EconomicsEuroZone: Financial Sector: On verge of collapse?

-
-
-
Financial Times via iPolitics Canada (November 23, 2k11)
-

Eurozone really has only days
to avoid collapse

Posted on Sun, Nov 27, 2011, 9:48 pm by Wolfgang Munchau, The Financial Times

In virtually all the debates about the eurozone I have been engaged in, someone usually makes the point that it is only when things get bad enough that politicians finally act — eurobonds, debt monetization, quantitative easing, whatever. I am not so sure. The argument ignores the problem of acute collective action.

Last week the crisis reached a new qualitative stage. With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function.

The banking sector, too, is broken. Important parts of the eurozone economy are cut off from credit. The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.

Technically, one can solve the problem even now but the options are becoming more limited. The eurozone needs to take three decisions very soon, with very little potential for the usual fudges.

This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.

First, the European Central Bank must agree a backstop of some kind, either an unlimited guarantee of a maximum bond spread or a backstop to the EFSF, in addition to dramatic measures to increase short-term liquidity for the banking sector. That would take care of the immediate bankruptcy threat.

The second measure is a firm timetable for a eurozone bond. The European Commission calls it a “stability bond,” surely a candidate for euphemism of the year. There are several proposals on the table. It does not matter what you call it. What matters is that it will be a joint-and-several liability of credible size. The insanity of cross-border national guarantees must come to an end. They are not a solution to the crisis. Those guarantees are now the main crisis propagator.

The third decision is a fiscal union. This would involve a partial loss of national sovereignty and the creation of a credible institutional framework to deal with fiscal policy, and hopefully wider economic policy issues as well. The eurozone needs a treasury, properly staffed, not ad hoc co-ordination by the European Council over coffee and desert.

I am hearing that there are exploratory talks about a compromise package comprising those three elements. If the European summit could reach a deal on Dec. 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse. Even then there is still a risk of a long recession, possibly a depression. So even if the European Council was able to agree on such an improbably ambitious agenda, its leaders would have to continue to outdo themselves for months and years to come.

How likely is such a grand deal? With each week that passes the political and financial cost of crisis resolution becomes higher. Even last week Angela Merkel was still ruling out eurobonds. She was furious when the European Commission produced its own proposals last week. She had planned to separate the discussion about the crisis from that of the future architecture of the eurozone. The economic advice she has received throughout the crisis has been appalling.

Her own very public opposition to eurobonds has now become a real obstacle to a deal. I cannot quite see how the German chancellor is going to extricate herself from these self-inflicted constraints. If she had been more circumspect, she could have travelled to the summit with the proposal of the German Council of Economic Advisers, who produced a clever, albeit limited and not yet fully worked-out plan. They are proposing a “debt redemption” bond – another candidate for this year’s top euphemism award. The idea is to have a strictly temporary eurobond, which member states would pay off over an agreed time. At least this proposal would be in line with the more restrictive interpretation of German constitutional law.

Merkel’s hostility to eurobonds certainly resonates with the public. Newspapers expressed outrage at the Commission’s proposal. I thought both the proposal itself and its timing were rather clever. The Commission managed to change the nature of the debate. Merkel can get her fiscal union, but in return she will now have to accept a eurobond. If both can be agreed, the problem is solved. It is the first intelligent official proposal I have seen in the entire crisis.

I have yet to be convinced that the European Council is capable of reaching such a substantive agreement, given its past record. Of course, it will agree on something and sell it as a comprehensive package. It always does. But the half-life of these fake packages has been getting shorter. After the last summit the financial markets’ enthusiasm over the ludicrous idea of a leveraged EFSF evaporated after less than 48 hours.

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.

Copyright The Financial Times Limited 2011

 Email This Post

inShare1

EconomicsBrazil: China Construction Bank: Buys up a little bank in Brazil

-
-
-
Financial Times (November21,2k)
-
-

November 20, 2011 10:03 pm

Chinese lender aims to secure 

Brazil foothold

By Joe Leahy in São Paulo

China Construction Bank is in talks to buy a bank in Brazil
amid plans to open a subsidiary in Latin America’s
biggest economy, according to officials and people
familiar with the matter.

The move comes as the leading Chinese banks are
moving into Latin America to service rising trade 
with the region and to encourage South American
exporters to begin trading in China’s currency, the
renminbi, rather than the dollar.

More

ON THIS STORY

• Retrenchment concerns grip Brazil’s banks
• China fears lasting worldwide recession
• beyondbrics Brazil: Things starting to get hairy?
• beyondbrics Brazil-China: too close for comfort?

ON THIS TOPIC

• Lex CCB/BofA
• Chinese consortium buys CCB stake
• CCB looks to Hong Kong in fundraising

John Weinshank,
senior vice-president
at CCB’s New York
branch, told a
banking conference
in Miami that the
executive board of
the world’s second-
largest lender by
market value had
approved a proposal
to open a subsidiary
in Brazil.

“We are following
our customers,” Mr
Weinshank told the
annual conference of
Felaban, the Latin American banking federation,
adding that the proposal still needed the approval
of regulators in both countries.

Separately, a person in São Paulo familiar with the
matter said CCB had opened talks with the owners
of a small Brazilian bank over a potential acquisition
of the institution.

The person declined to name the target, but said
entry into Brazil through an acquisition would
provide CCB with the necessary licences and
permits more easily than starting from scratch.

China overtook the US to become Brazil’s largest
trading partner in 2009 and its biggest foreign
investor last year as companies ranging from car
manufacturers to engineering firms are looking to
set up in the Latin American economy.

Chen Jin, head of international financial
institutions for Industrial and Commercial
Bank of China in Beijing, told the Felaban
conference that the group is establishing
branches in Brazil and Peru as it seeks to
help its clients with their businesses in
Latin America.

