Courtesy of The Automatic Earth
"The Boardwalk parade, Atlantic City, New Jersey"
Ilargi: The Bank of England announces QE2 (£500 billion?). The ECB will provide unlimited credit to European banks. The IMF will buy EU sovereign debt (so the whole world is forced to finance what the EU itself so far refuses to). All this drives up the markets.
It’s high time to realize that what is good for the financial system is not just not also good for you, it’s becoming more detrimental by the day. That is your money being given away. That is the money that’s being taken from you that feeds investors, speculators and banks. That money will no longer be available to feed your children. If you see those markets go up, you need to realize that it’s you who pays to make them do that.
We’ve recently entered the third year of this giant give-away, this wealth transfer that knows no equal, not even close, in world history. And we still let it happen. We even let ourselves be fooled by politicians and media pundits into believing we’re in a recovery. As in: there has been one after the 2008 collapse, and it’s now the recovery that’s threatened. And all we need to do is valiantly, bravely but resolutely restore it.
Perhaps people like Ben Bernanke actually think there is or there has been a recovery. He certainly sounds like he does. Here’s what he said in Congress this week: "We need to make sure that the recovery continues and doesn’t drop back…" And if you look at a set of numbers that you pre-select carefully enough, you might indeed think they paint the picture of recovery.
But if you look at the budget cuts and deficits in countries everywhere, if you watch for example what’s going on with unemployment and home prices in the US, and with austerity measures all over Europe, and then you add to that picture the trillions of dollars of public money either at risk or already lost to bank bail-outs, how can you maintain that spells recovery?
Looks to me like it takes many billions of dollars each and every day just to keep Wile E.’s legs spinning in mid-air a little longer.
It also looks to me like you have a unique opportunity to make yourselves heard, in the Occupy movement, the fast growing mushrooming sprouts of Occupy Wall Street. However, even if fends off police brutality, infiltrators, agitators, misrepresentation and Glenn Beck, I must say that I’m still worried about the level to which the protesters, in what is rapidly threatening to turn into a global movement, understand what’s going on, and especially, what’s going wrong.
"The 99% vs the 1%". "The greed of the bankers". Yeah. But not quite. The fact that it all started on Wall Street is a bit of a hint. You need to understand that protesting banks, or bankers, is not very useful. What would you want to have them do? Leave? Quit? There’ll be ten others tomorrow morning. Operate differently, be less greedy? Those ten others will operate the same way if they can get away with it.
Bankers, and financial institutions in general, can only go as far as a political system lets them. I’ve noted many times before that we don’t have a financial crisis, we have a political crisis. The reason why is so obvious it’s hard to see: if you allow money into your political system, it will buy that system, and end up controlling it entirely (or close, allowing for the odd 1 in 1000 honest politician).
A democratic political system needs to be independent of money, or it will not remain democratic. Allow the first bits of money in and at some point it will turn into Mussolini’s corporatism, aka fascism. It’s like when you can a jar of jelly, and you don’t shut it properly, if even for a second. After a certain period of time the entire jar will be filled with something other than jelly. We’re well on our way there, very well.
But getting money out of politics is a long-term goal, one that is too far-reaching and too complex to solve in street protests. Still, it’s more realistic than protesting bankers’ greed. You might as well protest the fact that the sun goes down. Or that bankers wear suits. Bankers would still be greedy if they all were forced to wear polka-dot dresses. Many people are greedy. They just don’t always get the means to satisfy their greed. And perhaps bankers don’t even need to be all that greedy and still make obscene amounts of money.
The Occupy movement needs more attainable goals if it is to succeed and survive. The anger is there, as is the energy, but the focus does not seem to be. So I wanted to make a first suggestion; I’ll have more going forward.
It’s perfectly defensible for a government to lend money to a bank in trouble that is important to its economy, in order to try and save. However, it borders on criminal negligence, if it isn’t outright criminal behavior, to lend that money without being perfectly aware of what assets that bank holds.
A bank could have 100 times more debt than it receives in bail-out money. But we wouldn’t know about that today, we’re not allowed to know. Both the US (FASB 157) and the European Union (IFRS 9) have accounting (non-)principles in place that say it’s perfectly alright for a financial institution to hold assets in its books at 100 cents on the dollar that have a market value of 70% of that, or 50%, or even 5%. It has therefore no obligation to reveal even to its shareholders what its true financial situation is.
