The Co-Op Bank, the European Central Bank, the wobbly Eurozone banks, and the Special Relationship.
I need someone to explain to me why the CoOp Bank is running ads with a picture of lovable East German dictator Erich Honneker staring out of them creepily. I know this might seem a somewhat random start to the week, but I’ve been thinking about this odd conundrum for weeks now, and I need to share it out a little.
I’ve put a good dozen different search versions into Google, but the campaign is obviously invisible, as there’s no mention of it. If the campaign is trying to suggest ‘nice’, then it missed. If it is trying to say ‘neo-Stalinist’, then it’s right on the button. If it’s trying to say….well, this is my point, really: WTF is it trying to say? All views gratefully received from within and without Adland.
Meanwhile, back at Eurodisney Piggy Bank, the search for a final guarantor of unrepayable debt has switched to the ECB. Mario Draghi, having undone Trichet’s rate-increase madness, did the right thing the week before last by begging the US for some Dollar liquidity. So be assured, the Italian Stallion is not going to let French banking collapse without a fight. The amount being borrowed by banks from his ECB (desperation) or parked there (distrust) has reached staggering proportions that are way past pre-Lehman. Short of a direct gift from Beijing, there is no way back from this, but of course we mustn’t talk the eurozone down, so let’s look for some bright lights on the horizon.
One bit of good news is that, having been ordered to increase capitalisation by the European Banking Authority (EBA), the eurozone lenders are indeed doing so. They started off cheating by selling assets and then got admonished, so now they are indeed adding to their fragility by borrowing more money to protect them against silly money they lent. As nobody in the private sector would lend money to any of these flakes, most of them are borrowing from their governments.
Just two slight problems so far. One, the Italians – who need to do this more than anyone – have flatly refused. Their banking authorities are at present gainfully employed in suing Brussels for even asking them to do it. Behind the rhetoric, the reason is simple: if neither the banks nor the Government have got any money, it’s a bit hard to recapitalise…although I’m sure Tim Geithner could come up with some ideas, as this is a problem he faces on a daily basis back home. And two, as the main problem all these Governments have is debt overload, using State monies to sandbag the banks is, um, making a sovereign default even more likely.
For the bigger, smarter global banks/lenders/potential bondholders, this is in fact fine and dandy, because they’d far rather have Sovereign defaults (and then run the whole economy) than bank failures (which some cheeky scamp might then ask them to help bail out). But for those stuck in the eurozone, it is simply more insanity on the merry-go-round. None of the ClubMeds can afford this, and Ireland has already impoverished itself trying. So the entire exercise is pointless unless you’re France or Germany. Just fancy that.
All the more reason why Banco Draghio is now under the spotlight. Geithner, Sarkozy, the ClubMeds and the bondholders would like the ECB to take charge of the ESM (it was officially given this job last week) and start blurring the edges of the ill-defined ESM, thus spraying money all over sovereigns and bankers everywhere. Mario has not intention of doing this (it being illegal and mad) and if he tried, Berlin would have him shot anyway.
For once, Germany is right. Not in the shooting thing, but in the unwise nature of emptying the ECB. The sequence of events would be very simple: money parked at the ECB rapidly outweighs all other funds as the central bank starts spending real cash as well as buying junk assets. ECB Chairman is left with two choices…spend bank funds (embezzlement) or tell eurozoners to get the printing machines out. Result: hyperinflation or prison.
My hunch is that, at long last, it’ll dawn on the lending markets – this week or next – that there isn’t going to be a final guarantor, or any eurobonds, or an empty ECB. They’ve had the zero haircut gift: that’s it. Then just watch the fun start.
A final word on hypothecation. Like me, you’ve no doubt read stuff/been ‘tipped off’/had the pub landlord tell you that the lack of collateral regulation in the UK is going to be the Big Bang that sets the next stage of Western impoverishment going. I do not doubt that we are easily the most poorly regulated financial centre in the solar system, and the rumour mill might be right. But there are bigger wheels turning in the background to this scare-campaign.
I had lunch with an American friend the week before last, a contact I’ve known nearly forty years. She is a businesswoman, not a nut, and not really even a Democrat any more. “You know,” she said to me, “I’ve given up expecting the US ever to do anything that isn’t malign ever again”. As always, the caveat here is that she’s talking about corporate/Washington/Spook America, not the American people. At the last count, I’d say about 40% of Americans hold the same view….and they’re all disappointed that the Black Guy seems to have gone so native quite so quickly.
But anyway – enough throat-clearing already: check this out. When Tim Geithner flew in for a little more empty-handed encouragement last week, the one place he didn’t even bother visiting was…..London. He didn’t meet either Cameron or Hague. As I posted some months back, the US cares only about Germany now, because that’s where the money and the power is. Most of the strategic Bourse alliances in recent months have been Americo-German; as ever, the US authorities are thinking ahead to how their mighty currency can remain The Big One. When the Franco-German marriage of convenience hammered another nail into the City’s self-made coffin last Thursday, the Special Relationship was well and truly AWOL.
The US is looking for culprits the same as everyone else, and as ODrama has never liked us anyway, this is one suit he’s been happy to have tailor-made for London to wear. The World Crisis, we will be told during 2012, was the fault of dithering Continentals, British sabotage, and an unregulated London causing the hypothecation disaster. In fact, most of the folks accused of buying stupidly into hazy definitions of loan collateral work for……American financial institutions.
The FCO will never work this out, because the FCO is fast asleep in a place where it’s still 1944. Hague certainly hadn’t the last time I looked. The Slog was a very early and vocal critic of William Hague’s decision to turn left to the US rather than right to Brussels when he took over as Foreign Secretary. Everything I wrote back then, in May 2010, has come to pass. We are only now grasping the full extent of just how disastrous Camerlot foreign policy has been.
Either way, hypothecation is a viral campaign funded and engineered by the US State Department and other associated spooks. It may well be accurate, but its high profile now is designed to hand Great Britain as much of the blame as possible for Crash 2.
We don’t have Switzerland’s gold teeth or its mountains to protect us. But we do have water all around us, a powerful financial centre, and an ability to make more than cuckoo clocks. Nick Clegg is wrong to say we are isolated. Switzerland isn’t isolated, it’s neutral. I have long felt that this is what we should be. Ditching the nuclear ‘deterrent’ alone would be a good thing both morally and financially. The stage is set for Britain to gain strength by going its own way. Does our Government have the bottle to do this? No. Does the Opposition even know WTF I’m writing about? Of course not.
But then, that is the real nature of our problem.