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On March 21, The Economist published an article named “Greece v Germany: Dangerous liaisons”. Greece crisis started in 2009 because of too much government deficit and still persists today. After January's general election, radical-left Syriza party swept into government and Alexis Tsipras was voted to be the country's prime minister. He wanted to cooperate with Vladimir Putin to demand war reparations from Germany. But this behavior has incensed Europe's politicians because of the whiff of blackmail. At the same time the Greek government seems to prefer lobbing incendiary political gibes instead. The defence minister has threatened to flood Europe with migrants, including jihadists. Increasingly, Greece crisis is not just an economic mess but also a geopolitical mess. Tsipras is playing a dangerous game and he tries to provoke disputes between two countries- Greece and Germany-the latter is one of the Greece’s biggest creditors. It could be better not just for Greece but also for Germany and other European countries to keep Greece staying in the euro because if Greece exits it will have a bad effect on them, especially Italy, France and etc. Most greeks are in favor of the euro including Tsipras. By contrast, according to a poll published recently, most Germans want Greece to leave the euro. Even if Mrs Merkel wants to save Greece, she will not be able to resist the overriding wishes of her voters. So the article thinks it is important for Tsipras to have some changes. The meetings in Brussels and Berlin will be crucial. The Greek leader has charm, and could get along fine with Mrs Merkel--provided he is prepared to eschew the blackmail and shows that his European partners can trust him. He could make a good start by replacing his loquacious finance minister, Yanis Varoufakis, with somebody more pragmatic. He would be well advised also to dump his nationalist coalition partner, the right-wing Independent Greeks, for the more moderate To Potami. At home, rather than allowing his ministers to rail about reparations, he needs to get behind reform, and explain to his voters why Syriza's extravagant election promises cannot be kept. Greece has a simple economic structure and it mainly relies on agricultural and light industrial so it is hard for Greece to cover its debt. Mr Tsipras came to power promising to end austerity, even though this measure can help him make some political capital and invoke nationalism as a conduit for dissatisfaction, it cannot make any practical sense. Comparing to last government, the authority backseat drives how to perform economic reforms. If a possible Greek default happens, it will be a big crisis. Firstly, it will have a big impact on Greece. The default could trigger big capital outflows. What is more serious, the de facto bank run could send shock waves through the financial system and Cause liquidity risk. Secondly, as Greece’s creditor, many countries would suffer capital losses, including china. If it happened, international creditors would lose faith in Greece. So it is important for Greece perform correct economics reforms just like stopping anti- austerity, immediately embarking on a radical program of privatisation, giving up stoking the fires of nationalism. But better late than never. It is not too late for Mr Tsipras to have some changes. But if he persists in wilfully and arbitrarily, maybe all of us will lost patience.
Wall Street Isn't Fixed: TBTF Is Alive And More Dangerous Than Ever Submitted by Tyler Durden on 08/06/2014 18:33 -0400 AIG BAC Bank of America Bank of America Bank Run Bear Stearns CDS Citigroup Discount Window Fail fixed Fractional Reserve Banking Free Money Gambling LBO Lehman Main Street Meltdown Merrill Merrill Lynch Momentum Chasing Moral Hazard Morgan Stanley None TARP Too Big To Fail in Share 2 Submitted by David Stockman via Contra Corner blog, Practically since the day Lehman went down in September 2008 Washington has been conducting a monumental farce. It has beenpretending to up-root the causesof the thundering financial crisis which struck that month and toenact measures insuring that it would never happen again. In fact, however,official policy has done just the opposite. The Fed’s massive money printing campaignhas perpetuated and drastically enlargedthe Wall Street casino, making the pre-crisis gamblers in CDOs, CDSand other derivatives appear like pikers compared to the present momentum chasing madness. In a nutshell, the Fed’s prolonged regime of ZIRP and wealth effects based “puts” under risk assets has destroyed two-way markets. The market’s natural mechanism of risk containment and stabilization—-short sellers—has been driven from the casino. Accordingly, carry-trade speculators engorged with free money funding have taken the market to lunatic heights, while leaving it vulnerable to aviolentcollapse upon an unexpecteddrop because the market’s naturalbraking mechanism—shortsellers taking profits—-has been eviscerated. At the same time,the giant regulatory diversion known as Dodd-Frank has actually permitted theTBTF banks to geteven bigger and more dangerous. Indeed, JPM and BAC were taken to their present unmanageable size by regulators—ostensibly fighting the last outbreak of TBTF—who imposed or acquiesced to the shotgun mergers of late 2008. So now these sameregulators, who have spent four years stumbling around in the Dodd-Frank puzzle palace confecting thousands of pages of indecipherable regulations, slam their wards for not having sufficiently robust “living wills”. C’mon! This is just another Washington double-shuffle. The very idea that $2 trillion global bankingbehemoths like JPMorgan or Bankof America couldbe entrusted to write-upstandby plans fortheir ownorderly and antiseptic bankruptcy is not onlyjust plain stupid; italso drips with political cynicism and cowardice. If they are too big to fail, they are too big to exist. Period. Indeed, it is utterly amazing that adult legislators and regulators could even take the idea of a “living