The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[muppet]

Long article but well worth reading.

http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111

The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody's and Standard & Poor's, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt.

It's late afternoon when I meet Mayor Chuck Reed in his office at the top of the city-hall tower. The crowd below has just begun to chant. The public employees, as usual, are protesting him. Reed is so used to it that he hardly notices. He's a former air-force officer and Vietnam-era veteran with an intellectual bent and the clipped manner of a midwestern farmer. He has a master's degree from Princeton, a law degree from Stanford, and a lifelong interest in public policy. Still, he presents less as the mayor of a big city in California than as a hard-bitten, upstanding sheriff of a small town who doesn't want any trouble. Elected to the city council in 2000, he became mayor six years later; in 2010 he was re-elected with 77 percent of the vote. He's a Democrat, but at this point it doesn't much matter which party he belongs to, or what his ideological leanings are, or for that matter how popular he is with the people of San Jose. He's got a problem so big that it overwhelms ordinary politics: the city owes so much more money to its employees than it can afford to pay that it could cut its debts in half and still wind up broke. "I did a calculation of cost per public employee," he says as we settle in. "We're not as bad as Greece, I don't think."

[Declan]

Michael Lewis's articles are always worth reading. Scary stuff

Here's the bould Mr Kerrigan's latest thoughts:
Gene Kerrigan: We pay while rich are recession-proofed
Privilege is protected and lower orders pay the price in lost income and jobs, writes Gene Kerrigan

Sunday November 13 2011
From the start, this column made two predictions (and let's immediately abandon all modesty and state that we were damn right, unfortunately). We believed this global economic nervous breakdown was going to play out just one way -- logic had nothing to do with it, much less fairness.

It's time to say we told you so.

Prediction One was that the primary aim of the political, business, professional and academic elite would be to preserve their own privilege. They would have to be seen to make some contribution, but the structural inequalities must be defended -- even if this threatens any chance of a recovery.

Prediction Two -- the cost of the crisis would be minimal for the recession-proofed rich, and we lower orders would pay the price in lost income, jobs and services.

We suggested that this mightn't work, but we were aware that this is precisely what was done in the major recession of the Eighties. And it worked then. Fortunes were preserved and enhanced. One cost was kickstarting the culture of patients lying for days on hospital trolleys -- a culture that survives a generation later.

So, this time, how's it going?

Pretty damn well, in some respects. For some people, the Celtic Tiger never went away. But, remember that bit about how the structural inequalities would be defended "even if this threatens any chance of a recovery"? That's the killer. The comfortable classes -- not just here, but their ideological bedmates across Europe -- have created for themselves a very, very serious problem.

Before going any further, we'd better stand up that claim that things are going pretty damn well for some. We could merely point to the little dance performed by the bankers last week. But we'll do more than that.

The Taoiseach called the bankers in, and humbly asked that they pass on an interest rate decrease to customers. They told him to bugger off, or words to that effect. Shortly afterwards, AIB's chairman announced a U-turn. That's my old pal Dave Hodgkinson, a smart lad. Dave's been whining lately about the cap on bankers' pay -- about how dreadful it is that most (but not all) top bankers are limited to a measly half a million a year.

It took a while for the penny to drop, but AIB cottoned on that when you're easing your way back to the days of Bigger Bucks for Bankers it's silly to publicly humiliate the pols who can stop that.

Then the list of pensions being paid to elite politicians was published. Paying pensions that amount to multiples of what working people earn is an obscenity. To pay them to people in their 40s and 50s, to people capable of making a good living, is outrageous. Such privilege and inequality reflect similar excesses throughout the higher levels of both the private and public sectors. Recession-proof people, unscathed by the collapsed economy.

What kind of country can fleece the poorest while paying a president multiples of the average wage? Mary McAleese was on €325,000 in 2010, plus an allowance of €317,000. She gave back €65,000. Over her tenure, she could have banked between two and three million -- all her housing, food and transport costs were paid. At the age of 60 she retires on a pension of €162,000 (though she may decide to hand back a portion of that).

