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Denkverbot

by ARGeezer Sat Sep 17th, 2011 at 11:35:29 PM EST

From: Bailout Rebellion in Germany Heats Up  zero hedge

"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.

I have always believed: "when you are right you are right!" In this case Philipp Rösler is definitely right about Denkverbot. But there is a more fundamental Denkverbot than the one to which he referred which should also be rejected: That the current financial crisis could better be resolved by writing down unpayable debt, as opposed to bankrupting governments trying to pay the unpayable.


Perhaps while the subject of Denkverbot occupies the popular press in Germany it would be a good time to raise the issue of this more fundamental Denkverbot. As Jerome recently suggested:

Well, it's simple. Germans should be pissed off (i) at their politicians for squeezing their wages to create profits for multinationals and their owners, (ii) at their banks for blowing off that money in stupid casino bets in US subprime and Spanish real estate, (iii) at their politicians for bailing out the banks at no political or practical cost to bank managers and bondholders, (iv) at their elites for blaming Greek laziness for the stagnant wages.

Should we not be sketching out the consequences of dealing with bankruptcy by those who made the loans to the peripheral nations? This would have the benefit of making a comparison of the costs of this course verses other approaches available and such a course of action would have the additional benefit of making those who caused the problem pay for the problem they created. Why, it might even provide a major precondition to resolving the ongoing crisis. Without such actions the current crisis does not seem susceptible to solution. Is there no one who can publicly take up that position? Is not that subject the true Denkverbot that is currently active?  

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After all it appears that the German electorate will soon be faced with the cost of on or another sort of default. Would it not be cheaper to let the existing banks go into a resolution process that would wipe out the bondholders and shareholders? Surely there are resolution regimes for failed banks in Germany. If we can have an orderly default by Greece, why should it not be even easier to have a resolution process for the banks? Above all, this would have the advantage of actually dealing with the fundamental problem of unpayable debt and stop the pretense. It should be possible to take the good assets of these banks and put them into "good banks", existing or new. Else the German people, if not the people of the entire eurozone, are about to have a TARP thrown over them and they might not see the light of day for many years.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 17th, 2011 at 11:48:20 PM EST
Bondholders could be given shares in good bank successors.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 18th, 2011 at 12:22:11 AM EST
[ Parent ]
Geithner's European Junket » Counterpunch: Tells the Facts, Names the Names

So, what's going on here? 

First, the EU finance ministers are going to try to expand the powers of the EFSF so the money can be used to directly recapitalize banks. This is a clear case of bait-and-switch. The EFSF was sold to the public as a way of helping struggling nations meet their funding needs by pushing down bond yields. It was never supposed to be used to bailout underwater banks. Second, if Geithner's recommendations are followed, then the 440 billion euros will be levered many times over (perhaps 10 or 20x), which will create a big enough mountain of money to bailout all the EU's insolvent banks (and nonbanks!). That way, bankers will not have to writedown losses on their toxic assets or undergo painful restructuring. Geithner's plan is like TARP and QE1 combined, a double whammy for eurozone taxpayers.

And, third, the powers of the ECB will be greatly enhanced so that the central bank can execute policy independently, basically assuming the role of "supra national fiscal authority", much like the Fed has done in the US by invoking the  "unusual and exigent" clause in its charter. 

So, what does it all mean? 

what you said, ARG

"A fool with a tool is still a fool." - Abraham Verghese

by melo (melometa4(at)gmail.com) on Sun Sep 18th, 2011 at 04:15:31 AM EST
[ Parent ]
Counterpunch: Tells the Facts
Unfortunately, regurgitates conventional wisdom. For instance
The EFSF was sold to the public as a way of helping struggling nations meet their funding needs by pushing down bond yields. It was never supposed to be used to bailout underwater banks.
But already then it was evident it was not supposed to help the struggling nations, it was not pushing down borrowing costs since the EFSF interest rate was punitive and it was bailing out the underwater banks using the struggling nations as a pass-through device. And it was used as an excuse to impose the traditional IMF treatment on the said struggling nations.

This is a banking crisis and has always been a banking crisis, starting over 4 years ago. And for 4 years everyone has been in denial that this was a banking crisis. And the reason the EFSF was constituted as it was in June 2010 is that the EU was in denial of the fact that they had not resolved the banking crisis after 3 years. They thought they had already done what they needed to make the banks whole again.

So turning the EFSF into a pan-European bank recapitalization facility is not bait and switch, but fixing the mistake made last year.