will” seriously—-let alone believe that they could possibly thwart the recurrence of another outbreak of so-called “financial contagion”. Yet so thick is the beltway cynicism and so complete is the K-Street domination of policy-making thata trite bureaucratic gimmick like the “living will” has become a major component of so-called macro-prudential policy. So there is nothing to do except go back to the fundamentals. First and foremost, the September 2008 meltdown was not a main street banking problem; it was a crisis confined to the canyons of Wall Street, owing to the fact that the gambling houses domiciled there had massively bloated their balance sheets with toxic assets and risky derivatives trades, and then funded these balance sheets leveraged at 30:1 with huge amounts of “hot money” in the form of repo and unsecured wholesale loans. As I demonstrated in the Great Deformation, the “bank run” was almostentirely in the Wall Street wholesale market. By contrast, therewas neverany danger ofretail runs at the corner branch bank offices, and the overwhelming majority of the7,000 main street banks did not own the kind oftoxic securitized assets that were roilingWall Street. In fact, the wholesale market runs in the canyons of Wall Street were actually a positive, economically therapeutic event.They had already taken out three of the recklessgambling houses—- Bear Stearns, Lehman and Merrill Lynch—-andwere fixingto finish off the remainder, that is, Goldman and Morgan Stanley. Had the market been allowed to finish off the work of the economic gods in late September 2008, the TBTF problem would have been substantially alleviated. Today there might have existed a half dozen “sons of Goldman” in the form of MA, trading, investment banking and asset management boutiques—run by chastened veterans who lost their lunch during the 2008 Wall Street cleansing. The excuse for Washington’s massive intervention against the free market in the form of TARP and the Fed’s monumental flood of liquidity, of course, is that the US economy was about to be annihilated by something called financial “contagion”. But that is a specious urban legend invented by the crony capitalists who controlled the Treasury and the money-printers who had fueled the housing and credit bubble at the Fed. As I have also shown, for example,AIG’s dozens of insurance subsidiaries were money good and would have been protected in bankruptcy by insurance regulators and capital maintenance rules, while settlement ofthe holding company’s fraudulent CDS insurance would have beenparceled out pennies on the dollar by a Chapter 11 judge to the dozen giant global banks who had stupidly attempted to turn toxic CDOs into AAA credits. Likewise, FDIC could have liquidated Citigroup’s regulated bank, while allowing the gamblers who bought thestock, bonds and other obligations of the holding company to face their just deserts. In short, TBTF became a “problem” to be ostensibly remediedwith bureaucratic malarkey like living wills primarily because Washington made it a problem—- by means ofits panicked bailouts ofWall Street in the fall of 2008. Indeed, the true solution to TBTF is always and everywhere toallow the free market to cleanse its own excesses and imbalances and toimpose financial discipline and demiseupon outbreaks ofreckless gambling and leverage when they occur. Unfortunately, even if Washington were to refrain from ad hoc bailouts, the free market cure would be perennially compromised by the giant moral hazard posed by deposit insurance and the Fed’s cheap money discount window. Owing to these policyinstitutions, which systematically encourage excessive gambling by their beneficiaries, US banksare inherent wards of the state—including the easily abused privilege of fractional reserve banking conferred byregulatory charters. The right thing to do would be to abolish these sources of moral hazard and tell the K-Street financial lobbies to fold up theirplush tents because their employers are now all expected to sink or swim on the free market. Needless to say, the chances that Washington would permit the Wall Street gambling houses to bereturned to the unfettered free market that they profess to defend—are somewhere between slim and none. Accordingly, a second best solution is warranted, and it could readily be done.And it would be far more effective than the lunacy of living wills and all the other bureaucraticmumbo-jumbo that has come out of Dodd-Frank. First, Washington shouldre-enacta strict version of Glass- Steagall. Only “narrow banks” which take deposits and make consumer and business loans would have access to the Fed’s discount window. By contrast, propriety trading, underwriting, merchant banking, asset management and all the rest of the financial services sectors would be banned at regulated banks and sent back to the free market where they belong. Secondly, a ceiling on regulated bank size would be established —perhaps measured at 1% of GDP or $200 billion in terms of asset scale.There are no demonstrated economies of scale in deposit and loan banking above that size, anyway. Stated differently, banks wishing to indulge in the moral hazard of deposit insurance and accessing the Fed’s discount window would not have to prove they were not “too big to fail” or that they had a viable “living will”. Instead, a TBTF law would do it for them in the form of a statutory cap on the size of regulated banks. To be sure, Wall Street would scream that such a regime would interfere with the ability of small business and American consumers to get cheap loans.But in a national economy that has gone through a rolling 30-year LBO resulting in $60 trillion of credit market debt outstanding and which sportsleverage ratios against income in all sectors that are off the historical charts—that complaint has no merit. Making debt more expensive and permitting it to beeconomically priced on the free market is, in fact, just what is needed to eventually cure the nation’s debt-ridden economic malaise.
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