The monstrous fact. From bail-outs to debt peonage.

There is one monstrous fact stalking Europe and no amount of debating will make it go away – there isn’t enough money to make the bank bail-out’s work.

There isn’t enough money in Europe’s bail out fund, the EFSF, despite this morning’s vote in the German parliament. The vote this morning was to ‘increase’ the EFSF not to what the banks and the Americans have already insisted it will need (read – what they want) – more than a trillion euros – but to what was ‘agreed’ some while ago and had to then be ratified by member states. The mainstream financial news outlets seem keen to give the impression that what was voted for in Germany was ‘it’, the final fix, the super-EFSF. This is NOT the case. What was agreed to in Germany is what Geithner and others had already said was woefully insufficient. That is why the vote has not heralded a massive rally in Europe or America. There has been a muted increase on exchanges because today’s vote is a step towards the Uber plan.

That plan will see the EFSF working with the ECB to create what amounts to a vast CDO (Collateralized Debt Obligation). This ‘CDO’, which the banks and the Fed want so badly, will be a supra-national version of the CDOs which brought us to this state in the first place. What I think would happen, is Greece would be forced to put up assets as collateral. These could be parts of Greece and its infrastructure and/or the income from them, and future tax receipts as well I imagine. This ‘income stream’ will be the promise written on new bonds/debt which the CDO will sell to investors. Those ‘investors’ will probably be the central banks and even the self same insolvent private banks who are being bailed out in Europe and beyond.

via The monstrous fact. From bail-outs to debt peonage. | Golem XIV – Thoughts.

World Wide Credulity Crunch

Does anyone anywhere believe anything they are told, on any subject, by any government official, financial expert or banker? Beneath all the outright lies, hopeless spin and half truths there is a more fundamental and corrosive problem. WE DON’T BELIEVE YOU!

The global reserves of credulity have been pillaged and squandered. We have been told too many times that this or that economy was fundamentally sound, that problems were contained, or would definitely be over by Christmas, that Spain was not Greece, Italy was not Spain, that Ireland’s banks were fixed, that we were all in it together and that all the banks are superbly well capitalized.

Even the banks don’t believe. Each protests that they are fine and yet none of them trust each other and won’t lend a dime.

We have found ourselves living in an entire economy of lies. Borrowers lied. Lenders lied. Insurers insured the lies but were lying themselves. The regulators who oversaw the lies lied about how sound the lies were and the people who rated the lies were the most AAA of liars themselves.

Lies like debts can be printed up at will. In fact most of what is being printed in banks and newspapers are all lies related to each other. But what none of the liars remembered is that lies can only be redeemed if there is an equally endless supply of credulity. And although we frequently lament the stupidity, cupidity and cowardice of ‘people’ even they have a finite supply of credulity. And it has been exhausted.

Credulity cannot be printed up, borrowed or electronically magic-ed into existence. There is no EU stockpile or emergency supply. Once its gone its gone. And some time ago I think we reached Peak Credulity and it has been in steep decline ever since.

via World Wide Credulity Crunch. | Golem XIV – Thoughts.

Why did shares in European Banks and BoA collapse?

The questions we have to ask is why, after so much money in the last three years, [the banks] still need more? Why, if this policy is the correct, the only one, are the banks selling each other’s stocks? What has caused the sudden collapse in European and American banks stocks? We need to find answers because it is obvious our financial experts are lost, but too arrogant and too afraid to admit it.

Until early August, Fed officials gave no sign that they were worried about the economy. They had forecast a pickup in activity for the second half and said that weakness in the first half was due to temporary factors.

Not one official forecast of the last three years has been worth a pin. And the financial press, because they follow the same disastrously wrong ideological assumptions as those they report on, are equally clueless.

[D]uring the ‘good times’ when all the bank looked at the ‘recovery’ and made their bone headed growth forecasts and basically smoked their own dope – they thought there was no ‘risk’ and their Risk Managers’ confirmed it. But now, when the fiction of growth can no longer be sustained, suddenly everyone has remembered with a start, that the assets are ‘Risk Weighted’.

Hundreds of billions with zero risk weighting is zero. But go from zero to any number at all no matter if its still fairly small and the answer goes from zero to ‘A LOT’ in an instant. And that is what I think has happened in the risk Manager’s office of every bank in Europe and America. The denominator of the Capital Adequacy Ratio and the Tangible Common Equity Ratio just went through the roof. And when it did the ration went to zero. Suddenly the Risk Managers are telling everyone that the ‘safe’ banks are actually virtually insolvent. Quelle surprise! I think we’ll find Bank of America is in the same or worse state.

And for once they are right. They all know the only thing that will stop this sell off is another round of ‘rape the tax payer’. Will Bernanke tell the Americans that while there is ‘no money’ for paying for social services’ – like schools and police – hundreds of billions can be found for the banks…again. And will the ECB and the BoE say the same to their people?

What really bothers me is that this game has been going on all during the time when our ‘regulators’ and the banks and the governments were all telling us how they had learnt their lessons. how we must let by-gones be by-gones and stop bashing the poor bankers etc etc, they were ALL conniving to play this game.

They all knew the banks and others were buying up sovereign debt of ‘unhealthy’ nations. Spanish banks were encouraged to buy Spanish debt. Greek banks Greek debt, Italian banks Italian debt and they all got it on with each other as well. So that the French banks obliged everyone.

They had learned nothing. They have not changed. The banks never intended to. The regulators are still gurning, toothless cowards and mountebanks and our political leaders just did what they do – they lied. AGAIN.

Just like last time, they have all been caught by their own lies and they want us to bail them out again. And our leaders will do it, if we do not say clearly “This was not in your mandate from us at the last election.” The time is upon us for civil disobedience.

via Golem XIV – Thoughts.

Stop Coddling the Super-Rich – By Warren Buffett, a member of the Super-Rich

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

via Stop Coddling the Super-Rich – NYTimes.com.