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(an email exchange)


If everyone in Germany tries to take their funds out of the banks they won’t get it, with or without the backing of the German government.

German government insurance can buy them some time, maybe even enough time to make it through if aggregate demand wasn’t falling off so fast.

In the U.S., U.K., Japan and any nation with its own currency and fiscal authority behind the deposit insurance you can get all the funds you want on demand.

>   Finally, the Germans seem to get it. This might be the best news of the
>   weekend. But they need to take the final step. Problem is there
>   is no EU treasury or debt union to back up the single currency.
>   The ECB is not allowed to launch bail-outs by EU law.

>   Each country must save its own skin, yet none has full control of
>   the policy instruments. How do they change this in a hurry?

With great difficulty!

Germany draws up contingency plans for state rescue of banks

By Bertrand Benoit

The German government was last night drawing up a multi-billion euro contingency plan to shore up its banking system, which could see the state guarantee interbank lending in the country and inject capital in its largest banks.

The contingency draft, closely modelled on the British initiative announced this week, marks a dramatic political U-turn for Europe’s largest economy after Angela Merkel, chancellor, and Peer Steinbrück, finance minister, both ruled out a sector-wide state rescue for banks this week.

A senior government official said Ms Merkel and Mr Steinbrück would decide on Sunday which of the measures to implement after consultation with their European partners. Once a political decision was made, he said, the plan could be implemented in the following days.

“We are considering all the options at present to the exception of a massive state acquisition of toxic assets,” the official said. “Whatever we do will be done in close co-operation with our G7 and European partners.”

France announced last night that it was planning an emergency European Union summit tomorrow.

Speaking in Washington ahead of a meeting of Group of Seven finance ministers, Mr Steinbrück said the time had now come for “a systemic solution . . . I am convinced that case-by-case solutions are no longer helping. They are now exhausted.”

The official said Ms Merkel was in daily contact with Nicolas Sarkozy, French president, suggesting that the plan, if approved, could be launched as a joint initiative.

Ulrich Wilhelm, the government spokesman, said: “It is the duty of the federal government to be prepared and to review all options . . . As of now, no political decision has been made.”

Under the draft, Germany could issue a state guarantee for interbank lending worth more than €100bn and provide direct lending to the banking sector. Berlin is also contemplating offering several dozen billion euros of capital to the banks in exchange for equity and may take entire ownership of some institutions.

As an additional option, the government is considering extending the blanket guarantee it issued last Sunday for account deposits to money market funds, which have experienced a steep outflow of savings lately. Fund managers have had to divest considerable quantities of assets to cover the withdrawals.

Bankers said the interbank lending market in Germany had reached near-gridlock.


One Response

  1. Stop sugar coating it for us Warren, everyone knows you and masters and friends are trying to sink Germany.


    As one senior European banker put it to me in private discussion, ‘There is an all-out war going on between the United States and the EU to define the future face of European banking.’

    In this banker’s view, the ongoing attempt of Italian Prime Minister Silvio Berlusconi and France’s Nicholas Sarkosy to get an EU common ‘fund’, with perhaps upwards of $300 billion to rescue troubled banks, would de facto play directly into Paulson and the US establishment’s long-term strategy, by in effect weakening the banks and repaying US-originated Asset Backed Securities held by EU banks.

    Using panic to centralize power

    As I document in my forthcoming book, Power of Money: The Rise and Decline of the American Century, in every major US financial panic since at least the Panic of 1835, the titans of Wall Street—most especially until 1929, the House of JP Morgan—have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power.

    Now they must do something similar on a global scale to be able to continue to dominate global finance, the heart of the power of the American Century.
    It’s becoming increasingly obvious that people like Henry Paulson, who by the way was one of the most aggressive practitioners of the ABS revolution on Wall Street before becoming Treasury Secretary, are operating on motives beyond their over-proportional sense of greed. Paulson’s own background is interesting in that context. Back in the early 1970’s Paulson started his career working for a rather notorious man named John Erlichman, Nixon’s ruthless adviser who created the Plumbers’ Unit during the Watergate era to silence opponents of the President, and was left by Nixon to ‘twist in the wind’ for it in prison.

    Paulson seems to have learned from his White House mentor. As co-chairman of Goldman Sachs according to a New York Times account, in 1998 he forced out his co-chairman, Jon Corzine ‘in what amounted to a coup’ according to the Times.


    It now would appear that the Paulson strategy was to use a crisis—a crisis that was pre-programmed and predictable as far back as 2003 when Josh Bolten became head of OMB—when it exploded, to panic the more conservative European Union governments into rushing to the rescue of US toxic waste assets.


    The swift action by Finance Minister Steinbrück to fire the head of HRE, in stark contrast to Wall Street where the same criminal fraudsters remain at their desks reaping huge bonuses, indicates as well a different approach. But that does not cut to the heart of the issue. The situation of HRE arose as noted previously, from excesses in a wholly-owned daughter bank of HRE subsidiary DEPFA in Ireland, an EU country known for its liberal loose regulation and low tax regime.


    The battle lines drawn

    What has emerged are the outlines of two opposite approaches to the unfolding crisis. The Paulson plan is now clearly part of a project to create three colossal global financial giants—Citigroup, JP MorganChase and, of course, Paulson’s own Goldman Sachs, now conveniently enough a bank. Having successfully used fear and panic to wrestle a $700 billion bailout from the US taxpayers, now the big three will try to use their unprecedented muscle to ravage European banks in the years ahead. So long as the world’s largest financial credit rating agencies—Moody’s and Standard & Poors—are untouched by the scandals and Congressional hearings, the reorganized US financial power of Goldman Sachs, Citigroup and JP Morgan Chase could potentially regroup and advance their global agenda over the coming several years, walking over the ashes of a bankrupt American economy made bankrupt by their follies.

    By agreeing on a strategy of nationalizing what EU finance ministers deem are ‘EU banks too systemically strategic to fail,’ while guaranteeing bank deposits, the largest EU governments, Germany and the UK, in contrast to the US, have opted for what will in the longer run allow European banking giants to withstand the anticipated financial attacks from the likes of Goldman or Citigroup.

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