What this means for bonds was explained very nicely a few weeks ago by Peter Tchir of TF Market Advisors:
If all Greek bonds were marked at 45 (or even had 55 points of reserves held against them) then there would be a lot of potential solutions. You would need any of these specialized entities. Some big total return bond fund, or some large hedge fund could buy the entire universe of Greek bonds.
Then they could sell them back to Greece for a nice little profit. Surely the IMF or someone would lend Greece the money to buy the bonds back, or within enough collateral and a high enough coupon, some big total return fund that is underweighted treasuries, could lend Greece all the money they needed to buy back those bonds.
The problem is, not all the bonds can be purchased at that price, not without forcing the banks to recognize the losses. That is why no solution of some new buyer of bonds really fixes anything. They can buy up the existing "marked" bonds, but that will mostly generate profit for the current holders.
The amount they can accumulate is too small to improve the situation in Greece of the other countries. The percentage of marked bonds is just too low. Too many of the bonds are unmarked or massively under reserved. Banks selling them would monetize the losses, exactly the same as if there had been a default.
Most of the banks that hold these bonds in non mark to market accounts are exactly the sort of banks that will be desperately seeking capital if they took the write downs.
Until the banks write the positions down enough, the system is operating with too many hidden losses. New money doesn’t help address sovereign issues much because it only addresses the bonds that are already priced reasonably well. It doesn’t encourage banks to take the losses, and doesn’t let enough debt be restructured to change the path of insolvency.
Ilargi: That’s right. You read that correctly. Banks are sitting on such a large share of Greek debt that the ECB, or any other prospective buyer, is essentially powerless when it comes to solving the Greek crisis through bond purchases (but the ECB still does it). And the banks will keep them on their books, and not sell, as long as they remain allowed to do so.
In other words: a potentially viable solution to the crisis is frustrated by the banks. So far, so good (?!) A bank is after all a private institution and there should be limits to the power a government has over private companies (though measures should be taken to prevent a repeat of this bizarre situation).
But it doesn’t stop there, and this is where I suggest the Occupy movement(s) should come in. If a bank wants to sit on its debt, since revealing it would cause it great stress, that’s fine, to an extent. Occupy (and us) can make sure FASB 157 and IFRS 9 are thrown out at a later date anyway.
But a bank should never ever be allowed to sit on its debt and mark it to fantasy and then also receive funding from our governments, whether in bail-outs, hand-outs, loans, special facilities’ windows at our central banks, or any other sort of funding, nothing of the kind.
We need to tell our politicians that they can no longer give even one single penny of ours to any institution that hasn’t marked all of its assets to market. No exceptions.
We must demand this in order to prevent our money from being wasted on those banks that have no chance of recovery with the money we might give them. We can’t have any more Dexia’s, where a bank that passed a stress test mere months ago with flying colors now threatens to bankrupt an entire nation, simply because a huge part of its assets was kept hidden.
Yes, this would send certain banks over the cliff. But if a bank can survive only with repeated infusions of public money, what good does it do to keep it alive?
Greek bonds are now worth maybe 20%-30% of their face value, if that. What are the chances that this value will rise significantly in the near future, to levels where banks would volunteer to reveal their positions? Those chances are either zero or none. Because no-one can buy enough Greek debt to halt the decline in its value. The ECB is already deep underwater on its holdings; it may itself soon need a bail-out.
So how do you get politicians to force mark-to-market on banks that ask for loans and bail-outs? They’re not going to do it voluntarily; or perhaps we should put it like this: they sure as hell ain’t planning to do it.
That means it will take an "organization" such as Occupy Wall Street, with all its "loose affilates" springing up around the world, to attempt to force them to change their minds and tacks. It’s that simple, really.
That means that if the ruling politicians refuse, the bank recapitalizations that are being discussed in Europe, as well as the inevitably forthcoming ones in the US, should be prevented by national parliaments. And if they don’t do it either, by courts of law.
Normally, such a process will be dragged out to infinity and beyond. Having enough people in the streets, though, can work miracles to speed things up. It would make your families and friends proud of you to know you stood up for them in the "great revealing". In which you did not rid the world of bankers’ greed, but of financially bankrupt institutions and morally bankrupt politicians, and the utterly destructive systems they’ve come to represent.
In which you put a stop to your children’s future being held hostage to hidden losses.