ICBC has also bought 80 per cent of
Standard Bank in Argentina, a deal that
is awaiting shareholder approval, she
said.

EconomyUSA: Mortgage foreclosures: Banks and financial houses slop-around with documentation

Banks and mortgage lenders have been screwing around with people's home-owning documentation, then flawnting their lackadaisical attitudes and (lack of proper) procedures. They've put many mortgaged owners in a turmoil of tainted transactions after seizing their homes and putting the owners into the streets, while tossing the paperwork (which may or may not contribute directly to the loss of owners' homes).  The paperwork in each specific case may be  "fraudulent documents" at the core of the banks' and mortgage financials' modus operandi.  

Reports Gretchen Morgenson and Andrew Martin, reporting in New York Times,  "Battle lines forming in clash over foreclosures" (Oct20,2k10) wri+t of "a potentially seismic legal clash that pits big lenders against homeowners and their advocate concerned that the lenders' rush to foreclose fluts private property r+ts."  They continue: "Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. 'There are so many questionable aspects to this thing it’s scary.' " While some ... banks have ... suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.

“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.

Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.

The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”

Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.The Morgenson-Martin article is a good 3-pages long, chock full of significant details.  I urge everyone concerned about their homes, their banks, and the economy generally will find t+m to read this excellent work of economic journaletics.  Learn about robo-s+ning on the articles page 3.  Oh, don't miss the detail about bank use of counterfeited documents to take an owners' home.

Thanks to Lawt for some great advisory conversations!

-- EconoMix

EconomicsUSA: Credit Unions: Three local credit unions bellied-up by Feds

MARKET PULSE

Sept. 24, 2010, 5:05 p.m. EDT · Recommend (3) · Post:  

Government takes over three credit unions

AlertEmailPrintShareby Ronald D. Orol

WASHINGTON (MarketWatch) - The federal government on Friday seized three undercapitalized wholesale credit unions -- Members United Corporate Federal Credit Union of Warrenville, Ill.; Southwest Corporate Federal Credit Union of Plano, Tex.; and Constitution Corporate Federal Credit Union of Wallingford, Conn.-- and unveiled a package of regulations affecting the industry. The new rules include a program to have the institutions pay annual fees to cover the losses on a $50 billion portfolio of toxic mortgage securities losses on the group of undercapitalized corporate credit unions. Last year, in March 2009, the National Credit Union Administration, the regulator for federal credit unions, took control of two credit unions. 

-- EconoMix

USA: Economy: Christian political leader blasts American financial & business leadership of 'collapse'

In a recent article, Dr James Skillen (executive director of Citizens for Public Justice USA until October 2009) bristled indignantly, "Can Trust Be Restored?" (Root & Branch (Feb23.2l9).

Let me put it more bluntly. People are not just angry about bankers’ big bonuses and auto company CEOs’ private jets; they are angry that they got taken by “the system” — by banks, by mortgage companies, by investment advisers, and by the government that aided and abetted and gave no warning of the coming collapse. As in a stagecoach robbery, writes Janet Tavakoli, “Wall Street bankers made off with the loot without firing a shot. They were enabled by Washington overseers and financial regulators who—when not beneficiaries of the good times—behaved like ostriches. Meanwhile, news of the fact that no one in the US has been brought to justice has not escaped notice” (Financial Times, 2/5/09). The authorities oversaw and even encouraged the increasing leveraging of debt until the whole country was overextended, leading to the crash. One of the biggest culprits, according to John Kay, was the “diversified financial conglomerates” created after Washington abolished the Glass-Steagall Act that separated commercial and investment banking. The conglomerates, says Kay, “are riddled with conflicts of interest” and their growth “served only the ambitions of the greedy men who ran them and the financial interests of traders, who were allowed to play with sums of money that should never have come into their hands” (Financial Times, 2/11/09). With government having not yet done much to change the system and after several months of trying to prop up all kinds of financial services companies, the hole is getting deeper. Even two months ago, Niall Ferguson could write, the Fed itself “increasingly resembles a public hedge fund, leveraged at more than 50:1” (Financial Times, 12/19/08).

Economics: Business Formation: Barclays seeks to become world's leading financial-services commercial mega-bank

A massive buyout is reported by MSNBC, "Barclays to buy ABN Amro for $91 billion--Biggest-ever deal in bank sector; ABN selling its U.S. unit LaSalle" (Apr23,2k7). I've covered this story earlier on my own blogs, BizMix and BizMixture for USE (the latter to provide those readers with a specific instructional example for my business-category or "bizcat" of the financial and accounting sector). Those versions originated from an earlier MSNBC/FinancialTimes article and MarketWatch email newsletter, respectively; while today's here originates from AP and includes a richer layer of detail regarding this world-historical business-formation in the sector, and potentially in the "global economic order" (to use Dr Bob Goudzwaard's expression).

Amsterdam, the Netherlands - Barclays PLC said Monday it will acquire ABN Amro NV for $91.16 billion in the largest takeover in financial services, capping a month of negotiations to create a global banking giant and to prevent the splintering of the Netherlands' biggest bank.

A splinter movement, like sharks circling their mutual prey, has launched a bidding war--not just to dismember ABN among themselves, but also to block Barclays from expanding worldwide and particularly in Asia and even more particularly in China and India. The latter two countries have both state-initiated projects and private-enterprise projects, often engaging in joint ventures with non-Asian and Japanese corporations--all of them hungry for cash from mega-lenders.

Under the arrangement, ABN's USA holding, LaSalle, would be sold off to Bank of America.

The splinter movement consists of a consortium of Royal Bank of Scotland, Santander (Spain and 39 other countries), and Fortis (Belgo-Dutch).