+++ 7. August 2012 +++
Former IMF Economist: the Euro Will Set off a Powder Keg of Derivatives
During testimony to a Senate Subcommittee hearing on Aug. 1, a former chief economist of the IMF, Simon Johnson, insisted repeatedly that the euro will not last in its current form, and no one knows how this will affect the derivatives "powder keg" tied to the single currency. Therefore, he told the shocked Senators, one should not believe U.S. Treasury Secretary Tim Geithner or any other official who says that the effect on U.S. banks will be limited.
Johnson told the Foreign Relations Subcommittee on European Affairs that ECB governor Mario Draghi et al. were kidding themselves, because the ECB cannot possibly issue enough credit to bail everyone out, and the more credit it does issue, the more it undermines the credibility of that debt. The euro is moving into its most dangerous phase now, where "dissolution risk" is dominating, and, Johnson warned. How can anyone sign a contract, if they do not know if the euro will exist in a year? We are "sitting on a powder keg of opaque, over-the-counter derivatives transactions" linked to the EURIBOR, running in the hundreds of trillions of euros. He added that no one is able to tell what U.S. bank exposure is to these derivatives, or what the effect will be of Greece leaving the euro -- which Johnson put as 90% probable before the end of the year.
The chairwoman of the hearing, Sen. Jeanne Shaheen, clearly stunned, asked how Geithner could "consistently assure" us that U.S. bank exposure to Europe is "limited." Johnson reiterated what he had said at three different points in the hearing: the complexity of derivatives is such that not even the institutions who hold them know what their actual exposure is, so neither Geithner nor any other officials can be fully aware of the situation. He repeatedly cited the case of JPMorgan as exemplary. In JPMorgan's own "living will" -- which they published before their more than $6 billion loss -- they estimated that a $30 billion loss would bankrupt them. The bankruptcy of JPMorgan would be a systemic event, while the stress tests done by federal regulators did not even model the events that today we are all taking as our basic premise, he said.
While Johnson has supported Glass-Steagall on other occasions, he failed this time to seize the opportunity to recommend banking separation at this hearing, even when asked outright what to do about European and other "too big to fail" banks.
~ deutsch + english ~
+++ 24. Mai 2013 +++
Pope Francis Calls for Financial Reform
Two months after his election, Pope Francis has spoken out forcefully against the dictatorship of the financial markets, which is reducing humanity to misery. Speaking in front of the ambassadors of K...
+++ 24. Mai 2013 +++
Bundestag Passes Phoney "Bank Separation" Law
On May 17, the German Bundestag passed a bank restructuring bill touted by the government as the "first bank separation law passed in Europe." In fact, the law is a far cry from what the government cl...