We could mention the two Anglo Irish Bank executives who each got a bonus of €1.9m last year, but let's not bother. We could mention the head of the FAI, Lord John of Delaney, splashing two grand last week on an open bar for fans in Estonia. Lord John is on €400,000. What a banker [sic].

We could point to Dr Michael Murphy of UCC, who last Friday called for student fees to be imposed. And we might ask if that's the recession-proof Dr Murphy, whose college can afford to pay him €232,000? We could mention Dr Murphy's seven UCC sidekicks with salaries topping €140,000. Or the 150 academics around the country topping €150,000.

There's evidence that this level of recession-proofing is not confined to bigshot politicians, top professionals and academics. Have you been to the Dog House? You should go, it's a marvel.

Brown Thomas is a splendid store, one that pays careful attention to its customers, and that knows its market intimately. It's aware that, for some, Christmas is an irresistible opportunity to splash out. To service such needs, each year BT sets up a kind of posh store-within-a-store, for people for whom the normal upmarket BT fare won't suffice. This is known as The Marvel Room.

There, you can pick up rings for €7,100, and a jewellery box to keep them in, at €2,450. As the collection grows, try the jewellery case (in white Suhali leather) at €29,000. Handbags for €4,050, watches for €22,000. If you want to buy me an iPad 2 for Christmas I'll have to insist that it comes in an iPad holder designed by Posh Spice, at €895. My stocking filler? A keyring designed by Tom Ford, for a mere €200.

There's also The Dog House, a boutique store-within-a-store-within-a-store. There you can spend €95 on a lead for your dog, or perhaps a hand-embroidered cushion in taupe cotton, for your dog to sleep on, at a competitive €145.

The Marvel Room is not aimed at the one per cent who are the super-rich. This is marketing aimed at a more substantial group. Valuable retail space would not be wasted on items that won't sell. The upmarket jewellery stores, too, know their market. Watch them fill up as Christmas approaches.

The global leaders discarded the lessons of the Great Depression of the Thirties, the conservative regulation that stabilised capitalism for 40 years after the war. When the crisis erupted they disregarded the lesson that fiscal austerity kills growth. They had house-trained, recession-proofed economists to pooh-pooh the old-fashioned rules.

Without the vision to see the depth of the crisis, they dismissed any talk of radical measures, they refused to effectively tax the rich, they sought to revive dead banks and imposed austerity that undermined growth and recovery.

As all that fails, they're now setting up 'technocrat'" governments (ie, unelected, unaccountable 'experts', who don't have to seek election, and can therefore be brutal) in Greece and Italy. France frets, the UK shivers. The euro is a basket case, the EU itself is at risk. But, happily, most of the recession-proof people in charge are wearing very expensive watches, their iPads are poshly spiced and their dogs sleep on hand-embroidered cushions.

To get slightly metaphorical about this, the bankers and builders crippled the economy. Since late 2008 the politicians have been kicking it senseless, with austerity measures. Now, panicked because the euro is on deathwatch, our Government and its ideological bedmates in the IMF/EU can think of little to do but continue to drag what's left of the economy towards the edge of a cliff.

Much as I'd like to join in the Michael D/Boys in Green/four-nil euphoria, I think we're going over that cliff. And we'll have to listen to crabby lectures denouncing our "negativity", from the Happy Clappy brigade, all the way down.

[seafoid]

Amazing developments last week with the powers that be bypassing the political system and appointing 2 outsiders to lead Italy and Greece.
You'll eat it and you'll like it. 

[muppet]

http://www.nationaljournal.com/economy/-government-sachs-italian-style-20111110

[muppet]

http://www.davidmcwilliams.ie/2011/11/15/recent-inaccuracies-re-the-bank-guarantee?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=recent-inaccuracies-re-the-bank-guarantee

McWilliams is setting the record straight regarding his 'opinion' (as against advice) to Lenihan on the bank guarantee.

