicaments
rely on those who created and profited from the initial problems
who may not have wanted to identify and confront them
when they were small, relatively unknown and lucrative,
as that's what happened last time?

He said that the bank bailout is so urgent that it should permit Europe to violate the bail-in rules of the new Banking Directive.

If debt values rose
after the Fed announced purchases of agency and Treasury securities
by fiat (money declared by a non-government entity to be legal tender) 
to stabilize financial markets for the Fed's member banks who own it,
why would others purchase debt if risks may be high that prices could fall
when artificial supports are removed or confidence retards,
unless the artificial supports are never taken away 
leading to loss of price discovery and rigged financial markets?

The economist notes that such a bail-in is not doable and is politically unfeasible because it would hit people's savings and may cause a bank run in both Italy and elsewhere.

Fuck Mr. Folkerts-Landau and Deutsche Bank
for misleading the public by pitching his bank's book of business
and his job at the expense of the rest of Europe

Tylers; We find it strange how nobody thought of this before the rules were implemented, or rather how impairing savings was only a problem when "second-rate" European citizens such as those in Cyprus and Greece were affected. Now that Italians and even Germans are in the cross hairs, suddenly "it is time to change the rules."

As the natural cycle of laissez faire capitalism
revolves between risk and aversion
look what's happened at government intervention perverted the process
to forestall short term economic pain

His conclusion: "Strictly adhering to the rules rules would cause greater harm than if they were suspended."

Mr. Folkerts-Landau is condoning inept risk management at taxpayer expense
for companies not receiving payments on more than 20% of outstanding loans

Our only question is whether Deutsche Bank's chief economist is more worried about the future of Italy's banks, or that of his own employer.

Bailouts perpetuate problems instead of solve them

...We look forward to the next pan-European bank bailout, now that even Germany's biggest bank has thrown in its support behind the proposal, which means Merkel and Schauble's resistance will promptly evaporate in the coming days as insolvent banks across Europe once again get rescued by taxpayers, in the process further escalating populist anger at the treatment of banks, leading to more Brexit-like events and the further fragmentation of Europe.

Panics do not destroy capital
they merely reveal the extent to which it has been destroyed
by its betrayal into hopelessly unproductive works

John Mill

There is no means of avoiding the final collapse of a boom
brought on by credit expansion

The question is only whether the crisis should come sooner
as a result of abandonment of credit expansion
or later as a final and total catastrophe of the currency system involved

Ludwig von Mises

Who is more foolish
the few who lent and borrowed more than could be repaid
or the many living within rational financial boundaries
being penalized for other’s recklessness?

In a hierarchy, every employee tends to rise to his level of incompetence
In time, every post tends to be occupied by an employee
who is incompetent to carry out his duties

Work is accomplished by those employees
who have not yet reached their level of incompetence

Dr Laurence J Peter

Why would taxpayers want to provide billions
to encourage lenders to continue increasing burdens
for some already heavily indebted consumers
and why aren’t financial pundits outraged at the abuse of taxpayer money?

Do some politicians pacify the electorate with platitudes
while promising the status quo to those enjoying legislated benefits?

The proposal of any new law or regulation which comes from [businessmen]
ought always to be listened to with great precaution and ought never to be adopted
till after having been long and carefully examined
not only with the most scrupulous, but with the most suspicious attention
It comes from an order of men
whose interest is never exactly the same with that of the public
who have generally an interest to deceive and even to oppress the public
and who accordingly have, upon many occasions both deceived and oppressed it

Adam Smith

David Folkerts-Landau wants to stabilize financial markets in the short term
to defend political legacies and financial interests of the world's 1%
regardless of long term consequences, as long as he gets to keep his job

Legislators accepted campaign contributions from those seeking bailout money

The first truth is that the liberty of a democracy is not safe
if the people tolerate the growth of private power
to a point where it becomes stronger than their democratic state itself
That, in essence, is fascism
ownership of government by an individual
by a group or by any other controlling power

Franklin Delano Roosevelt

What is a capitalist democracy that subsidizes to eliminate failure?

The problem with socialism
is that you eventually run out of other peoples money

Margaret Thatcher

Should financial institutions who sold or invested in toxic debt
obtain special treatment protecting them from receivership?

Once off the cliff, there is still hope if you keep running
By running ever faster you may not fall

Wyle E Coyote

As financial and real estate markets deflate
could relatively high cost durable goods purchases diminish
causing production to fall and unemployment to rise
creating more homeowners in financial distress
more wide spread debt defaults, tightening lending terms
and further housing and financial sector distress?

Why have most financial industry funded economists
considered warnings of financial bubbles
unproven, non-existent or exaggerated until afterward?