Tom Ferguson on How Banks’ Refusal to Take Haircuts Stokes the Euro Crisis Posted on July 14, 2011 by Yves Smith Tom Ferguson gives a crisp overview of some of the recent events in Eurozone crisis and how the desire to save banks from losses is making matters worse. More at The Real News Post navigation ← The Fed is on hold Marshall Auerback: Barack Obama – The Nation’s First Tea Party President → Subscribe to Post Comments 18 comments BondsOfSteel July 14, 2011 at 10:42 am CDS… the smartest thing ever invented. Not only do they insure an individual aganist default, but since they are unregulated, they allow almost any default to be too big to fail! Foppe July 14, 2011 at 11:13 am I do not know the details, but someone told me that there have been a number of extraordinary noteholder meetings last week in which it was decided/voted to allow Bank of Ireland to repurchase some unspecified (but I imagine a substantial) number of bonds ‘early’ (with a single business day notice, if that means anything to you), at a 0.01% interest rate. (Oh: See this pdf for details.) Foppe July 14, 2011 at 11:20 am (I’m way out of my depth here, but I think the PDF explains things much better than I’ll ever be able to. Richard might like the document too.) K Ackermann July 14, 2011 at 12:09 pm Whatever it is, it happened a month ago, and here’s the results. MontanaMaven July 14, 2011 at 11:14 am People of Europe will want “scalps not haircuts”. Great line. This was one of the most clear and concise explanations of what’s going on in Europe that I’ve heard. monday1929 July 14, 2011 at 11:31 am Bernanke may have just had a slip of the tongue- ‘We want to make sure we have the options WHEN they become necessary” ie. not IF. Personally, do not believe he has any control of anything, but the tea leafers (those who read tea leaves) should jump on that. (sorry,off topic, but I can’t view video) Valissa July 14, 2011 at 1:21 pm Great Ferguson interview! As usual, his explanation is a sensible one based on “follow the money.” For a college professor he’s very good at cutting through the complexification bullshit. psychohistorian July 14, 2011 at 3:41 pm So why are folks stopping at the banksters and not continue following the money up? Why is there no discussion of the long term inherited rich that are behind the curtains the world over? Why is there no discussion of private ownership of anything in relation to what should belong to the commons? When will we get serious? Back to my lunch…..masticate, masticate, masticate, swallow. psychohistorian July 14, 2011 at 4:04 pm Why are there no discussions about the global nature of our problems and the potential global solutions other than a return to trade wars? The thought that we are all Egypt or Syria or Michigan needs to be explored further. We have a common problem/enemy in the global inherited rich. Their goals are not the goals of humanity at large and they are in total control but it is wavering as they continue to play factions and countries off against each other. We are all wage slaves for the rich who need to take our dignity as humans back. Thomas Barton, JD July 14, 2011 at 1:42 pm I wonder what Chris Whelan thinks of JPMorgan Maestro Dimon’s assertion that they have only $15 billion of exposure to Europe. I personally assign a multiplier of 40 to his remark. Perhaps the professor in the video could guest post for NC and expound on the report that a German bank has refused to participate in the stress test vaudeville performance scheduled for Friday or next Tuesday. Maybe France and Germany will be fully engaged simply in saving their individual banking systems and the widely condemned GIIPS will be growing again in 2 years after they restructure while France and Germany will be mired in their own Super TARP quagmire. Have you any information Yves on the Danish banks being in a credit freeze and does this signify more than a side-aspect of this scenario ? Nick July 14, 2011 at 1:46 pm While not a technical comment, his tone & blunt delivery cracked me up. He was all very matter-of-fact about it! Jim July 14, 2011 at 2:05 pm TARP. Worst. legislation. ever. I know, let’s prevent trillions of dollars of debt and real estate to reprice for years! = Economic stagflation + natural transfer of profit from Main St. to big banks. Robert Asher July 14, 2011 at 3:26 pm I cannot read the continental press for Europe. I read the Guardian every day. It does a lot of good journalism but has NO INCISIVE coverage of the bank crisis. See I think that British