Thanks for this great website by the way.

We’re going to get a unified banking regime in the eurozone on the hurry-up; it’s already in the wind. And the nonsense about ‘the demise of the euro’ will fall permanently silent on that day. I maintain what I have said in comments here at NC on other times: I am favorably impressed by the response of public authorities in Europe to the financial crisis. Are they perfect? Hardly. They are holding their own, to me, and I can’t say as much regarding the US. Suppose, for one, that we get an internationally coordinated rate cut: the ECB is in a vastly better position to cut, now, would get better bang for their cut, has more room to cut, and needn’t cut as far. The ECB has also demonstrated that IT is in charge, not the banks nor the equities markets. We’ve made fools of ourselves by comparison on the west side of the Atlantic.

Those wacky Germans politicians – instead of giving in, they simply demonstrated who is truly in charge, and it isn’t the financial industry. This is much easier to do in a society which actually manufactures things without financial engineering, and one where the tolerance of voters for ‘locusts’ (the affectionate name for Wall Street types) is much lower than one might imagine if your only source of news is something like Bloomberg – a news empire owned by a billionaire who just coincidentally happens to be the mayor of the city where Wall Street sits.

Germany is simply not following the playbook which Treasury Secretary Paulson is so busily creating. Which is why this story is likely to be left to wither quickly while more important issues spring up – like how far 700 billion dollars doesn’t go anymore.

And after this rescue, where is the talk about the end of the EU or the euro? The subject seems to have magically disappeared also.

The entire world financial system is under extreme pressure, and is likely to suffer major failures, within eurozone countzries as well as outside them.

But to the extent that the cure for the problem is to allow failed institutions to die, Germany is at least staking out a position which is totally at odds with conventional American wisdom.

However, in the case of HRE, this wasn’t so hard, as the main problem rested on the fault line between liquidity and solvency – municipal bonds which are bought back are likely to retain much more value than toxic trash based on American mortgages.

Which is the other unstated part of this mess – HRE pursued a stupid strategy to its demise, but at least the assets it owns aren’t imaginary. And at least the incompetent managers that caused the problem won’t be allowed to continue to try to fix it.

The problem of imaginary assets will be the problem when a lot of the American alphabet soup of hallucinated wealth begins its crash on the other side of Mt. Ponzi. And German banks are holding as much as this garbage as anyone, of course.

Deutsche Bank is still at risk – but much of that risk rests in its Americans originated ‘assets.’ Unfortunately, much of the remainder rests in Spain. But then, Ackermann earns no sympathy in Germany. He was almost convicted, paying 3.2 million euros as fine to avoid the ‘convicted’ title his actions would have earned, for something that can be translated as self-enrichment as part of the Mannesman buy-out. At the start of the trial, he said that only in Germany are the successful and productive members of society placed in front of a court to answer for their actions. He also basically stated that American style capitalism was impossible in Germany after his almost conviction.

This means that Ackermann’s best hope is the U.S., because there, people such as himself are still running things, spreading their success and values to anyone in reach of their grasping hands.

Though these days, it is hard to tell if the grasping is from greed, or the desperation of a drowning man. At least in Ackermann’s case, if he ends up in court again (possible, very possible), the grasping will be that of a drowning man. And this time, he probably won’t be flashing a V for victory symbol at the press at the start of the trial.

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Prior to joining the Treasury Department, Mr. Kashkari was a Vice President at Goldman, Sachs & Co. in San Francisco, where he led Goldman's IT Security Investment Banking practice, advising public and private companies on mergers and acquisitions and financial transactions. Prior to his career in finance, Mr. Kashkari was a R&D Principal Investigator at TRW in Redondo Beach, California where he developed technology for NASA space science missions such as the James Webb Space Telescope.

In other words: If the aim was to stabilize the system, shouldnt it have been the aim to nationalise HRE and then liquidate it in an orderly fashion?

What happens to the other economies in the world when the U.S. economy goes into a depression? This may sound a bit conspiratorial but I’ll press on because I’m curious. If all the other economies tank worse than the U.S. because they can’t afford to bailout all of their banks then what position does that put the U.S. in? Here we were seeing our role as the one and only world power being challenged by European and emerging economies, so at the end of all this where will those economies be? Is this the “Mother of all Power Plays”? Is the game being reset back to post WWII when the U.S. was the big man standing and everyone needed assistance? Would like to hear your thoughts on how a global depression would affect U.S. compared to other economies.

Thanks,
Matt

I’m not surprised to see that bondholders have negotiated rating-driven puts whereby the financings are unwound when ratings drop below some pre-specified threshold.

Covered bonds are another cockamame financing scheme at one point supported by Hank Paulson as a panacea for financing our mortgage markets here at home.

How in the world did he ever become Chairman of GS?

As this covered bonds are a mean for the German industry to get reltively cheap financing, the gov’t wants to prevent any default on this special type of assets. That is IMHO the main reason, why the gov’t is so active, not its size.

I wonder what that’s all about. In what cases does the underwriter have to buy back bonds that are later downgraded? How could anyone afford to underwrite an issue with that kind of stipulation?