Troubled Eurozone Finance Capital
Photo: Workers of the public and private sectors demonstrate in Paris, Tuesday, Oct. 11, 2011, during a national day of strike against government austerity measures. President Nicolas Sarkozy's conservative government says the cost-cutting measures are essential to reducing the country's debts and allowing France to remain a pillar of the troubled eurozone. (The Sacramento Bee)
For years, Progressive Radio News Hour contributor Bob Chapman warned about troubled Eurozone financial institutions and possible sovereign defaults.
Greece died months ago. Default is certain. Only its obituary hasn't appeared. Germany prepared contingency plans to reissue the Deutschemark if Eurozone stability crumbles.
Six possible sovereign defaults loom if contagion spreads out of control. "Considering the condition of other European banks, and the possibility that three major French banks may be purchased by China, we could see disruption in the global banking system," warns Chapman.
"The very fact that Germany is building a reserve of Deutschemarks has to spell the possible end of the euro."
If conditions keep eroding, its advocates will be discredited for believing its time had come. Without Germany as its lynchpin, it's heading for history's dustbin.
Markets know Greek default is certain, but haven't priced in Germany readopting its D-mark. Chapman "predicted it 12 years ago and many times since." Disruption will be severe if it happens. "Overall, we cannot imagine a euro without German involvement. Secretly, the Germans have already made the decision."
They're trying to save themselves financially and economically. An entirely new Germany will emerge. "We believe that (it's) on the cusp of taking care of domestic institutions and problems and protecting" domestic investors over others in troubled countries. In preparation, they're also protecting their banks. "At least six countries are going under, and all their debt will be worthless or near worthless."
Watch troubled Greece. When it goes, they'll "all go." If Greece doesn't get its (next infusion, it'll) happen quickly." Otherwise, it'll be delayed another six to 12 months.
US banks won't escape trouble. Bank of America will "probably (be) nationalize(d)." Heavy European exposure of other major ones means they'll all be greatly impacted. Convulsion will grip financial markets. "We could eventually have what looks like 1929 - 1933 all over again" after Wall Street crashed.
D-marks are being printed in preparation for "the greatest crisis to (grip Europe) since WW II. Moreover, bailing wire hold(ing)" Eurozone countries to the euro is "coming unraveled....The dream of Europe as the centerpiece for a new world order is over. There will be big government changes" across the continent as many insolvent banks are nationalized or shuttered.
As Europe's strongest economy, Germany's preparing to save itself as insolvent countries fail. "This is truly how dire the situation is. Cost analysis dictates the end of the euro and perhaps....the EU."
Crooked bankers caused these problems, knowing bailouts will save the largest too-big-to-fail ones. Concerned French officials are following Germany's lead by printing francs just in case.
Unity perhaps works with equal partners. Unequal ones under common rules assures inevitable trouble, especially when finance capital giants engage in reckless speculation and massive fraud for short and intermediate term gains.
As conditions in Europe unravel, global reverberations will follow. Ongoing Depression crisis will worsen, hitting working households hardest everywhere.
Financial expert Martin Weiss also sees serious trouble coming. On October 10, he issued seven major advance warnings.
Months before 2008's financial storm, he warned of failures hitting Bear Stearns, Lehman Bros., Citigroup, Washington Mutual, and Fannie Mae "four years before it collapsed."
His new calls are some of his "most important in 40 years." They mostly affect Europe, but will impact global economies.
1. Insolvent Greece will soon default. European, US and other global banks hold billions of its toxic assets. Whether or not they'll accept a major haircut makes no difference. Greece is dead.
2. Fear contagion will spread because Greece has "over 328 billion euros" in toxic debt, "more than Ireland and Portugal combined." Moreover, other Eurozone countries are also troubled. Once one collapses, expect others to follow.
3. "European megabanks will collapse" under the weight of billions of dollars in toxic debt defaults combined with "mass withdrawals" as investors run for the exits.
"Spain's banks are especially vulnerable, swimming in a cesspool of bad mortgages" caused by the country's imploding housing bubble.
So are larger French banks, including BNP Paribas with $2.7 trillion in assets, Credit Agricole with $2.1 trillion, and Societe Generale with $1.5 trillion.
Combined, these banks have more assets than JPMorgan Chase, Bank of America and Citigroup. "All three are drowning in bad loans" and are in danger of cratering.
They also face mass withdrawals if worried investors sell to avoid big losses. Moreover, deposits comprise less than 35% of Eurozone bank assets. They mostly rely on "wholesale funding - money borrowed from other banks and institutions. In other words, they're hooked on HOT MONEY" used for highly leveraged speculation.
