The Slog noticed eighteen months ago

Jacques Cailloux of Royal Bank of Scotland Group Plc., told Reuters by phone earlier today, “Any hope there could have been for an agreement on a higher firewall as early as this week’s summit is fading.”

You read it here first. See that road, kick that can. Instead of giving more money, Germany has offered for Hans und Hansetta to go Tax-dodge catching; ie, to turn the Greeks upside down again and shake out what’s left. Memo to Berlin: more work needed on antennae.

Jim O’Neill, the only decent man in Goldman Sachs, put his viewpoint succinctly as usual: “Europe doesn’t need any money from outside, it needs to show some leadership”. I don’t agree with him, but his point is obvious and well-made: ‘how much do you folks really want this EU project to succeed…put up or shut up’.

Read this Slogpost from July 2010, and then ask yourself: if an ex-adman in his dotage could work out that the IMF was hopelessly short of cash two years ago, why has it taken until now for the G20 to notice?


  1. Looking at the comments on a Telegraph article regarding the Greek Tragedy I was struck by one comment in particular …

    Today 05:21 AM
    All very sensible logic, Mr Bootle.
    Now what is, in real, practical terms, a financial firewall?
    Other than “something that stops financial contagion”, I’ve yet to find an explanation anywhere.
    Exactly now does it stop financial contagion? How does it stop the market process from occurring?”

    So I had a quick root round, as you do, and came up with this explanation…

    “In financial terms, firewall refers to the regulatory legal barriers placed by the Glass – Steagall Act 1933 which attempted to prevent the transfer of inside information and performance of financial transactions between commercial and investment banks. ”
    Source: http://www.essay-hub.com/Financial_Firewall_and_Its_Importance-details.aspx

    From which it seems that the firewall is a set of restrictions which functions in much the same way as the firewall on my computer.

    The question that then follows is why does this set of legal restrictions have to be constructed with pile upon pile upon pile of Euro denominated bills? I know that this is probably the easiest question in the world to answer and reveals my absolute lack of any kind of financial nous whatsoever, but it seems to me that if an institution says transactions of type X cannot be performed then that, surely is an end of the matter, isn’t it?

    I’m confused.


  2. Or perhaps it’s that it has only now that it has been unable to hide the fact that it knew, rather than it didn’t know till now


  3. I think the current players in the IMF/ECB/EU and even Osborne are using the term firewall sort-of incorrectly but because it sounds cool, will impress onlookers and make us all think that they have a clue what they’re blathering about. AIUI the firewall they refer to is not a regulatory one but a financial one (ie: lotsa money, not lotsa regs).


  4. Jim O’Neill’s comments were echoed by some other players including the Brazilian Minister of Finance yesterday. AIR the Chinese have also made similar comments a few weeks ago. No?

    Presumably, Merkel’s problem is getting her hands on more German money…
    She must feel really angry at being constrained by democracy in her own country!


  5. I don’t think it is a case of ‘will not see’ it’s more a case of ‘I don’t see how’.
    I try, but my hardwired catholic moral sensibilities won’t permit the mental and ethical gymnastics necessary to call outright fraud acceptable and/or morally defensible.

    If I were to be able to flip my morals as blithely as I might do say, a coin. Then I would have to conclude that there is not one person in any position of responsibility in the whole of western Europe and American who was not also doing the same. Consequently, not one of them could be trusted to tell the honest, plain and unvarnished truth about anything, not even the time of day; which, of course, assumes that they were capable of discerning truth in the first instance.

    You may see then, how the mind recoils at such a terrifiying prospect.


  6. @BT
    I could go along with your argument about the misuse of the term if Osborne and Lagarde et al were trying to con the necessary cash purely from Mr and Mrs European-Citizen. They might stand a chance of convincing the ordinary public that they knew what they were doing. But most of the cash comes from financial institutions and soveriegn funds. Are we to believe that these institutions are so dopey and poorly educated that they would not recognise a ‘clap-trap’ usage when they encountered one?


  7. I doubt if anyone really cars what term is used…

    The IMF/ECB/EU have asked other countries to wade in with money to help bail out the EZ with a financial firewall. Some of those other countries are essentially saying “we’ll consider helping you out when we see the colour of your money, first.” That is certainly what China and Brazil have said and probably others. But the IMF and Merkel are having problems getting more money out of their donors/taxpayers, so the show trundles down the road.


  8. JW

    marketing people tend to notice things because they are trained to look.

    A banker is taught to read off the figures he is presented on a piece of paper – they make their analyses on the basis of the facts – and as with all these things, which facts do you choose, and more importantly, which facts are you presented with? The problem seems to me to be that they don’t think to ask for the pieces of paper that they haven’t seen. These are the papers that you and I notice because we look for the missing pieces of the jigsaw. In this analogy, the banker is happy with a jigsaw that has holes in it “because that is how it is supposed to look”

    An example of this thinking is the architect who designed the flat I live in*: they put a door in a room so that on either side it was then to narrow to put a single bed against and still be able to open the door. Obviously, they never considered putting a bed in that room. After all, it was only a design that someone would build something from – what has that to do with furniture?

