Mish's Global Economic Trend Analysis

IMF Needs Funding; My Dear Darling
Desperate Times Lead to Desperate Lies; Europe Weighs the Weightless; Even Citigroup Sees the Lies
In Galling, Pathetic Whine, Deutsche Bank CEO Warns Against Opening "Pandora's Box"
German Banking Group Warns of Contagion, Requests Taxpayers to Take Hit for Stupid Loans Made by Stupid Banks

Posted: 25 Sep 2011 08:47 PM PDT

Things are so dire the IMF is out of cash. Don't take that from me, take it from Christine Lagarde, head of the IMF.

The Telegraph reports IMF may need billions in extra funding, says Lagarde

Christine Lagarde said the money available to the organisation "pales in comparison to the potential financing needs of vulnerable countries".

In the wake of the global credit crisis, the funding of the IMF tripled and Britain's exposure to it rose to £20 billion. This figure is poised to rise again if financial troubles engulf bigger economies such as Italy and Spain.

Yesterday, Alistair Darling, the former Labour chancellor who was in office during the previous crisis in 2008, warned that the problems facing the global economy were worse than three years ago.

"There are lessons to be learnt, and they are not being learnt by those responsible at the moment," he said. "Lehmans [the investment bank that collapsed in September 2008] taught us one thing which is if you know there is a problem, take action, sort it out [in a way] that is more decisive than people expect if you are going to stop it.

My Dear Darling

My dear Darling, you are a complete fool (but no, I don't love you anyway). Here are the "Lessons of Lehman"

Lessons of Lehman

Lehman was overleveraged
Lehman went under
Lehman should have gone under
The world did not end

Darling continues ....

"The problem with the Greek crisis is that it has been allowed to run on and on and on."

I happen to agree with that Darling sentence, unfortunately I completely disagree with the context.

The smart thing to do would have been to let Greece default. It is now clear Greece is going to default anyway.

History will show the world will not end. It will also show that bailouts to date have done nothing but harm.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Desperate Times Lead to Desperate Lies; Europe Weighs the Weightless; Even Citigroup Sees the Lies

Posted: 25 Sep 2011 05:35 PM PDT

Are central bankers and politicians really as stupid as they sound or are they pathological liars who simply cannot help it?

Check out these preposterous lies by Bank of France Governor Christian Noyer as quoted by Bloomberg in Noyer Sees 'Absolutely No Reason' to Use Bank Backstop

Noyer Lies

"I'm extremely confident" in French banks because "we know them very well. We know their balance sheets, their risk assessments. We know they have no toxic assets."
There is "absolutely no reason" to activate a support system for the nation's banks that was set up during the financial crisis in 2008.
Markets "are over-reacting," he said. "They need to come back to a sense of reality."

All of those are blatantly preposterous. However, lie number 1 has to be one of the top lies of the year. "French banks have no toxic assets"?!

For starters, what about Greek bonds about to take a 50% haircut or more in default? That lie is so ridiculous no one on the planet can possibly believe it.

Greece vows to stay in the euro, never go bankrupt

In case you need more laughs this Sunday, please consider Greece vows to stay in the euro, never go bankrupt

Greek Finance Minister Evangelos Venizelos sought to reassure nervous markets and EU partners on Saturday by pledging his debt-ridden country would do whatever it takes to avoid default and stay in the euro zone.

During an IMF meeting in Washington that was dominated by fears that Greek debt woes could trigger a wider European crisis, threatening banks and hurting the world economy, Venizelos dismissed any talk of bankruptcy.

"Greece will always be in the euro and Greece will never go bankrupt because this would be destructive for the euro zone and for many other countries beyond the euro zone," he said in a statement after meeting his German, French and Italian and Belgian counterparts.

The European Union and IMF handed Greece a 110 billion euro bailout to save it from bankruptcy last year in exchange for austerity measures and reforms, but markets remain unconvinced a debt mountain of over 160 percent of GDP is sustainable.

"Greece is determined to honor all its obligations. No Greek paper will ever go uncovered," Venizelos told reporters.

No Greek Paper Will Go Uncovered!?

Excuse me for pointing out two simple facts.

Bondholders have already agreed to a 21% haircut on Greek bonds.
More haircuts are coming.

Europe Weighs the Weightless, Comes Up with Wrong Answer

Bear in mind the German supreme court has ruled out permanent bailout mechanisms. Moreover, the odds that Finland, Austria, Slovakia and the Netherlands would approve them is close to zero.

Nonetheless, Europe Weighs Speedier Enactment of Permanent Rescue Fund to Stem Crisis

European governments are exploring speeding the start of a permanent rescue fund for their cash- strapped economies amid fresh signs they may bolster efforts to halt the worsening sovereign debt crisis.

Senior finance officials will examine next week the cost advantages of setting up the fund, known as the European Stability Mechanism, a year earlier than its currently planned July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News.

"Patience is running out in the international community," U.K. Chancellor of the Exchequer George Osborne told reporters yesterday.