[Declan]

http://www.guardian.co.uk/commentisfree/2011/nov/15/markets-distrust-democracy-beijing-moscow

Interesting piece

[thejuice]

The forecasters reckon the Eurozone will be in recession by mid December and will stay there for the next Qtr at the least.

"O Goody-goody-gumdrops" as they like to say around Termonfeckin

[thejuice]

and is it just me or is it everytime those wankers in Brussels (or indeed any politician) try and fix this mess it just gets worse.

[GalwayBayBoy]

The forecasters reckon the Eurozone will be in recession by mid December and will stay there for the next Qtr at the least.

I didn't realise we were out of the last one.

[muppet]

http://www.irishtimes.com/newspaper/breaking/2011/1116/breaking3.html

Kenny in conflict with Merkel

[muppet]

http://www.businessinsider.com/must-watch-citis-willem-buiter-says-europe-might-just-have-days-before-a-financial-catastrophe-2011-11

This is a fantastic interview with Citi's Willem Buiter on Bloomberg TV.
You can hear the anger in his voice as he argues that Europe may have a matter of days before an unnecessary default and a financial catastrophe.
The answer: the ECB must act fast, and ignore the Germans who don't get it. While some people don't think that the ECB can really monetize sovereign debt this way, Buiter believes there's absolutely nothing preventing the ECB from doing whatever it wants on the secondary market.
This summary of the key points and quotes was provided to us by Bloomberg TV. You can watch the full video here.
-------------
Buiter on Europe's crisis:
"Time is running out fast.  I think we have maybe a few months -- it could be weeks, it could be days -- before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it. So they have to act now."
"The only two guns in town, one is only theoretical, and that is increasing the size of the EFSF to 3 trillion.  It should happen but it can't for political reasons.  The other one, the only remaining share is the ECB.  They may have to hold their noses while they do it, and if they don't do it, it's the end of the euro zone."

On why the ECB hasn't acted yet:
"Because after the error of the Bundesbank, they consider central banks purchasing sovereign debt outright to be like swearing in church.  It's just not done.  This has been in fact to a certain extent embedded in the treaty which forbids the ECB from lending directly to governments or buying stuff in the primary market.  But there is no restriction at all on them buying any amount of sovereign debt at any time in the secondary market, so they can do it."
"This crisis is the result of the failure to provide the minimal institutional underpinning for a monetary union in the euro area and also a result of the ECB unfortunately being the heir of the Bundesbank and therefore not understanding and rejecting the role of central bank as lenders' last resort to sovereigns.  They certainly are a central bank.  They just are a central bank that prefers to fight with both hands behind their back.  If they just let go of one hand, that would be enough."

On Italy's situation:
"This is already challenging.  If this was the rate at which they are going to fund themselves, even over the medium term, that becomes an explosive debt deficit spiral...This is clearly unsustainable. You can live here for awhile, they're not going to keel over tomorrow, but this is not sustainable...The only way they can get back there is for the ECB to provide the liquidity while Italy does the hard work for years, in fact for the rest of the decade quite possibly, of restructuring their economy and tightening the budget in a major way."

On whether he's concerned about France:
I think France definitely has its work cut out for itself. It has a government budgeting problem which is structural to a large extent. And then they have a large banking sector. Do not forget that the U.S. banking sector balance sheet is less than 100% of GDP. In Europe and France, it is 300%. Their banks are under fire and so their sovereigns are under fire. I do not think the sovereign will keel over, but they have their work cut out for them.

On what he'd like to see in Europe to get the fiscal house in order:
Clearly some minimal federal fiscal structure would be desirable, but it is completely unrealistic.  They best they can hope for is that the ECB will indeed ring fence the euro area sovereigns in exchange for basically glorified IMF programs. So that they will temporarily transfer a significant amount of fiscal sovereignty to some super-national body, but then when they get restored to health, they regain this.  That is not a long-term solution.  Ultimately there will have to be some form of fiscal union that creates a federal solution, but that's for the next crisis, not this one.