politics and football are really more important to the paper’s survival. Thank goodness for Naked Capitalism. Foppe July 14, 2011 at 3:35 pm Yeah, the Guardian’s economic desk is just as crappy as every other newspaper’s I’m familiar with. Not sure if mainstream economic journalism was ever good, but pretty much everything I run across is little more than a press statement — I cannot for the life of me remember the last time when I read a story about some company saying they were doing well that had the journalist challenging that narrative in the same story. Case in point with the ratings agency bullshit: if they criticize them at all for being untrustworthy, it happens in an op-ed or comment piece, but never by adding a paragraph to the article itself. But I guess that would be too activist for any, Serious, newspaper. Paul in TO July 14, 2011 at 4:40 pm The issue is not that the banks refuse to take a haircut. It’s that the banking system cannot survive the losses that the roll-out of this analysis lays bare. The sad truth is that the numbers simply don’t add up in any way that works out for anyone. There is too much debt to ever be repaid and the volume of losses required to be taken in order to give credibility to restructuring simply cannot be absorbed. The banks are the go-to group for assigning blame, but the debt burdens exposed by unsustainable deficits (only the latter really caused by the crisis) have been built up over decades. When Greece defaults or has its debt restructured it needs the new debt to be reduced to a level where it’s credible that Greece can grow out of it. Let’s say that debt needs to be reduced by 50%. That means half of what Greece owes needs to be written off. Let’s suppose that amounts to $50 billion, which is split between the ECB and the European banks. Let’s further suppose that 50% of those losses are attributed to the banks. So $25 billion of losses is absorbed by banks (not attributed to CDO’s etc, but to sovereign debt). Fine, that can be digested and whichever banks are crippled could be supported. However, Ireland, Portugal and probably Spain and Italy are in the same boat (maybe UK and US as well). So as soon as the Greek deal is cut then you need to apply the same loss sharing to those countries as well. Who can absorb that level of losses? What accounting gimmicks can keep players in the game. We are moving towards the end-game, but no matter who your bogieman is, if you use real numbers there’s no good scenario. Default is coming and it will tip a series of dominoes that will catch us all. You can face up to it directly or debase your currency and completely socialize losses, but either way you get to the same place. Jim July 14, 2011 at 6:12 pm Why not blame the architects of the Euro? Why not blame the overpaid bureaucrats in Brussels that can’t bear to see the Eurozone fail? They would rather see the Greeks suffer for two decades than to acknowledge that Greece and Germany have no business sharing a common currency. I don’t blame the bankers. In fact, by showing such intransigence, the private sector holders of peripheral debt may be expediting the eventual economic recovery of a Euro-free Greece. emptyfull July 14, 2011 at 7:05 pm Hello Yves and all, I am a long time lurker on the site. In the course of research for my dissertation I came across the following, which I think stands as true today as it did in 1910 when Ralph Waldo Trine wrote it. Just wanted others here to see it: “Now I have said naught nor would I say aught, against wealth. I believe in wealth — sufficient for all the legitimate comforts of life; and I believe in it so thoroughly that I plead for a state wherein it can become the portion of a much larger number than has ever yet been known. And while I do not share in the belief that our time is necessarily more materialistic than other times have been, I do realize and most keenly that the economic conditions during the past few years have produced a class of men so materialistic in their entire outlook, so insatiate in their greed for ever larger gain, so drunk with opportunity and power, that they would pull the very pillars of the state to the ground, if a united and determined people did not come forward and say, so far, and no farther.” -Ralph Waldo Trine, The Land of Living Men, 1910, pp. 286-7 Home Remedies MD July 14, 2011 at 8:17 pm I think that banks are willing to try new things in order to create more capital to loan people money Comments are closed. Tip Jar Please Donate or Subscribe!