    The point I am making is that someone university trained to loos at what is in front of their noses leads them to think that this is the entire world.

    (*the design won a prestigeous Dutch award for “the building with the least architectural merit”, 1973)


  9. @Gemz:
    “The point I am making is that someone university trained to loos at what is in front of their noses…”

    “someone university trained to loos”? The mind boggles! ;-)
    This must surely only be in Amsterdam?


  10. @Gemz. Good point, but I would hesitate at the word “fact”. It seems to me that the situation is so convoluted, with so many players juggling with hastily cobbled-together financial instruments, that nobody really knows for sure who owes what to whom. And that is supported by announcements in which the figures don’t stack up, they contradict each other, they find lost billions somewhere. Add the fact that no auditor will sign off the EU’s books because they’re too fishy, and so on. These numbers we’re given appear to be guesstimates at best.
    However, that thought is in alignment with yours, which is that these people are incompetent.
    They are playing well outside their league – and they are probably terrified. “He who rides a tiger is afraid to get off”.


  11. Hansetta? My God. Please ask Mrs Ward to proof read your germanisms. Hans and Greta, surely. Osti is another that sets my teeth on edge – should be Ossi, of course. The world may be ending, but that is no reason to give up on grammar or vocabulary


  12. The very idea that the banksters want to prepare an emergency fund says that they have absolutely no idea where the next bomb will go off. The fact that they want a very big fund says they don’t know how many bombs will go off. If they had a clue what was going to happen next, they would be working on the problem and not hoarding money they don’t have. The fact that they are creating problems for everybody to solve problems for a few doesn’t bother them one jot. They’ll worry about that next quarter.

    Greece is bailed out with money from the fiat ponzi scheme and the debt is shared between the EU (and to some degree the IMF) taxpayers for generations to come.

    Meanwhile the banksters take all of the physical assets – 110 tons of gold from the Hellenic Bank (yes, it was written in to the bailout agreement), the ports, the airports, the infrastructure…..and anything else ‘real’ that will have some tangible value in years to come.

    They always win.

    “What shall it profit a man if he shall gain the world but lose his soul?”


  13. Ha ha… brilliant BT. Couldn’t have put put it better myself. I’m cramming “firewall” into every conversation I have now, regardless of subject matter…. :-)


  14. Dear Mr Wood
    It’s not YOU that’s confused.
    A firewall is a euphemism for printing and borrowing yet money money and then telling everyone you’ve got it, such that those going bust from having borrowed too much can safely borrow some more.
    That is, essentially, what the Germans have against it. I for one am with the Germans. Also I have no desire to save the EU. But I do not like millions of innocent people suffering to get rid of it.
    Life these days is very complicated.


  15. Dear dead 18/19th century person
    My father in law being 100% German says Osti. Hansetta was a gag. Not a very good one, obviously.


  16. Morvan

    I’m thinking that a Firewall is intended to keep things out but should whatever get in, you need plan B eg a Ring Fence to prevent it getting out and affecting other .

    In the case of the Maginot Line, it was neither, the Hun drove around it and there was no plan B


  17. Shafted again
    Yes, that is exactly what they mean. The fact that there is no way to ring-fence a bag of popping corn doesn’t seem to worry them too much.
    What we need is more mixed metaphors, like a sort of spread or hedged investment –
    “If we can just seal the tanks, then there’s a good chance the balloon won’t go up”.
    And so forth.


  18. I am going to start up a consultancy called Plan B. It cannot fail.
    But I must, of course, be careful not to make all my omelettes in one basket – or indeed count my chickens crossing the road.


  19. Exactly, have your chickens spread around several farms:

    a) You won’t lose all your chickens in one disaster

    b) Likewise with eggs the chickens produce

    c) Make your omelettes in batch mode

    Job done ;-)


  20. @will lefeurve: Glad you liked it :-)

    Most people think of a firewall as a computer software firewall (PFW) but what the EU political elites won’t know is that there isn’t a software firewall that can’t be defeated or bypassed in/out. So their macho usage of the term doesn’t convey quite the confidence that they think. For computers, the only effective firewall is a hardware one (for personal computers that would be a NAT Router with a strong Password used).


  21. “..the IMF was hopelessly short of cash two years ago, why has it taken until now for the G20 to notice?”

    Well the IMF has changed guard at the top and ‘mission creep’ has crept in and the IMF has spent zillions, all or most of which was against their mission statement – thats how I read it here on the slog .


  22. @Chris Loughrey:
    “There’s a back that’s aching for the lash!!”