On whether Europe is an AIG waiting to happen:
No for several reasons.  First of all, AIG happened and everybody learned from it. Whereas the sovereign CDS, the regulators by and large know who wrote it, who issued it and who holds it.   Unlike quite a bit of the CDS written by AIG.  This stuff is all collateralized.  So nothing is ever completely safe, even sovereign debt, but I think it's a lot safer to trigger them and use their insurance value than to kill the market."

On the quality of the German economy right now:
"It is a mixed bag. It has a very productive manufacturing exporting sector. Much of the rest of it is not very efficient at all, including the services sectors. Germany had the world's largest corporate takeover in 1999 when West Germany took on East Germany. That has not been fully digested yet. It is a country that is very much a dual economy. It is very strong at the moment strong at the moment as an export-oriented economy, which of course is vulnerable to cyclical slowdowns...it is structural and cyclical. The German demographics are terrible, even by European standards."

On whether the U.S. should use its currency to help with exports:
"No, I think to pursue competitiveness policies by manipulating or steering down the nominal values of the exchange rate is a loser's game. In the limit, it gets you to Zimbabwe, which didn't exactly become a hub of competitiveness. It's a gross misalignment for historical reasons...I think we shouldn't get too upset about the Chinese manipulating their currency.  There's also no reason to attach great importance to the ability of the U.S. in manipulating its currency. Both are second order instruments."


Read more: http://www.businessinsider.com/must-watch-citis-willem-buiter-says-europe-might-just-have-days-before-a-financial-catastrophe-2011-11#ixzz1duBjv5en

[seafoid]

Long article but well worth reading.

http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111

The relationship between the people and their money in California is such that you can pluck almost any city at random and enter a crisis. San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody's and Standard & Poor's, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt.

It's late afternoon when I meet Mayor Chuck Reed in his office at the top of the city-hall tower. The crowd below has just begun to chant. The public employees, as usual, are protesting him. Reed is so used to it that he hardly notices. He's a former air-force officer and Vietnam-era veteran with an intellectual bent and the clipped manner of a midwestern farmer. He has a master's degree from Princeton, a law degree from Stanford, and a lifelong interest in public policy. Still, he presents less as the mayor of a big city in California than as a hard-bitten, upstanding sheriff of a small town who doesn't want any trouble. Elected to the city council in 2000, he became mayor six years later; in 2010 he was re-elected with 77 percent of the vote. He's a Democrat, but at this point it doesn't much matter which party he belongs to, or what his ideological leanings are, or for that matter how popular he is with the people of San Jose. He's got a problem so big that it overwhelms ordinary politics: the city owes so much more money to its employees than it can afford to pay that it could cut its debts in half and still wind up broke. "I did a calculation of cost per public employee," he says as we settle in. "We're not as bad as Greece, I don't think."

I just finished reading it, Muppet. The US is really banjaxed. Would make one wonder how TO can justify his rants.

[muppet]

http://www.irishtimes.com/newspaper/breaking/2011/1116/breaking3.html

Kenny in conflict with Merkel

Heard an interesting twist on why Kenny might be at odds with Angel.

He may be prioritising our special relationships and acting accordingly.

[muppet]

If anyone thought the Department of Finance were the only ones capable of producing daft figures have a look at this:

The world exports $331bn more than it imports, according to the IMF.

http://www.economist.com/node/21538100?fsrc=scn/tw/te/ar/exportstomars

They forecast that this figure will rise to $700bn by 2014.

[Gaoth Dobhair Abu]

http://www.irishtimes.com/newspaper/breaking/2011/1116/breaking3.html

Kenny in conflict with Merkel

Heard an interesting twist on why Kenny might be at odds with Angel.

He may be prioritising our special relationships and acting accordingly.

Muppet can you expand on this please.