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Slow-motion suicide

It’s now more or less a given, that people in ‘public life’ are subject to much lower standards than the rest of us.  Even the pretence is now hard to keep up.  Governments regularly overspend two, three four times ahead of the original projections when the boondoggle was grandly announced, think of the Scottish Parliament building, the millennium dome, the Olympics, more or less anything else you can think of,


No-one (outside the infantry perhaps) is fired, and the careers move on wholly untroubled by glaring failures on the CV


But it is nonetheless incumbent on the rest of us to continue to expose hideous failure and recklessly ill-considered plans, as well as showing pitiful excuses for what they are  Yes, George, its someone else’s fault, nothing to do with me Guv. 


So with that in mind, you might hope that the mainstream media might do at least a half-competent job of reporting the latest move in Europe’s slow-motion suicide that is more bailouts.  Sadly this proved to be a triumph of hope over expectation as the coverage was dismal, superficial and more or less an annoyance in the way of the sports coverage.      


I refer of course to the almost surreal news that after denial after denial, Spain has now rattled the national begging bowl in the faces of the Eurozone countries with a kind of “Will work for a hundred billion Euros” sign.  Apparently, the money will be going to ‘some’ Spanish banks. 


So let us consider some of the tiny problems with this.  First the terms of the loan that has been agreed have not been announced (or at least reported).  You might think that the duration of the loans, the pay-back triggers, the interest rates payable (though apparently it’s a ‘favourable’ rate), whether the loan is in anyway collateralised, who is getting the money (rather important to your chances of ever being repaid), whether the money will be given to people who made political donations in expectation of further kickbacks (surely worth investigating), might all be worth reporting or indeed, agreeing before you put your national taxpayers on the hook for dumb Spanish bankers.  Then there is the question of exactly where the cash will come from?  Eurozone countries apparently, but I presume Greece, Italy, Portugal, Ireland won’t be able to contribute, since they have troubles of their own and the smaller Eurozone nations won’t be able to make more than a token gesture.  Now the UK is not part of the Eurozone so I would guess we are off the hook on this one, unless there is some god-awful treaty obligation, and George was photographed making his constipated/serious face which may suggest we are about to pony up, (perhaps kitty counters can help me here).


This is another epic disaster of the first magnitude and do you think even one of ‘em will lose their jobs or suffer in anyway? 


This may get very, very ugly indeed. 


  1. Laird says:

    I have nothing to add to SAOT’s analysis here; it’s spot on. The list of obvious questions which should have been asked is, if not exhaustive, certainly an excellent starting point.

    But the question of “where the cash will come from” is an interesting one. I suspect that the answer lies in the corollary question: in what will the cash be invested? Since, as far as I know, Spanish banks aren’t lending to grubby businesses and consumers any more than American ones are, my bet is that it will be “invested” in more sovereign debt. Banking regulators in Europe and the US are essentially forcing banks to lend to governments, because the newest Basel Accords (which the US Fed just announced would be applicable to all banks, not just the largest ones, in a complete surprise to everyone) permit banks not to count sovereign debt in calculating their risk-based capital. In other words, government debt is accorded a zero risk weighting, truly a laughable conceit. Here is an interesting article on the issue.

    So while I’m just guessing here, my surmise is that all this new “capital” contributed to Spanish banks will be a mere bookkeeping entry, with the balancing entry being an equal face amount of (probably Spanish government, but maybe ECB) bonds. In other words, it’s all accounting gimmickry, smoke and mirrors to make the balance sheet look better. (Quelle surprise!) Notional capital (the numerator) will increase but assets (the denominator) will be unchanged (remember, government debt doesn’t count in the calculation), so voila!, the capital ratio is improved. Ah, the magic of regulatory accounting.

    Whether the rating agencies (Moody’s, S&P, et al) or the capital markets at large will be fooled by this chicanery remains to be seen. My opinion of both groups is rather low, so I suspect that both will, at least in the short term. In the long term, of course, the Gods of the Copybook Headings will come calling.

  2. RAB says:

    Smoke and mirrors is exactly right Laird. And the “Money” is going around in a tight loop. As you say, ordinary business isn’t even seeing a sniff of it. The Govts bail out the banks and the banks then invest it back in Govts, bailing out their Sovereign Dept. It is accounting fraud on a gargantuan scale.

    Where the hell is all this money? Everyone seems to be in debt to everyone else? Britain owes a Trillion, the USA 14 trillion, Germany even owes 2 trillion, without the PIIGS, so to whom? Who’s sitting on this vast pile of money? It can’t be the evil bankers now can it? cos they keep having to be bailed out.

    I’ve said before that a trillion is a big scary number with lots of noughts that nobody can quite get their head around. But if you convert it into seconds then a trillion adds up to 32, thousand years! If you started printing Euro’s at one a second right now, that’s how long it would take you to pay off just Britain’s debt, let alone the others. So it is plain to see that this so called money does not really exist. It is just figures in a ledger or on a computer screen, and is collateralised by sweet fuck all. Time to wipe all the slates clean and start again.

    Oh and as to politicians… Take responsibility, Who us?

  3. Single Acts of Tyranny says:

    @ Laird “In other words, government debt is accorded a zero risk weighting, truly a laughable conceit”

    I did not know that; more insanity, thanks for the link.

  4. Laird says:

    “Time to wipe all the slates clean and start again.”

    There’s a lot of merit to that, RAB. Looking at just the US, in the last year the Fed has purchased over 60% of all new Treasury issuances. It’s the largest holder of US Treasury bonds. Of the $15.7T of US federal debt outstanding, $4.7T is held by the Fed (China is in a distant second place, at about $1.2T). If we simply eliminated intra-governmental holdings we would wipe out about 1/3 of our national debt. Similarly, there are a lot of reciprocal holdings by various governments of each other’s debt, which could be eliminated via simple offset. That certainly doesn’t solve the entire global debt problem, but it’s a giant step in the right direction.

  5. Lynne says:

    Farage nails it.

  6. Laird says:

    I was hoping that someone else had caught that marvellous rant by Farage. It’s worth watching a few times.

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