It happens to be one of the three policies in Yanis Varoufakis'Modest Proposal, too...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Sep 18th, 2011 at 04:42:32 AM EST
[ Parent ]
What should have happened 18 months ago is that Greece should have been allowed to default and its (predominantly French and German) creditors been restructured and recapitalised. The cost of recapitalization would have been borne by France and Germany primarily.

What will happen presumably no later than February is that Greece will be allowed to default and the French and German Creditors will be recapitalised by all EU member states in proportion to their GDP (since that's how the EFSF is constituted).

So, which direction is the "fiscal transfer" going?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Sep 18th, 2011 at 04:34:49 AM EST
"The cost of recapitalization would have been borne by France and Germany primarily."

What about the costs of recapitalization of greek banks? Or the banks in cyprus?

by IM on Sun Sep 18th, 2011 at 09:45:29 AM EST
[ Parent ]
If we believe this famous summary of BIS data, in May 2010 France and Germany accounted for €120bn out of €236bn of Greek debt. That's 50% already. The recapitalization or not of the Greek banks is an issue of internal redistribution within Greece.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Sep 18th, 2011 at 09:56:34 AM EST
[ Parent ]
There is new BIS data out: Apparently Greek debt to French and German banks is smaller now. I wonder what's the cut-off limit. At what level of debt can it be considered "systemically safe" to make Greece's bankruptcy official?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Sep 19th, 2011 at 06:25:36 AM EST
[ Parent ]
So, which direction is the "fiscal transfer" going?

In the traditional direction, of course.


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 18th, 2011 at 04:33:02 PM EST
[ Parent ]
Finland must pay up.
by Upstate NY on Sun Sep 18th, 2011 at 11:51:13 PM EST
[ Parent ]
is all the CDS bought by the European banks to protect themselves against Greek default risk - mainly from US banks.

So this whole crisis is also about getting European taxpayers to pay for JPMorgan and AIG and the like.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Sep 22nd, 2011 at 05:15:41 AM EST
[ Parent ]
BBC: Greece 'should not be eurozone debt crisis scapegoat'
Mr Venizelos, also urged groups in Greece opposed to the government's spending cuts to stop their criticisms, saying they created a "negative stereotype" which undermined the country's credibility.

He said: This cannot go on. Those of us with a public standing, whether they are politicians, journalists, analysts, entrepreneurs, academicians, must have in mind that what they say can be used as arguments against the country."

Mr Venizelos went on to single out Greek opposition leader Antonis Samaras, saying Mr Samaras had "no idea" what the country faced.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Sep 19th, 2011 at 05:42:19 AM EST
Venizelos is trying everything (including raw violence and intimidation) to quell public anger, which after an unprecedented barrage of taxes, which a large portion of society is unable to pay, and real unemployment at 20% is at murderous levels. Papandreou is in most people's minds a figure of ridicule already. At this point they must be worried about their physical survival, forget political, as a large part of what is laughingly, by now, called the middle class is starting to worry about electricity and food this winter...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Sep 19th, 2011 at 06:32:17 AM EST
[ Parent ]
Meanwhile, The Guardian seems more concerned about U.K. citizens with property in Greece being caught by the new tax.
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Sep 19th, 2011 at 06:57:03 AM EST
[ Parent ]
Should we not be sketching out the consequences of dealing with bankruptcy by those who made the loans to the peripheral nations?

I remain convinced that a thorough public discussion of this issue, especially considering the difference of on whom the costs will fall, is long overdue. The danger of submitting to denkverbot on this issue consists primarily in the ease with which Paulson and Bernanke sold the TARP to the US Congress using fear of the unknown.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 19th, 2011 at 10:24:27 AM EST
that Greece's debts should be forgiven.

The irony is that nobody takes him seriously any more.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Sep 19th, 2011 at 06:19:20 PM EST
Well, surely his serious days are behind him now -- what with saying such things.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 21st, 2011 at 12:42:20 AM EST
[ Parent ]
The real denkverbot is that the rich should take the hit, because their parasitism and greed-gambling, never enough money for them, is the reason the orderly economics don't work.

Certainly, wages have been hit hard enough. But the bonuses get paid, the dividends paid, the yachts delivered.

Perhaps the amateur economists and politicians here should put forth some plans to surgically slice off the fat from the pigs, not the farmers.

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Wed Sep 21st, 2011 at 11:27:36 PM EST


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