That pressure increased after concerns that a Greek default may be inevitable helped push global stocks into their first bear market in two years. Economists at Citigroup Inc. said yesterday they now expect Greece to begin restructuring its debt as soon as December, while those at JPMorgan Chase & Co. said the euro area will start shrinking in the fourth quarter.

Citigroup and JP Morgan Dismiss the Lies

Lies from Europe are now so preposterous that even Citigroup can spot them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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In Galling, Pathetic Whine, Deutsche Bank CEO Warns Against Opening "Pandora's Box"

Posted: 25 Sep 2011 10:33 AM PDT

In a galling, pathetic whine, Josef Ackermann, CEO Deutsche Bank warns of "Opening Pandora's Box" if banks have to take responsibility for their poor decisions.

Yahoo! Finance reports Bank lobby rejects reopening of Greek rescue deal

The international bank lobbying group that has been taking a leading role in negotiations on giving debt-ridden Greece easier terms for its bonds on Sunday rejected calls to impose larger losses on private investors.

Forcing private creditors to write down their Greek bond holdings by more than the 21 percent tentatively agreed to in a July deal would quickly cause a "domino effect" that would see the crisis spread to other parts of Europe, warned Josef Ackermann, the outgoing chairman of the Institute of International Finance.

Such a move would ultimately cost taxpayers much more than just bailing out Greece and erode confidence in the euro, warned Ackermann, who is also the CEO of Germany's Deutsche Bank, a major lender to Greece.

Such a move would ultimately cost taxpayers much more than just bailing out Greece and erode confidence in the euro, warned Ackermann, who is also the CEO of Germany's Deutsche Bank, a major lender to Greece.

Germany and other rich eurozone nations have been pushing for a re-negotiation of the July deal, arguing that the economic situation in Greece has significantly deteriorated since then and may require a steeper cut in the country's debt burden.

However, Ackermann quickly rejected that push, saying that the agreement was fair and already placed a heavy burden on banks at a time of major market turmoil.

"If we now start reopening this Pandora's box we will lose a lot of time and I'm not sure people would be willing to participate," Ackermann told a news conference on the sidelines of the annual meeting of the International Monetary Fund.

As noted moments ago in German Banking Group Warns of Contagion, Requests Taxpayers to Take Hit for Stupid Loans Made by Stupid Banks admission that losses on Greek loans will be far greater than 21% is starting to spread.

Ackermann is a Liar

There is no polite way to say it so I may as well be blunt: Josef Ackermann is a liar.

Banks agreed to the 21% haircut in July for one reason and one reason only: It was nowhere near "fair" and banks knew they got off easy.

The only "fair" proposal is for those who make stupid decisions to pay full price for those decisions.

Ackermann wants taxpayer to bail him out. Screw Ackermann. And if Deutche Bank goes under as a result, Ackerman and the entire board should be fired. Indeed the entire banking system would be better off if failed bank executives get shown the door and their pensions set to zero when banks fail.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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German Banking Group Warns of Contagion, Requests Taxpayers to Take Hit for Stupid Loans Made by Stupid Banks

Posted: 25 Sep 2011 10:14 AM PDT

Slowly but surely (except from France), bankers are willing to admit things are more screwed up than they previously stated. For example, please consider German Banking Group Warns of further Greek Charges.

Germany's private banks need to prepare for further fallout from the euro zone's sovereign debt crisis, the head of Germany's BdB banking association said on Sunday.

"I don't think that banks will get around further charges regarding Greece," BdB President Andreas Schmitz told Reuters in an interview in Washington, adding that the effects of the Greek crisis were manageable if it could be contained.

Earlier this month, Free Democratic Party leader (FDP) Philipp Roesler, Germany's economy minister, said an "orderly bankruptcy" of Greece should not be a taboo, in remarks that were criticized by Chancellor Angela Merkel and German Finance Minister Wolfgang Schaeuble.

Schmitz said that this kind of dissent only added to investors' concerns and that it was crucial that the German parliament approves the granting of new powers to the existing euro zone rescue mechanism, the European Financial Stability Facility (EFSF) in a key vote on September 29.

Merkel already faces a potential revolt on the EFSF vote from some members of parliament in her ruling coalition who are increasingly skeptical about more aid for Greece.

But Schmitz, who is also the head of Duesseldorf-based private bank HSBC Trinkaus, also warned against increasing the burden on private banks in handling Greece's rescue package.

Private sector creditors agreed in July to take a 21 percent loss on Greek bonds maturing before 2020, but the loss is more likely to be 25 percent or more, Deutsche Bank said on Friday.

Did you catch that? Schmitz is pleading for passage of the EFSF to dump losses made by stupid risk-seeking banks on the backs of overburdened taxpayers. The "private investors" he wants to bail out are the banks and the bondholders.

Recovery will be delayed and moral-hazard policies rewarded once again unless banks and bondholders pay for the stupid risks they took.

As I have noted before, banks are not lending anyway, so there is no risk of having responsible parties take responsibility for their actions. Indeed, the way to increase lending is to require bondholders (not taxpayers) to bring banks up to required capital levels. Thus, private investors should pay 100% of the price for their poor decisions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Sunday, September 25, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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