With the world’s Sovereigns divided by fear and greed, it’s hard to see how the lenders can lose
While the euro funding crisis has zig-zagged this way and that, one thing has remained consistent throughout: the bondholding banks have not contributed a penny towards any solution.
Now some would argue, “They’re the creditors – why should they?” but it’s pointless going through all the reasons why again. It takes two to tango, as they say, and the banks have form in the 21st century when it comes to lending money to people they know can’t pay it back. They must know, a lot of the time, that the borrowers won’t repay; but they figure that’s OK, because other taxpayers will.
I’ve lost count of the number of false dawns we’ve had on this issue. Haircuts and percentages have come and gone, forgiveness deals have been under, on, and then off the table, and bailouts have been announced as “more than enough to settle the markets” time and time again. But there have been no haircuts, no forgiveness, and not a single effective bailout. The situation in Greece is a farce whereby everyone pretends in public that the lenders might take 40, 50 or even 60% haircuts. Five weeks ago, 35% was a done deal: the BBI gave its word on behalf of the credit community. But today, we are no further on….and every day, that unsolved dilemma threatens to blow down one or more of the French leading banks.
I spoke with two well-informed managers yesterday, both of whom felt a French downgrade was only a week or so away – and inevitable, unless something happened. But the lenders show no sign of cutting this leading-rank nation some slack. More to the point, they show no sign of delivering on the much-heralded BBI pledge. (If they did in relation to Greece, France’s problems would be decimated overnight).
If another self-styled ‘expert’ tells me I ‘don’t understand’ the logistics involved, I think violence might be in order. Were a meteorite heading for the planet this morning, logistics wouldn’t be allowed to get in the way. The biggest financial missile ever to hit Paris is probably 6-9 working days away: if it hits, it’s game over for the world economy for years to come. I shouldn’t be – but it will be, because those same lenders, bondholders and markets will panic. Not about the economies about to go belly up, but about the money they’re owed.
Yesterday evening, something occurred to me about public opinion: I wouldn’t mind betting that a majority of the ordinary folks out there think that banks, bondholders, and markets are all different elements in this incredibly complex jigsaw of debt. They aren’t of course, but to read media reports on a daily basis, you’d think they were. RBS invests in bonds, trades in bonds, lends too much credit, and demands higher yields when things get sticky on the repayment front. It’s all the same people. When Reuters writes ‘Now markets target Germany’, what that means is that lender-bondholders want a guarantor, and they’ll make life hairy for Berlin until they get it. Every pusher in the world knows that trick: get the buggers hooked, and then start giving them less of it, more expensively.
How high one takes the helicopter before deciding on a viewpoint about this depends on your personal bent. Mine is and always has been to get as much horizon in the lens as I possibly can. The economies of the world are being held to ransom by those who were supposed to be fuelling capitalism. They have in reality given almost nothing to real capitalism, but instead fed vast funds into multinational monopolists wanting to eat each other. When not doing that, the financial community has traded with itself. And as all little boys know, if you trade with yourself too much, you go blind.
If the Slog’s report of earlier this week is even half accurate, the ransom demand is working. Berlin is weakening, and under the table (on it actually, but we’re not allowed to say that) is a plan via which the bankers will get all their money back, a large amount of ClubMed debt will be forgiven, and around 40% of the money to do all this will come from stealth taxes on the EU citizenry. Even as the idea develops, there is no talk of haircuts any more. Taxes are the new haircuts: the banks will come out of it dripping with rose-water again.
“They have to,” said a valued friend to me a fortnight ago, “because if they collapse, we’re all in the sh*t. Don’t forget John, the lenders are the banks, but they’re also the Sovereigns and the pension providers”. He’s right of course: markets wanting a debt guarantor are often the same folks whose collapse in the absence of that sugar-daddy will mean the collapse of a sovereign economy. Round and round the circle goes…but my point is a simple one: this is a game of poker here, and the stakes couldn’t be higher. However, it seems to me that the financial sector holds all the aces.
Let’s say Merkel just keeps on saying, “No – take a haircut”. If the banks say no, some of their membership go under, but the entire Western economy collapses into a trough of pigswill. The remaining banks will be richer than ever….and the Sovereigns will be broke.
Let’s say Schauble finally agrees, “OK – you win, we’ll disguise the facts and let both lenders and debtors off”. All the banks survive – even more powerful than they were before. But the Western economic world remains frightened of them….and the remaining sovereign debts haven’t got any smaller.
This isn’t conspiracy theory, by the way, before anyone accuses me of it. It’s the reality unfolding before our eyes: as I wrote last year, there is a wealth transfer likely to take place, and it has nothing to do with West and East: this is a transfer of power from Sovereign governments powered by vibrant capitalism, to Sovereign banks serving the needs of big monopolists. In Greece and Italy, it’s already in place in a de facto sense. Last year, Bob Diamond as good as told David Cameron to go f**k himself when it came to bank bonuses, since when Camerlot as a whole hasn’t uttered so much as a squeak about controlling the banks. Diamond now talks gaily about being happy to dispose of his retail network: it’s a cost centre, and the People have been bled dry….so who needs them any more?
This is the primary reasoning behind what The Slog has said from Day One: the only answer (through which Sovereign democratic governance can survive even partly intact, and dismantle the financial system as it exists today) is controlled, global debt forgiveness. The financial community will have to take a much bigger hit – but across the board, so most of the players survive…greatly chastened. And yes, savings and pensions will suffer for a while. But debt forgiveness on an averaged, monitored scale is the only way we can beat the banks.
They are highly unlikely to be beaten. Although the banks don’t trust each other, their actions have been far more concerted and focused than the response of national Sovereign governments. The sting being applied is working in the same way all stings work: by appealing first to selfish greed, and then to fear. There is no political leader out there today capable of saying, “The only thing we have to fear is fear itself”. Whether they really want to or not, the money-suits are on target to run the world.
Related: Black Death in the eurozone
And on a lighter note – George Osborne, Fall Statement Guy