Europe: From the Subprime to the Breakdown

By LUIS MIRANDA | THE REAL AGENDA | AUGUST 10, 2012

The storm that began in the U.S. five years ago, swept governments, banks and mortgage financiers.

The outbreak of the subprime mortgage crisis in the U.S. arrives to its fifth year with a legacy that includes a global economic crisis that seems endless: the almost certain breakdown of the euro, and in the case of Greece, Spain, and most likely France, Portugal and Italy , among others, the need to seek bailouts from the European Union.

After five years, Greece is no longer owned by its people, but by bankers. The country experienced a total collapse since the alarm bells went off on August 9, 2008. The same has happened to Spain, that went from a growth rate of 4% to a negative one which is expected to be 1.5% in 2012. As it happened in other sovereign debt stricken countries, Spain lost half of its stock market value — not that it really means anything in the real world — and corporate profits, depending on who you ask, have seen dramatic losses or dramatic gains.

Almost all Euro zone countries have seen their ability to request loans erased or deeply eroded, given their loss of reputation as trustworthy borrowers. That fact has also made it more expensive for nations to pay for the already existing debt, which turned attention to their leaders. In response to the fiscal challenge, governments simply decided to continue business as usual, that is, borrowing more money at higher interest rates, in order to finance the gigantic welfare systems they do proudly own.  Through the years, the deficit has grown, and so has the debt and the interests on it. The sovereign debt bubble, to use a familiar term, is that much closer to burst, given countries like Spain’s inability to make the payment on its debt, while continue to borrow.

The negative of the European governments to act in accordance with the best interests of their people, resulted in more unemployment, more debt, less production, and less sovereignty. In the Euro zone, most countries have been downgraded by the banker created rating agencies, such as Fitch and Moody’s which resulted in the increase of borrowing costs.

The risk premium, index of investor confidence in the sovereign debt of a country is measured by the spread between ten-year national bond and the German for the same period, went from complete anonymity to becoming the essential indicator for all economies. In August 2007 the risk premium of Spain, for example, which is the measure of the extra costs demanded by investors for buying Spanish sovereign debt compared to Germany, was 12 basis points, compared to the 630 points it has now.

Even though the subprime crisis was rooted in the United States, where all kinds of schemes were created to defraud borrowers, lenders, families and investment funds, the shock waves rapidly arrived in Europe, where big banks had invested themselves — knowingly and otherwise — in the same fraudulent financial products stained with the subprime lending scam. One of the triggers of the crisis in Europe was the temporary suspension of the liquid value of three funds owned by BNP Paribas on August 9, 2007. This move was a direct consequence of the subprime mortgage debacle in the U.S., where investing firms used customer money to gamble, while their risk was minimum. From every $100 that was put at risk, $97 belonged to pension funds, credit unions , retirement accounts and average investors. Only $3 came out of the pockets of those who risked their customers’ assets.

In most cases, unregulated U.S. financial institutions diversified the risks of subprime mortgage loans through securitization, transferring them to other banks in the credit derivatives market. Derivatives are themselves a form of artificially created ‘financial products’ with little or no value. The lack of transparency and little clarity in the terms of the derivative contracts make this financial instrument the most attractive, but also the riskiest one. In the case of the crisis of 2008, investors only got to know the risk and not the promised high returns in their investments. That is how many individuals, companies and organizations saw their monies simply disappear. Someone had simply ran away with their money.

The supposed harmless securitizations involved the transformation of an asset or a non-negotiable right to payment (eg. a mortgage) into homogeneous debt securities or bonds, standardized and open to negotiation on organized securities markets. Financial institutions took on the risk for two reasons. First, because it was not their money the one at risk, but that of investors. Second, because they knew that government would come to the rescue, as it has now happened. The immediate impossibility to know the total value of these toxic assets and who was exposed to them launched even worse tsunami waves that deepened the crisis to levels never seen before.

The contagion in financial markets collapsed and worked as the perfect excuse for the European Central Bank (ECB), U.S. Federal Reserve and other central banks to take initiate the largest transfer of wealth ever seen in history. Not only had the banks ran away with investors’ money, but they were also about to receive the largest taxpayer funded bailouts ever — which are still ongoing — even though they were the only ones to blame for the collapse of the existing system. Total bailout cash has now reached $1 trillion and this money has mostly been given to selected people in governments as well as international banking institutions. It is important to note that some calculations set the fraudulent derivative market value at $1 quadrillion.

