Thursday, December 20, 2012

Getting Insurance when your House is Half Burnt Down

European Central Bank policymaker Joerg Asmussen, picture and report from The West in Australia linked here has suggested that now would be a good time to contemplate insuring all the horrible debts run up by Europe's banks during the past several years. 

As the headline to this post makes clear, that is clearly a great idea but where is the wealthy institution insane enough to take on such a risk.

The equivalent institution Asmussen has in mind is the FDIC in the USA, read here, formed after the Wall Street Crash and responsible for saving some 400 US financial institutions in the present worldwide economic collapse. Great stuff, no doubt helped by the fact that then viable banks have been paying in to the fund since 1933.

In Euroland's situation the banks have been lending like crazy to other countries who could never possibly have repaid the money loaned, while making no provisions to protect the national taxpayers who are now about to be hit.

Can Germans really be kept in ignorance of this horrible reality all the way to the moment they enter the polling booths next September? That is Mr Asmussen's task to insure, read some of the arguments he plans to employ to achieve that goal:

This should be complemented by a banking resolution mechanism to deal with problem banks, said Asmussen. The ESM bailout fund would be well suited to house a European Resolution Fund, said added, stressing that this was his personal view.
"Any costs incurred from resolution should first and foremost be covered by the private sector, through establishing a European Resolution Fund raised by levies on the banking sector," he said.
European public funds should only be used to help banks that pose a threat to European financial stability, said Asmussen, outlining a process with multiple steps:
- beneficiary banks must undergo an independent economic evaluation of their assets to ascertain their real capital needs and reveal any legacy problems;
- those banks must be assessed to have a viable business model and so be deserving of additional capital, otherwise they should be wound down;
- if the banks are to be kept going, private sector sources should be exhausted first, and if needed, use made of the bank-funded resolution financing;
- if there are still capital shortfalls, the financial resources of the beneficiary member states should be drawn on;
- only in the last step, would public funds be used.
Asmussen added: "The more the financial sector can be bailed in, the less it has to be bailed out."

  "The more the financial sector can be bailed in, the less it has to be bailed out."

Do you not just love the gimmicky phraseology they come up with, Latvia's government liked it so much they lined up to join the Euro currency even yesterday. The French believe the German taxpayers will pay for the rescue of their banks and social systems and keep paying for the French workers  to retire years earlier  and still earn massively more than the equivalent hard-working Germans. 

Eurolalaland has to be lived in to be believed these days!

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