We're this close to a global financial meltdown, and how have the Powers That Be decided to handle it? Some bold, decisive action like breaking up the banks and forcing investors to take their losses? Don't be silly. They're going to extend and pretend, just like we did here in the United States -- and look how well that worked out!
PARIS — PARIS — Europe’s debt crisis hit another milestone on Sunday when the French and Belgian governments agreed to nationalize Dexia, Belgium’s biggest bank, infusing it with billions in taxpayer money after it became the first casualty of the Greek sovereign debt crisis.
The move came as Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France acknowledged that Europe’s banks still needed billions of euros more to cushion against a possible Greek default. In meetings Sunday in Berlin, they announced that they would have a “comprehensive solution” by the time leaders of the G-20 group of nations meets in early November in Cannes, France.
“We are determined to do what is necessary to guarantee the recapitalization of our banks,” Mrs. Merkel said.
But they declined to provide any specifics on how it would work, or how much money they would commit, which could unnerve investors who hoped to see the governments take more decisive action.
The bankers haven't learned any lessons, because they know Big Government will always bail them out. As long as they know that, why should they stop?
What a shame we didn't get to vote here, huh? Yes, despite some heavy-duty pressure (and the implied threat of being blocked from membership in the European Union), the tiny country voted no to a crushing repayment plan for the British and Dutch debts incurred by a failed Icelandic bank. That plan would have required each Icelander to pay around $135 a month for eight years — about 25% of the average family's salary:
REYKJAVIK, Iceland – Icelanders blew whistles and set off fireworks in the capital as referendum results Sunday showed they had resoundingly rejected a $5.3 billion plan to repay Britain and the Netherlands for debts spawned by the collapse of an Icelandic bank.
Voters in the tiny Atlantic island nation defied both their parliament and international pressure to display their anger at how their nation was being treated.
"This is a strong 'No' from the Icelandic nation," said Magnus Arni Skulason, co-founder of a group opposed to the deal. "The Icelandic public understands that we are sovereign and we have to be treated like a sovereign nation — not being bullied like the British and the Dutch have been doing."
[...] Britain and the Netherlands want to be reimbursed for money they paid their citizens with deposits in Icesave, an Internet bank that collapsed in 2008, along with most of Iceland's banking sector. Most ordinary Icelanders feel the repayment schedule was too onerous.
[...] The overwhelming margin reflected Icelanders' simmering anger at bankers and politicians as the country struggles to recover from a financial meltdown. President Olafur R. Grimsson — who sparked the referendum by refusing to sign the repayment deal agreed by Iceland's parliament — said Icelanders resented having to pay for the actions of a few "greedy bankers."
He said, however, the British and Dutch would get their money back eventually.
"The referendum was not about refusing to pay back the money," Grimsson told the BBC. "Iceland is willing to reimburse those two governments, but it has to be on fair terms."
Iceland, a volcanic island with a population of just 320,000, went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.
And you'll never in a million years guess how that happened! (Stop me if this sounds familiar.)
They became a free-market poster child. By deregulating the banking and financial sectors, in just five years, Icelanders saw their wealth increase by 45 per cent. The banks went from domestic lending to international financing, until foreign financing made up two thirds of their debt. Then it all collapsed.
The new left-of-center government has been trying to negotiate a plan to repay $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid to around 340,000 of their citizens who had accounts with Icesave, an Icelandic Internet bank that offered high interest rates before it failed along with its parent, Landsbanki.
Failure to settle the dispute could have repercussions for Iceland's economic recovery. The International Monetary Fund has agreed to loan Iceland $4.6 billion, and the agreement is linked to repaying its international debts.
[...] Many Icelanders remain angry at Britain for invoking anti-terrorist legislation to freeze the assets of Icelandic banks at the height of the crisis.
Oh yeah, about that last part. Iceland Prime Minister Johanna Sigurdardottir has demanded an apology from the UK for freezing their assets. I wonder how long she'll have to wait?
I don't blame them for being furious. Even Icelandic companies that had nothing to do with their banks had their assets frozen by the U.K. government.
And of course, the International Monetary Fund is a flock of vultures. Their Structural Adjustment Programs usually increase poverty in the countries they "help," because one of the main conditions is that the governments sell off their national assets - usually to western corporations at fire sale prices.
So good for Iceland! Too bad our Congress doesn't have that kind of spine.
Via Raw Story, some infuriating news. Remember that children's book with the Gingerbread Man? "Ha ha, you can't catch me!" That's what this reminds me of. No matter what, the bankers always seem to slither away.
Bug - or feature?
On the same day that President Barack Obama announced an ambitious plan to reform the US financial system, bankers at the largest Wall Street institutions indicated that they are already finding ways around the proposed changes.
Sources at three Wall Street banks told BusinessInsider's John Carney that "they are already finding ways to own, invest in and sponsor hedge funds and private equity funds" despite the proposed restrictions on those activities. One unnamed operative at a major bank said his firm expects the reforms to affect no more than one percent of its business.
President Obama announced two major reforms of the financial system on Thursday. The first would see the US in effect return to the separation of commercial and investment banking that was mandated by law until 1999, when that rule in the Depression-era Glass-Steagall Act was abandoned.
Many economists say allowing banks to be both lenders to the public and investors in large hedge funds and other securities contributed to the economic collapse of 2008.
I try to walk that line between being supportive of Obama - and being blind to his very real failings. I don't like a lot of his policy decisions - and neither does Paul Krugman. Today, Krugman writes that the administration's problems aren't the fault of "trying to do too much," but rather bad policy decisions on Obama's part:
The stimulus was too small; policy toward the banks wasn’t tough enough; and Mr. Obama didn’t do what Ronald Reagan, who also faced a poor economy early in his administration, did — namely, shelter himself from criticism with a narrative that placed the blame on previous administrations.
About the stimulus: it has surely helped. Without it, unemployment would be much higher than it is. But the administration’s program clearly wasn’t big enough to produce job gains in 2009.
Why was the stimulus underpowered? A number of economists (myself included) called for a stimulus substantially bigger than the one the administration ended up proposing. According to The New Yorker’s Ryan Lizza, however, in December 2008 Mr. Obama’s top economic and political advisers concluded that a bigger stimulus was neither economically necessary nor politically feasible.
Their political judgment may or may not have been correct; their economic judgment obviously wasn’t. Whatever led to this misjudgment, however, it wasn’t failure to focus on the issue: in late 2008 and early 2009 the Obama team was focused on little else. The administration wasn’t distracted; it was just wrong.
The same can be said about policy toward the banks. Some economists defend the administration’s decision not to take a harder line on banks, arguing that the banks are earning their way back to financial health. But the light-touch approach to the financial industry further entrenched the power of the very institutions that caused the crisis, even as it failed to revive lending: bailed-out banks have been reducing, not increasing, their loan balances. And it has had disastrous political consequences: the administration has placed itself on the wrong side of popular rage over bailouts and bonuses.
Not only did they want us to bail them out, they want to keep the names of the beneficiaries a big secret. While there's at least a theoretical chance that this information could affect stock prices, Wall Street seems to be doing quite well in spite of hanging by a thread, doesn't it?
Jan. 11 (Bloomberg) -- The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.
The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.
“This case is about the identity of the borrower,” said Matthew Collette, a lawyer for the government, in oral arguments today. “This is the equivalent of saying ‘I want all the loan applications that were submitted.’”
Bloomberg argues that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Banks and the Fed warn that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell-off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. The lower court agreed with Bloomberg.