Right at the beginning of the crisis, and in one transaction alone, the European Central Bank gave away 94.841 million euros, one third more than the 69,300 million euros injected on 12 September 2001, a day after the attacks in New York. This move meant little or nothing as the connections in a globalized economy began to reveal that the problems were just about to get worse. The storm started by some U.S. mortgage financing firms became a gale that has so far crushed governments like Greece, Italy and France, mortgage financing giants Fannie Mae and Freddie Mac and investment banks like Bear Stearns and Wall Street’s Lehman Brothers. Those two banks along with many others were literally absorbed and digested by bigger banks, that with taxpayer money, healed all losses they would have and still were left with much more cash to pay fat bonuses to their corporate leaders.

The crisis has gotten to a point where it has mathematically bankrupted almost all if not all developed countries — even though their leaders say otherwise — due to the impossibility for those nations to pay off their debts. Their implosion is just a matter of time. With Spain, France and Italy being unable to meet their obligations and not willing to seek sane fiscal and monetary policies, the break up of the Euro zone is all but imminent. As mentioned in previous articles, the length of time that will pass until the full collapse occurs is in the hands of the banking institutions who originally caused the crisis.

The financial crisis of confidence and credit has led to recession after another in the developed world and has slowed the growth in emerging markets like Brazil or China, but mostly has jeopardized the survival of the single European currency. The effects of the crisis remain to be seen in those regions of the world, where their economies have begun to contract already.

Spain admits the need for a Rescue of 300 billion

By LUIS MIRANDA | THE REAL AGENDA | JULY 30, 2012

The Spanish Minister of Economy and Competitiveness, Luis de Guindos announced last week to its German counterpart that Spain will most likely need an extra 300 billion Euros in what will constitute the most feared but long time coming financial rescue of the Spanish economy. Mr. Guindos explained that the new bailout will be added to the 100 billion approved for the banks just a few weeks ago, when Spanish Prime Minister, Mariano Rajoy denied that Spain would need any further aid in order to keep its economy above water. At that time, Rajoy also denied that Spain was in a critical situation and that the country had one of the strongest economies of the euro region.

Even after Mr. Guindos announced that he had held talks with his German counterpart, Mariano Rajoy denied that Spain had even mentioned such a thing during the talks. Apparently, Germany’s Wolfgang Schaeuble said that his country would not consider a financial rescue until the European Stability Mechanism wasn’t fully in place. Spain’s request for rescue comes at a time when the country is finding it too difficult to keep up with its funding costs, which become increasingly unsustainable.

The Minister of Economy and Competitiveness discussed this possibility in his meeting in Berlin with his German counterpart, Wolfgang Schaeuble, last Tuesday, when the interest of ten-year Spanish bond exceeded 7.6%. According to the source, if this money is needed, it is because it is necessary to strengthen the Spanish economy as a whole while the banking sector is also made more solvent, say Spanish government officials.

“Guindos spoke about 300,000 million in aid, but Germany was not comfortable with the idea of ​​a bailout now,” said a Spanish source. “Once you see what are the operating costs of borrowing for Spain, perhaps we will return to this issue,” he added. Asked about this information, a Spanish government spokesman denied “categorically” any such plan. “The possibility of a rescue of 300,000 million euros for Spain has not been provided and has not been discussed,” he added.

Meanwhile, a second official source of the euro zone, said that Spain could avoid the rescue, but added that there have been miscommunications that have worried investors. “In pure arithmetic terms, if interest rates are consistent with what I consider a sustainable situation we won’t need it,” he said when asked if Spain needs the full rescue.

Commission approves 18 billion in aid for four Greek banks

The European Commission approved on Friday approved a temporary assistance of 18 billion euros to recapitalize four Greek banks. They are Alpha Bank, EFG Eurobank, Piraeus Bank and National Bank. The four banks in question account for about three quarters of the Greek banking sector and the news rescue is given  in order to ensure financial stability, said the official communique.

In parallel, the EU executive has opened a detailed investigation on this injection of capital to determine whether it conforms to EU rules on aid banks. “The participation of these banks in the exchange of Greek government bonds (which imposed substantial losses) and the deep recession has weakened their capital.

The recapitalization fund bridge across the Hellenic financial stability ensures the stability of the Greek banking system” has said Vice President of the Commission responsible for Competition, Joaquin Almunia in a statement.

