Another Bailout?Another Bailout?

It will be a long talk around the It will be a long talk around the topic of “topic of “Another Bailout?”. Ok, just Another Bailout?”. Ok, just

have a look to see what did have a look to see what did Larry LevinLarry Levin note for us!note for us!

European officials promised European officials promised something big to happen this something big to happen this weekend. Some expected the weekend. Some expected the announcement of the Greek announcement of the Greek default, while others expected default, while others expected another (mega) slush fund…another (mega) slush fund…another bailout of broke another bailout of broke sovereigns.sovereigns.

I am looking for the answer early I am looking for the answer early Sunday morning and I have found Sunday morning and I have found this, which would suggest the this, which would suggest the latter: another bailout. latter: another bailout. http://www.telegraph.co.uk/financhttp://www.telegraph.co.uk/finance/financialcrisis/8786665/Multi-e/financialcrisis/8786665/Multi-trillion-plan-to-save-the-eurozone-trillion-plan-to-save-the-eurozone-being-prepared.htmlbeing-prepared.html

European officials are working on a European officials are working on a grand plan to restore confidence in grand plan to restore confidence in the single currency area that the single currency area that would involve a massive bank would involve a massive bank recapitalisation, giving the bail-out recapitalisation, giving the bail-out fund several trillion euros of fund several trillion euros of firepower, and a possible Greek firepower, and a possible Greek default.default.

German and French authorities German and French authorities have begun work on a three-have begun work on a three-pronged strategy behind the pronged strategy behind the scenes amid escalating fears scenes amid escalating fears that the eurozone’s sovereign that the eurozone’s sovereign debt crisis is spiralling out of debt crisis is spiralling out of control.control.

Their aim is to build a Their aim is to build a “firebreak” around Greece, “firebreak” around Greece, Portugal and Ireland to Portugal and Ireland to prevent the crisis spreading prevent the crisis spreading to Italy and Spain, countries to Italy and Spain, countries considered “too big to bail.”considered “too big to bail.”

According to sources, progress According to sources, progress has been made at the G20 has been made at the G20 meeting in Washington, where meeting in Washington, where global leaders piled pressure global leaders piled pressure on the eurozone to fix its on the eurozone to fix its problems before plunging the problems before plunging the world back into recession.world back into recession.

In a G20 communique issued In a G20 communique issued on Friday, the world’s leading on Friday, the world’s leading economies set themselves a economies set themselves a six-week deadline to resolve six-week deadline to resolve the crisis – to unveil a the crisis – to unveil a solution by the G20 summit solution by the G20 summit in Cannes on November 4.in Cannes on November 4.

Sources said the plan would Sources said the plan would have to be released as a have to be released as a whole, as the elements whole, as the elements would not work in isolation.would not work in isolation.

First, Europe’s banks would First, Europe’s banks would have to be recapitalised with have to be recapitalised with many tens of billions of euros many tens of billions of euros to reassure markets that a to reassure markets that a Greek or Portuguese default Greek or Portuguese default would not precipitate a would not precipitate a systemic financial crisis.systemic financial crisis.

The recapitalisation plan would The recapitalisation plan would go much further than the €2.5bn go much further than the €2.5bn (£2.2bn) required by regulators (£2.2bn) required by regulators following the European bank following the European bank stress tests in July and crucially stress tests in July and crucially would include the under-would include the under-pressure French lenders.pressure French lenders.

Officials are confident that some Officials are confident that some banks could raise the funds banks could raise the funds privately, but if they are unable privately, but if they are unable they would either be recapitalised they would either be recapitalised by the state or by the European by the state or by the European Financial Stability Facility (EFSF) – Financial Stability Facility (EFSF) – the eurozone’s €440bn bail-out the eurozone’s €440bn bail-out scheme.scheme.

The second leg of the plan is to The second leg of the plan is to bolster the EFSF. Economists bolster the EFSF. Economists have estimated it would need have estimated it would need about Eu2 trillion of firepower to about Eu2 trillion of firepower to meet Italy and Spain’s financing meet Italy and Spain’s financing needs in the event that the two needs in the event that the two countries were shut out of the countries were shut out of the markets.markets.

Officials are working on a way to Officials are working on a way to leverage the EFSF through the leverage the EFSF through the European Central Bank to reach the European Central Bank to reach the target.target.

The complex deal would see the The complex deal would see the EFSF provide a loss-bearing “equity” EFSF provide a loss-bearing “equity” tranche of any bail-out fund and the tranche of any bail-out fund and the ECB the rest in protected “debt”.ECB the rest in protected “debt”.

