Berlin Warns Financial System Still At Risk of Collapse

We have noted before that the officialdom in the US has been remarkably less than candid (one might say outright dishonest) in discussing the likely trajectory of the financial crisis and economic growth. No one is willing to state the obvious, for instance, that banking crises lead to reductions in living standards, even though consumers are already aware of this sorry fact and are reacting accordingly, tightening up on spending. It is as if they think we are living in a TinkerBell world, that if everyone believes and claps hard enough, we can bring the status quo ante back to life. (Of course, in America, where everything is put in the most rosy terms, the unvarnished truth would come as a shock to the system).

The Germans do not have such delicate sensibilities. The German finance minister issued a blunt warning today. From the Financial Times:

Global financial markets are still at risk of collapse and turmoil will continue until at least the end of 2009, Peer Steinbrück, German finance minister, warned on Sunday.

Mr Steinbrück said he would not try to fool the German public by claiming the government had everything under control: “The danger of a collapse is far from over. Any attempt to give the all clear would be wrong.”

Asked to put a time-frame on how long the danger would last, Mr Steinbrück noted that the government’s €500bn ($635bn, £400bn) rescue package was due to run until the end of next year. “We will certainly need it that long,” he told newspaper Bild-am-Sonntag.

His comments came as many German banks continued to shun the government’s “financial market stabilisation fund”, which offers up to €400bn in credit guarantees and up to €80bn to recapitalise banks, including the option of purchasing toxic assets.

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  1. eh

    Just some glib pronouncement, IMO. Anyway, people like him ought to be concentrating on solutions and rebuffing talk of financial Armageddon rather than encouraging or contributing to it.

  2. Anonymous

    Bloomberg has speculation of a Fed rate cut of 75 bp to 0.75%. Do you all think Paulson/Bernanke want to cut fed funds rate below 1% in order to force money market funds to start losing money (they start losing money with rates below 1% due to the limited spread between the short duration investments they make and the rates they pay investors). If money market funds shut down in response, this could drive savings from money market funds back to bank deposits, to give banks a source of funding.

  3. Anonymous

    There's something funny going on in credit cards. CC companies seem to be encouraging borrowing again in the last week or two.

    I noticed that BofA has been pushing their 0% balance transfers (for 15 billing cycles) very heavily lately. They'll deposit the money straight into your checking account. It doesn't have to pay off another credit card.

    3% fee up front, but 0% for the next year and change.
    Miss a payment or two and it goes up to 29% (!!) interest.
    I took out $30k. 3% money is 3% money.

    Check out the card offers.

    Is this because of cheap funding from the government instead of credit card bonds?

  4. Matt Dubuque

    Matt Dubuque

    Germany is in kind of an interesting position with respect to its bank bailout package, as the article alludes to in its final paragraph.

    Despite a substantial revision after its initial passage, quite a few German banks are STILL refusing to sign up, describing its terms and conditions as too draconian.

    Some of these banks are probably engaged in brinkmanship, but other banks seem to hold their views sincerely.

    Matt Dubuque

  5. Anonymous

    “Anonymous” how do you plan to make more than 3% for the rest of the year? Watch out you won’t be f*#ked by the end of the year
    Good luck!

  6. Anonymous

    7:52, you gotta love guys like that. People killing themselves. I’ve been keeping tabs on those stories, and almost without exception, it is foreclosure-driven, the day the sheriff is due to show up and kick the poor former owner out. But he blames it on the media!

  7. Owner Earnings

    “”Anonymous” how do you plan to make more than 3%” over the next 12 months? Including taxes?

  8. rick

    I for one cheer the blunt talk from the Germans. US politicians lie to us every time they speak.

    I have to sift through government lies, half truths and omissions to chart a course for my family’s safety.

    Chancellor Darling in Britain has also been criticized for telling Britons to take these problems seriously.

    I just saw on the nightly news a blurb about how sales are UP from last years Holloween. Reports of people wanting “to forget”

    Penetrating American complacency is almost impossible. Perhaps if we had stronger talk from our so-called leaders we could begin to make a dent in it.

  9. Molecool

    I was raised all over Europe and have the luxury of being able to read German and French news in their native issues. At this point I do not even look at U.S. news anymore, as they are sugarcoated at best and outright lies and obfuscations at worst.

  10. Molecool

    Oh, I forgot to mention that ‘Bild-am-Sonntag’ is complete crap in most cases. If you want real traditional and objective news, check out which is a leading German newspaper. There is an English edition btw for your Anglo-Saxons :-)

  11. Anonymous

    3% plus tax is not that far a reach when the VIX is above 50 and therefore OTM calls and puts are trading rich.

    If you think the market can move down another 40% (not saying I don’t), then, yeah, 3% is a stretch. But if you are ready to stick your neck out a bit, you can easily write OTM and ATM covered calls at these levels and do much better than 3%, assuming you’re comfortable holding what you buy.

    Right now, you can “start your engines” by selling OTM puts for better than a 3% return (assuming no change in underlying).