The four banks now play an important role in financing the real economy, as highlighted by Brussels. “The opening of a thorough investigation is common for large amounts of public support through atypical instruments” and “we do not prejudge the outcome of the investigation,” said the Commission.
In addition, the EU executive has authorized a temporary aid of 1,700 million euros for the liquidation of Proton Bank and its transformation into a new entity, Nea Proton Bank. Also in this case, the EU has opened a detailed investigation on doubts about the viability of the bank’s long-term existence without subsidies and whether this is the least costly way to address its problems.

“We are absolutely slaves to Central Banks”

By LUIS MIRANDA | THE REAL AGENDA | JUNE 25, 2012

It hasn’t been a secret for long, but very few times do viewers watch or listen to guests on main stream media not only accepting the fact that we are all slaves who work for central bankers, but to admit it emphatically on US national television. In a recent interview on CNBC’s Kudlow Report, one of the co-hosts asked on air if the current economic and financial situation was simply global governance at last, and whether the central bankers were in charge. Aren’t we all living and dying for what the central bankers do?  One of the guests, Jim Iuorio, said that such scenario was exactly what we are experiencing. “To answer your question, we are absolutely slaves to Central Banks,” Iuorio said.

See the complete clip below:

There is not need for the main stream media to admit or show proof of such scenario. Perhaps the clearest example that shows how the central bankers are in total control, is that they ordered governments in North America and Europe to ‘rescue’ the banks that were near bankruptcy due to their holdings of toxic financial products. Even banks that did not need to be rescued were obligated to accept financial aid in a move to chain down almost every single banking institution to the European and American central bankers.

Last week, The Real Agenda informed about the current state of monetary policy planning in the euro zone where central bankers are already working on further consolidation of the global financial system. In the article New Global Money Secretly Planned by Elites, AmericanFreed.com explains how the world’s monetary system is being shaped right now.As explained in previous articles, central bankers are adepts of creating order out of chaos, and the current global crisis is not the exception. The elites in charge of the banking system are anticipating the results of their monetary and financial policies of the last century, and have already introduced plans for a world currency. Such currency seems to be a basket of currencies backed by gold, which will later become a single currency.

All financial experts agree that the establishment of a single currency will not occur at once, but over the next 5 to 15 years, depending on how the central bankers plans of financial consolidation advance in the Euro zone and North America. The elites are counting on their current rescues to buy them time until their system is fully in place to handle the last great collapse, when they will introduce the one currency system as the only solution to the chaos they caused. The elites or central bankers who want to run the world will produce as much  agony as possible in order to tighten the grip as strongly as they can before the big implosion.

The central bankers have been successful in inducing countries into massive debt as a way to get out of the current state of indebtedness; an oxymoron, no doubt. Spain, a country on the verge of falling off the financial precipice, announced today its request to the Euro government in Brussels to rescue its banking system. The Spanish government continues to deny that its call for a rescue is indeed a bailout, however the more than $100 billion that will be given to some of the biggest banks in that country, is coming from the European financial rescue fund created under the auspices of the government led by Angela Merkel.

Spain in now working on a memo of understanding which the government in Brussels will officially receive next July 9. The move to accept monies from the European fund will be discussed next Thursday and Friday during a meeting that will be held by some European leaders. The conditions under which the rescue of Spanish banks will occur, will include length of the loan, interest rate, payment conditions and penalties that will be incurred should the bankers not pay their debt back. This last fact is strange, yet it is another example of how central bankers control every government.

European leaders say banks cannot request a financial rescue themselves, that the countries need to solicit such bailouts, even though the banks are branches of the central banking model all over Europe. At the same time, the bankers in control of the euro zone also say that governments must request the money and detail the conditions under which their banks will receive the funds because they are legally prohibited from doing so. Of course, that is not the case. It is the European central bankers the ones who dictate the conditions, who determine the interest rate European taxpayers — not the banks — will have to pay for the next 25 years or so. Indeed, governments request the bailout of their banks, but the banks are not the ones who will pay the interests on the debt or the debt itself. That burden is purposely left to the European working class.

An even more insightful view of how central bankers control the global financial system came from another guest of Kudlow’s Report, Jim LaCamp. “Markets are driven by policy, they dare not driven by market forces, they are driven by central banks’ proclamations.” In other words, it is the decisions made by technocrats in charge of unelected supranational financial institutions who operate on behalf of the central bankers, and who attend to their requests, the ones who determine how economies function. It is not industrial production, free markets, elected government directives or the proposals put in front of these governments by social groups.