When troubled signs appear, withdrawals quickly follow. In 2008, similar bank runs doomed Washington Mutual and other US banks. They almost sunk giants like Citigroup and Bank of America. They and other major US banks remain vulnerable to a similar crisis today.
Giant Eurozone banks are especially at risk "because they rely on hot money far more than US banks. And many appear to be suffering big runs" right now.
An emergency European Central Bank (ECB) $40 billion bailout tried to compensate unsuccessfully. It's a "drop in the bucket, barely covering ONE CENT for each dollar of PIIGS' (Portugal, Ireland, Italy, Greece & Spain) outstanding debt.
4. Eurozone countries "will suffer a cascade of new credit rating downgrades." France and Germany will provide temporary relief. However, bailouts only work short term, letting smaller crises become greater ones.
Out-of-control debt isn't solved by more of it. Eventually a house of cards collapses crushing economies. Moreover, counterproductive measures cause "governments (to) gut their own fiscal balance."
Downgrades follow. Borrowing costs rise, forcing sovereigns to "pay through the nose with far higher interest rates. In other words, in their zeal" to rescue banks from collapse, governments drag themselves "into the abyss."
5. Spain and Italy are next in line "to face default on their massive debt." Combined, they have nearly $3.4 troubled trillions, "10 times more than Greece." The combination of higher borrowing costs and failing banks risks defaults in both countries because they can't borrow enough to service crushing amounts owed.
6. Global debt market meltdowns may follow. If investors fear Spain and/or Italy may default, they'll freeze because of mass withdrawals. Major countries like Germany, France, Britain, Japan and America will be affected. So will others. Interest rates will rise sharply. Borrowing at any cost will be curtailed or impossible.
7. Sovereign debt defaults and bank failures will cause more of them. Global Depression will deepen. "Ultimately, we will see an extended period of great economic hardship for billions of people" everywhere.
In fact, crisis conditions have "progressed far beyond the deniability stage." Enough money power doesn't exist to bail out everyone. "The era of big bank bailouts is over!"
Short-term stopgap measures only are possible that exacerbate current crisis conditions. Global financial structures delay the inevitable by "l(ying) about the value of their loans" to troubled countries. "And governments lie about how much (is needed) to save insolvent banks."
"Solemn promises are made. Paper is shifted back and forth." Manipulated markets rally. But it's all a shell game "no better than rearranging chairs on the deck of the Titanic," taking on water fast and sinking.
On October 10, giant Belgium-based Dexia bank failed, the largest collapse since 2008-09. Its assets exceed Belgium's GDP. It was the largest global municipal governments lender. It actually passed Europe's stress test three months ago.
Major banks larger than Dexia may follow. Rigged stress tests let insolvent ones like Italy's UniCredit and French giants BNP Paribas, Credit Agricole and Societe Generale pass.
Toxic debt didn't sink Dexia. Mass wholesale funding withdrawals did, threatening insolvent European and US banks if contagion spreads.
So far, policy measures pile good money on bad. Sovereign finances weaken. Credit downgrades and higher borrowing costs follow. Hard times worsen.
Loaded with toxic debt, US banking giants are vulnerable. A day of reckoning approaches when nothing tried will work.
Conditions globally are out of control. Belgium's Dexia defaulted with $707 billion in assets. Despite reeling with unfixable problems, Greece bailed out its failed Proton Bank. So did Denmark for its Max Bank. Others anywhere across the continent can implode any time, including troubled giants.
Meanwhile, everything done makes a bad situation worse, heading for big trouble perhaps sooner than expected.
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Stephen Lendman: I was born in 1934 in Boston, MA. Raised in a modest middle class family, attended public schools, received a BA from Harvard University in 1956 and an MBA from the Wharton School at the University of PA in 1960 following 2 years of obligatory military service in the US Army. Spent the next 6 years as a marketing research analyst for several large US corporations before becoming part of a new small family business in 1967, remaining there until retiring at the end of 1999. Have since devoted my time and efforts to the progressive causes and organizations I support, all involved in working for a more humane and just world for all people everywhere, but especially for the most needy, disadvantaged and oppressed. My efforts since summer 2005 have included writing on a broad range of vital topics ranging from war and peace; social, economic and political equity for all; and justice for all the oppressed peoples of the world like the long-suffering people of Haiti and the Palestinians. Also co-hosting The Global Research News Hour, occasional public talks, and frequent appearances on radio and at times television. Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site sjlendman.blogspot.com and listen to The Lendman News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening. Stephen's new book "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War" can be ordered HERE.
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Photo/Caption: Thibault Camus/AP Photo/The Sacramento Bee
URL: http://www.a-w-i-p.com/index.php/2011/10/12/troubled-eurozone-finance-capital