If the EFSF bore the first 20pc If the EFSF bore the first 20pc of any loss, the fund’s of any loss, the fund’s warchest would effectively be warchest would effectively be bolstered to Eu2 trillion. If the bolstered to Eu2 trillion. If the EFSF bore the first 40pc of EFSF bore the first 40pc of any loss, the fund would be any loss, the fund would be able to deploy Eu1 trillion.able to deploy Eu1 trillion.

Using leverage in this way would Using leverage in this way would allow governments substantially to allow governments substantially to increase the resources available to increase the resources available to the EFSF without having to go back the EFSF without having to go back to national parliaments for to national parliaments for approval, which in a number of approval, which in a number of eurozone countries would prove eurozone countries would prove highly problematic.highly problematic.

The arrangement is similar to The arrangement is similar to the proposal made by US the proposal made by US Treasury Secretary Tim Treasury Secretary Tim Geithner to the eurozone at Geithner to the eurozone at the September 16 EcoFin the September 16 EcoFin meeting in Poland. meeting in Poland.

Gathering turmoil in financial Gathering turmoil in financial markets has convinced Germany markets has convinced Germany to begin work of some kind of to begin work of some kind of variant of the US plan, despite variant of the US plan, despite having initially rejected the having initially rejected the notion as unworkable as notion as unworkable as threatening to compromise ECB threatening to compromise ECB independence.independence.

The proposal would be hugely The proposal would be hugely sensitive in Germany as its parliament sensitive in Germany as its parliament has yet to ratify the July 21 agreement has yet to ratify the July 21 agreement to allow the EFSF to inject capital into to allow the EFSF to inject capital into banks and buy the sovereign debt of banks and buy the sovereign debt of countries not under a European Union countries not under a European Union and International Monetary Fund and International Monetary Fund restructuring programme. The vote is restructuring programme. The vote is due on September 29.due on September 29.

As quid pro quo for an enhanced As quid pro quo for an enhanced bail-out, the Germans are bail-out, the Germans are understood to be demanding a understood to be demanding a managed default by Greece but managed default by Greece but for the country to remain within for the country to remain within the eurozone. Under the plan, the eurozone. Under the plan, private sector creditors would private sector creditors would bear a loss of as much as 50pc -bear a loss of as much as 50pc -

– – more than double the 21pc more than double the 21pc proposal currently on the proposal currently on the table. A new bail-out table. A new bail-out programme would then be programme would then be devised for Greece.devised for Greece.

Officials would hope the plan Officials would hope the plan would stem the panic in the would stem the panic in the markets and stop bond vigilantes markets and stop bond vigilantes targeting Italy and Spain, which targeting Italy and Spain, which European and IMF figures believe European and IMF figures believe should not be in any immediate should not be in any immediate distress but are in need of longer-distress but are in need of longer-term structural reform.term structural reform.

Delegates at the IMF meeting in Delegates at the IMF meeting in Washington claimed that there had been Washington claimed that there had been “a visible shift in pace and mood” to “a visible shift in pace and mood” to address sovereign debt problems, address sovereign debt problems, particularly in the eurozone.particularly in the eurozone.

But George Osborne, the Chancellor, said But George Osborne, the Chancellor, said today: “No one here has put forward a today: “No one here has put forward a plan for that. Greece has got a programme plan for that. Greece has got a programme and needs to implement it.”and needs to implement it.”

Breaking the Maastricht Treaty seems Breaking the Maastricht Treaty seems to be the last thing on the minds of the to be the last thing on the minds of the politicians these days. Who cares when politicians these days. Who cares when the benefits go to thieving bankers – the benefits go to thieving bankers – right? Oh, but the banking mafia aren’t right? Oh, but the banking mafia aren’t the only beneficiaries – the politicians the only beneficiaries – the politicians most certainly are as they will be able most certainly are as they will be able to continue spending money that they to continue spending money that they don’t have. don’t have.

When a junkie is as high as a When a junkie is as high as a kite and literally dying to get kite and literally dying to get off of drugs, what does he do off of drugs, what does he do to get clean? Take another to get clean? Take another hit off the Hopium Pipe baby! hit off the Hopium Pipe baby! Oh wait, that’s just what idiot Oh wait, that’s just what idiot politicians do.politicians do.

Trade well and follow the trend, not Trade well and follow the trend, not the so-called “experts.”the so-called “experts.”

Behold the age of infinite moral Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in forced FASB to suspend rule 157 in favor of deceitful accounting for the favor of deceitful accounting for the TBTF banksters.TBTF banksters.