“In Spain, too many people say to many things about what needs to be done,” said Iñigo Méndez de Vigo, Spain’s Secretary of State for European Relations. See, only the bankers should dictate what is done, not the people, not the press, not the governments. According to Méndez, Brussels needs to oversee Spain’s and other nations’ budgets, economies and monetary policies. “We have to make decisions on an European level, right now,” added Méndez during an interview on TVE, Spain’s government funded television. “We have to assure the euro zone that here in Spain were are serious about finding a solution to this debt  problem.”

“It is important not to lose sight of the intentions of this request for funds,” said Spanish Prime Minister, Mariano Rajoy, who insists that the bailout of the Spanish banking system is not a bailout. He sees it positive that the rescue will only apply to 3 banks, but he forgets to point out that the sum of money — $100 billion — is what makes the rescue alarming, not the number of banks that are being rescued. Under the current model chosen by the central banks, the adoption of debt-based programs to solve a collapse caused by sovereign debt, the scenario seen in Greece and Spain will be repeated in France, Portugal and the rest of Europe before moving to North America, where the financial implosion will take place.

Who else will admit that the people of the world are indeed slaves to the global financial system controlled by central banks?

Spain: Tax us all to Save the Euro

The government in Madrid officially calls for bailout, but refrains from calling it so.

By IAN TRAYNOR | UK GUARDIAN | JUNE 7, 2012

Spain is warning that Europe‘s single currency will unravel unless its leaders decide within weeks to centralise budget and tax policies in the eurozone and agree on a strategy to pool responsibility for failing banks.

As Spain’s prime minister, Mariano Rajoy, came under mounting international pressure to accept the eurozone’s fourth national bailout in two years, the government in Madrid angrily rejected the demands, insisting that it did not need rescuing. With fears of a euro meltdown having rapidly shifted from Greece to Spain, Rajoy is pleading for a direct eurozone rescue of his country’s banks, to avoid the humiliation attached to requesting a national bailout.

Sources familiar with the Spanish government’s thinking said its negotiating position was that the fundamental quandary facing the eurozone was not Spain, but a European failure of leadership in persuading the financial markets that the euro would be defended at all costs.

A Brussels summit at the end of the month would have to remedy that by agreeing to establish a eurozone banking and fiscal union – major federalising steps certain to be fought over. Without that commitment, Spain fears the single currency would be finished in months.

The Spanish government believes that the eurozone’s fourth-biggest economy is too big to rescue and that the consequences of abandoning Spain to the markets without a pledge of major European reform could be so ferocious that the single currency would not survive.

The current rules governing eurozone bailouts stipulate that a government has to request help and that the money may only be channelled via governments – increasing the national debt burden.

But Spain is stalling until key euro group meetings, the G20 summit and the Greek election later this month. Some analysts believe that if Spain is finally forced to request a full-scale EU/IMF bailout it is likely to come around 20 June.

Sources in Brussels confirmed that a rescue plan was being hatched for Spain – but it could be limited to desperately-needed banking aid, rather than a full national bailout.

Luis de Guindos, the Spanish finance minister, said  his government would wait until the results of an independent audit of Spanish banks was completed later this month before pondering its options.

The IMF is to deliver its verdict on the condition of the Spanish banks on Monday, followed a week later by the Spanish audit. “From that basis, the Spanish government will decide what measures must be taken to recapitalise banks,” said De Guindos. Madrid was joined by Washington and London in calling on the eurozone, principally Angela Merkel, the German chancellor, to deliver a persuasive new plan quickly for saving the euro. They fear the crisis might inflict immense damage on the US and UK economies.

A big move towards reform could immediately ease market pressure on Spain’s borrowing costs, though the European Central Bank might still have to supply some funding while details of the new union were thrashed out.

Sources familiar with the Spanish government’s thinking believe the country’s banking crisis could be fixed much more cheaply than the €50bn bill currently estimated by analysts. In Brussels the signs are that a deal is being considered that would be more palatable for Rajoy by explicitly linking the rescue money to the banking problem and not to his government’s stewardship of Spain’s finances.

As the ECB left eurozone interest rates unchanged at 1%, ignoring calls for a slight reduction, its head, Mario Draghi, dismissed the criticism from Washington and London – but he also urged eurozone leaders get their act together.