    Ouch! I get enough lashing from the Inland Revenue vultures ;-)


  23. See Der Spiegel articles today – quite a line up, including one on the “bottomless Barrel” that is Greece. http://www.spiegel.de/international/europe/0,1518,817795,00.html
    Also,Bild survey reveals majority of Germans against latest bailout agreement. See homepage: http://www.spiegel.de/international/ for following 3 articles:
    1. ‘Greater Chances Outside’: German Minister Calls for Greek Euro Exit
    2, Interview with Bundesbank President: Bigger Debt Cut for Greece Would Set Bad Example
    3. Europe Plays Down Crisis: Leaders Buy Time at G-20 Summit in Mexico


  24. A firewall is set up to defend against a known hazard (i.e. Fire). I don’t think the MotUs and the Politicos have any real idea what the ultimate hazard(s) might amount to.
    If you can pack your firewall with asbestos it might help, but I believe that this is a banned substance in construction materials now. A far better analogy would be a ‘firebreak’ as you see in managed forests. But as with the ‘amputate and cauterise’ idea doing the rounds with regard to Greece, a big wide firebreak sort of emphasises how much your neighbour is being cut adrift.


  25. Not at all, just recently Swansea University was forced to introduce signs into the student accommodation that indicate the correct and incorrect way of using the toilets, apparently because the number of people coming from countries with different standards for their toilet facilities is sufficiently high that there is a high incidence of very unhygienic misuse.


  26. “See that road, kick that can.” Damn. Now I’m going to have Dancing Queen going around in my head just when I have to do some composing.


  27. ‘Also I have no desire to save the EU. But I do not like millions of innocent people suffering to get rid of it.’ Nor me John. But won’t even more millions suffer as the eurocrats grab more and more power to ensure the continuance of their dream. The sooner the EU comes to an end the sooner the pain can be faced and dealt with.


  28. The bankstas only require sufficient time to clear their desks and leave the building, after which they don’t give a monkey’s nephew (or great grand-nephew). 1 hour probably satisfies this requirement; consequential thinking not their strong point.


  29. The various terms around “firewall” and “bazooka” etc relate I think to the confidence of the bond market and the ECB’s ability to act as lender of last resort – for both banks and nations. If bond investors believe that there is only an exchange rate / inflation risk then they can price accordingly. If however there is a credit risk (ie you might not get repaid) then the yield jumps. There is a grey areas where these two types of risk merge, and which impacts liquidity (ie fewer lenders) which then leads to solvency – or insolvency. This is where Italy found itself before LTRO – it was becoming insolvent at c 7% yields.By injecting liquidity (ie turning on the presses) the ECB reversed the trend – probably quite correctly at least in the short term.

    The various bail out funds don’t exist except on paper. There is no bank account with 750B sat in it. However the various (skint) nations of the EZ have promised to stump up funds if need be. This should not be necessary as the ECB ought to be able to act as lender of last resort and of course there should be Eurobonds. This would mean probably higher inflation and an assumption of club-med debt by the Germans and others.

    This is really what is meant by a firewall – IMO. A properly functioning central bank, economic policy and single political entity supporting the single currency. This does not appear to be a saleable solution to the electorates of various nations (except by subterfuge) so we have the EFSF and ESM nonsense, backed by LTRO back door printing.

    If the bond market believes that the EZ is stable and credit risk is minimal then the 750B will never be used. If it believes otherwise then they won’t lend money to weaker nations. Already it seems as if LTRO is being recycled by Spanish and Italian banks into government debt. I don’t know the proportion of real investors but suspect it may be low.

    There was a ridiculous comment on a radio chat show a few months ago about the need to “fight off the bond markets”. Actually they need to be embraced. However speculators scent a killing because of the weakness and incoherence of the EZ as currently structured. I don’t think the maths add up for more than 12 months – if all the LTRO funny money and EFSF/ESM money was needed there is about a year of debt roll over and new deficit funding to go – banks and governments.

    The critical point may be whether the markets believe this is enough. LTRO has helped but to solve this problem requires political structural reform. So will the various short term measures buy enough time to allow this to happen? Maybe – but I have long thought that an external shock (ie war in the middle east) will over turn this pack of cards. And of course the voters keep voting the wrong way…


  30. @BT full marks for “software firewall”. As you point out a software firewall is a firewall in the wrong place. Like putting a real life firewall inside your house rather than outside your gate. A financial firewall is going to be totally ineffective – first question in today’s fast internet connected and electronic money accounts world is, where do you put it? The only way would be to man the Grecian borders and then switch off the internet!


  31. @timbo: Indeed. It’s sad that so many people don’t understand the failings of PFWs. I wonder when they’ll give the financial firewall its proper name: a wet blanket! ha-ha.


  32. ShaftedAgain: “a) You won’t lose all your chickens in one disaster

    b) Likewise with eggs the chickens produce”

    But, if you are unfortunate to loose the chickens and the eggs, which would be lost first?


  33. “For computers, the only effective firewall is a hardware one (for personal computers that would be a NAT Router with a strong Password used).”

    Better take great care who designs and manufactures the chips, builds it, codes it then.


  34. Can you imagine the sprouts with a “big bazooka”? One would hold it and the others would stand right behind to help aim it!


  35. Isn’t the problem that their firewall is one-dimensional, a ring-fence would be two dimensional and for the bag of popping corn …


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