Last Monday David Folkerts-Landau, the chief economist of Deutsche Bank, the ailing largest lender of Germany, in an interview with the prestigious newspaper ‘Die Welt’ stated that European banks must be subsidized with €150 billion in rescue money to recapitalize. Obviously, it will be the taxpayers to once more provide the capital the euro area banks need. He explained that there is no chance the banks to find that money from private investors, given the sorry state of their market evaluation.
He also had the impertinence to point a finger to the Italian banks, avoiding however to mention that his employer, the Deutsche Bank is in a much worse position risk-wise than any Italian bank. Everybody knows that Deutsche sits uncomfortably on risky CDSs and derivatives amounting to tens of times the GDP of its home market (some tens of trillions of euros), while the Italian banks are troubled by non performing loans of around €300 billion.
It’s always the taxpayers
He went on by implying that the European taxpayers are obliged to once more rescue the usurping and imprudent bankers. “We have to set up a big fund to recapitalize the banks” he said, shamelessly forgetting that the European governments and the central bank had to inject a round sum of €4 trillion to save the lenders during the crisis years of 2008 – 2010.
He also forgot to point out that Greece, Ireland, Spain, Holland, Belgium, Germany, Britain and other EU member states risked their own creditworthiness or even became insolvent in order to rescue their banks. The most tragic example is Ireland, a country with impeccable fiscal accounts and only 20% of GDP in public debt until the crisis broke out in 2008. All of a sudden though, the unfortunate Irish taxpayers were obliged to borrow almost an entire GDP in order to rescue the failed four private banks of their country (Anglo-Irish Bank, Allied Irish Bank, Nationwide Building Society and Bank of Ireland). The same is true for Greece, but this country suffered also from a catastrophic fiscal and public debt management.
Subsidizing the bankers again
In any case Ireland, Greece, Spain and up to some degree Portugal too had to take refuge in traumatic borrowing, in order to repay their banks’ debts to major German and French lenders. According to the Statistical and Social Inquiry Society of Ireland (The Funding of the Irish Domestic Banking System During the Boom), the German financial institutions were the largest investors in Irish bank bonds in the pre-crisis period. Prominent amongst the imprudent German ‘investors’ who had lent hundreds of billions to south European and Irish banks was Deutsche Bank and one or two major French lenders.
Unlike similar cases, as in the settlement of the Latin American debt to New York banks in the 1980s, the European southerners repaid their north European lenders at full nominal values. On the contrary, the dollar denominated Brady Bonds (named after the then U.S. Treasury Secretary Nicholas Brady, who proposed a debt-reduction agreement for developing countries) with which the Latin American countries repaid the New York lenders, incorporated a generous forgiveness of a large part of nominal debts. In this way the final settlement in the Americas recognized a shared responsibility for the borrower and the lender, in relation to the reasons the debts went off beam.
The European Shylocks
But no, the north European Shylocks didn’t accept any responsibility for the south European and the Irish debt crisis. The German minister of Finance Wolfgang Schäuble and Jean-Claude Trichet the then President of the European Central Bank in 2010, actually blackmailed the southerners and Ireland and forced them to repay all debts at nominal value. No negotiations whatsoever took place over this issue, on the pretext that the global banking system was on the brink of collapse.
It seems then that Folkerts-Landau has not forgotten what Trichet and Schäuble did some years ago and wants to imitate them. He once more brandishes the terror of a new financial meltdown in order for us taxpayers to hand out to his employer and to other usurping bankers another multibillion package in aid money. He actually elucidated that when he said “We are witnessing one crisis after another and I can, by no stretch of imagination, see any growth prospects anywhere”. He speaks of a crisis in general, again concealing the fact that it was his bank and others like it, which drove the world to this impossible state, with the financial crisis having settled in as a standard feature of the economic scenery.
It’s the banks stupid
If it wasn’t for the banks, the real economy recession would have troubled the society with a bit more unemployment and less incomes, but it wouldn’t have driven the economy to financial fallout and total chaos. The bankers actually are not lenders any more. They have become ‘investors’, risking our money for their own personal interest. If their bets go well they pocket the profits and the bonuses. In case of a failure they present the bill to the public exchequer and demand a rescue, terrorizing the real economy with the threat of total destruction. They have done this after our legislators allowed them to create all those monstrous derivatives and swaps markets, betting on everything with anything they don’t own.
This is a straight forward rocket endangering the entire society. At the end of the day, there is no other way to deal with the bankers, than the public prosecutor hunting them down and bringing them to court for extortion, fraud and terrorism. It’s not then by chance that the first to come out and demand €150 billion is the chief economist of the Deutsche Bank. It’s his employer who has shown the greatest insatiable appetite for risk, having now accumulated an explosive pile of precarious bets in the CDSs and the derivatives markets. That’s why the Deutsche Bank is in deep trouble and has the largest needs for recapitalization in relation to the other big Eurozone banks. The problem of the Italian lenders is nothing compared to that, because they are not exposed to the grey banking universe.
The truth remains though that as things stand now, the next financial crisis is not around the corner, it has already set in. Folkerts-Landau demands €150 billion in order to save us from chaos, but this kind of massive subsidy is easier said than realized. Governments and taxpayers would not concede to that, unless a new financial Armageddon knocks on the door.