Berlin is pushing the fiscal union, but on its own terms. It wants to force common rules and targets but avoid any early commitment to sharing liability for the debt or bank savings of individual countries. David Cameron is to go to Berlin   on Thursdayto try to push Merkel into a more protective stance on the euro, which would entail German pledges to underwrite struggling countries’ debt. Following a telephone conversation with Barack Obama, the British prime minister will tell Merkel the US and the UK are insisting on “an immediate plan” on the euro, Downing Street said. The prime minister will tell Merkel the eurozone has no more than weeks to act to shore up the single currency.

Cameron’s spokeswoman said the pair “agreed on the need for an immediate plan to tackle the crisis and to restore market confidence”.  Cameron’s regular interventions from the sidelines of the euro crisis irritate Berlin and Brussels and Merkel is unlikely to be swayed, although Germany is showing some signs of greater flexibility.

The White House, fearing the impact of a European disaster on Barack Obama’s re-election campaign, is becoming more trenchant in its criticism of the eurozone and its demands of the Germans.

In Brussels, the signs are that the sides were inching towards a deal that would be made more palatable for Rajoy by explicitly linking the rescue money solely to the banking problem – and not to his government’s stewardship of Spain’s public finances.

German politicians dropped any pretence that they were not pressing Rajoy to ask for a bailout, but said the rescue could come without very tight strings attached. “I do think that Spain has to come under the rescue shield,” said Volker Kauder, the parliamentary leader of Merkel’s Christian Democrats in Berlin. “Not because of the country, but because of the banks.”

Tristan Cooper, sovereign credit analyst at Fidelity Worldwide Investment said: “The willingness to support Spain is there. The difficulty is designing a method that can satisfy Germany and the market.

Although sick banks are Spain’s most acute ailment, there are more chronic ones. These include the highest unemployment and the third widest fiscal deficit in Europe in a deep recession.

Markets would react positively to an adequate bank recap solution. A structural change in investor sentiment requires the prospect of a sustainable economic recovery and a credible plan for achieving it.”

The expectation is that any decisions will be delayed until after the Greek election on 17 June. Eurozone finance ministers are to meet on 21 June. The next day Rajoy is due in Rome for a summit with the leaders of Germany, France, and Italy  before the Brussels summit a week later.

If the result of this risky round of brinkmanship and bargaining is an agreed “road-map” towards the medium-term aim of a eurozone federation, the Spanish hope the heat will be off, pressure from the financial markets will subside, their borrowing costs will sink and recapitalising their banking sector will become more feasible.

European Debt Crisis Continues to Bleed

The blame game begins as no solution is achieved for Greece, Italy or Spain.

By JAMES CHAPMAN | MAIL ONLINE | MAY 16, 2012

David Cameron will today express grave doubts about the survival of the euro amid fears that a collapse could drag Britain into a decade-long depression.

He will warn of ‘perilous economic times’ and launch a startling attack on the failure of Germany and other major European countries to take the necessary steps if they want to prevent the euro breaking apart.

‘The eurozone is at a crossroads – it either has to make up, or it is looking at a potential break-up,’ the Prime Minister will say, insisting that sticking to the Government’s austerity measures is the only way to ‘keep Britain safe’.

With signs of a full-blown bank run beginning in debt-stricken Greece, experts warned that if the crisis is not quickly contained, as much as 10 per cent of national income could be wiped out in countries across the EU.

Bank of England governor Sir Mervyn King said yesterday the single-currency bloc was ‘tearing itself apart without any obvious solution’, while former Labour Chancellor Alistair Darling said the crisis could condemn Britain to ‘years of stagnation’. In other developments:

■ Households face another painful squeeze this year after the Bank of England raised its inflation forecast and warned of rising mortgage costs;

■ Growth forecasts for this year were slashed from 1.3 per cent to 0.8 per cent, with no return to pre-financial crisis levels of growth before 2014;

■ Financial markets slumped further as Greek leaders braced themselves for  fresh elections after talks to form a coalition government failed;

■ In a glimmer of good news, unemployment dropped 45,000 to 2.63million, while the number in work jumped by 105,000 to 29.2million.

Economists believe the euro breaking up in disarray would herald a ten-year slump similar to that experienced by Japan in the 1990s. Japanese policymakers hesitated before tackling a banking crisis, and then struggled to revive economic growth, leading to a so-called ‘lost decade’.

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