    Diversify your put selections, take the premia on the stocks that hold up, take the assignment on the stocks that do not. Write calls. Pay your taxes. Repeat.

    However, if it all goes down the gurgler, yeah, the 3% may have been pie/sky dreaming.

    Just thinking out loud.

    R in NY

  12. Anonymous

    Worldwide, investors have lost $10 trillion in just the last month as share values collapsed.
    Wall Street is on track for its worst month since the 1930s.

  13. michael

    I’m from Germany and I cannot even laugh about the German finance minister Steinbrueck anymore.
    Two days after he declared all is well in German banking (and Ambrose Evans-Pritchard ridiculed him for that, and rightly so) Hypo Real Estate blew up. Then he had to be talked into putting a rescue package together.
    And now he is big-mouthing again to try to maintain the view he is on top of things.

    When looking at all available sources, not just at the “Bild” newspaper or CNBC, I’d say the US authorities are releasing about 25% of the truth, while in Europe its less than 10%. More to come…

  14. Anonymous

    it seems that folks who supposed to be at least aware of what’s going on, if not in charge of it, like Treasury secretaries, finance ministers, politicians in general have absolutely no clue what’s going on but they thinks it is their job to constantly comment on events and appear as if they knew. If you need to clear up your mind just ignore these clowns, read the optimistic proclamations of the clowns from the 30s. I remember Victor Niederhoffer mentioning in his autobiography that he tends to read books that are more than a 100 years old. Taleb writes that it’s best to ignore news altogether.

  15. Anonymous

    I wasn’t aware that the German banks were shunning the government’s bailout plan. It’s kind of refreshing that a supposedly quasi-socialistic country like Germany gives its banks the option whil we abrogate the rule of law and force our banks to accept government money. So much for stereotypes.

  16. patrick neid

    I don’t believe a word he says. Mind you everything he says might actually be true but he personally hasn’t a clue if it is.

    I’m surprised that so many want to believe that the folks who had no clue what was afoot are prepared to believe that now, as if struck by ligthening, thay know the solutions going forward to problems they never saw. This is our never ending dilemma when academics run the equipment.

    As a trader all I can say is god help us all.

    What I will say, despite all the shrieking and shouts of fire in the theatre, the stock and bond markets have been very orderly. For the past month despite the volatility, anyone who wanted to liquidate a position has had no problem. That speaks volumes.

    As to the preposterous notion that the transparency in the news is better in Europe you must be kidding. These are the same yahoos who not a month ago were telling us the the US was through, never to be the same again and that European banking was much sounder. Fast forward as these mental midgets have now found out that their problem is several magnitudes worst that ours. Yes, very bright folks they are. Please, by all means, tell me again what you see going forward herr minister.

  17. Anonymous

    Rick and Molecool…..

    Though Der Spiegel is by far a better source than the ever-popular, glaring Bild Zeitung with its boldface headlines and hefty dose of bare-chested beauties to keep sales up, keep in mind that “Spiegel” is and always has been far left of the middle, and a German-style middle for that. If you read German, the (Frankfurter Allgemeine Zeitung) is a better news source; at least they cover more ground.

  18. hater

    Yo 3% Anon, you’re one whitewater dude after my own heart. For some trading is a profession; for others, a calling; for a few, the drug of choice. If money did me at all, I’d be there, too, but it just doesn’t make my pleasure centers activate a tittle; like watching poplars have sex. I’ll bet you deathmatch, too, something else that puts me to sleep.

  19. Richard Kline

    Whoops, got the ‘word verification’ in the name box at 4:42; ’twas so remarkable I brainlocked on it.

  20. Anonymous

    It’s hard to reconcile Steinbrück on Sunday (“risk of collapse”) with Steinbrück a couple of weeks ago (“American problem”). I think in fact he is way out of his depth and he is just blustering about. German finance ministers traditionally do not have a great deal to say about world finance. Their job is to look after the budget and make sure no-one overspends (a stern, grumpy look, steel-rimmed glasses and frequent use of the word “no” is part of the job). The chancellor (German prime minister) is supposed to do the international heavy lifting. But we have Merkel as chancellor and she really doesn’t know anything about finance, having grown up, studied and worked in the communist DDR. So they all rely on a couple of top level backroom bureaucrats (Jörg Asmussen in the Finance Ministry and Jens Weidmann in the Chancellor’s office) and the top bankers like Deutsche Bank’s Ackermann.

    The result is this hotch-potch system of take it or leave it. Instead of forcing the banks to accept additional capital, as in UK, France, USA, the German banks have to out themselves as needing capital first. Really stupid.

    Instead, the German government should go one step better than all the others in Europe and USA and force the banks to open the books first and write down all the bad assets and then take additional capital. Otherwise we are all just throwing bad money after good – and that’s of course what no good German finance minister wants to do.

  21. Anonymous

    Everyone is assuming that the current crop of azz hats can solve the current financial problems.

    Unfortunately, I do not believe that a group of Einstinian IQed, totally committed economists could solve the current problems in the short unwind time alloted.

    Bush said we were going to Mars. Too bad it’s the economy that will make the trip.

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