Wednesday, 12 October 2011

Anomie Watch: EFSF and bailout lawlessness

Anomie literally means lawlessness. Although banks are burdened with many, many rules, they are seldom obeyed and largely unenforceable against the most powerful. Central banks are even more likely to ignore their enabling statutes and applicable regulations in innovating "financial stability" solutions. It is this lawlessness that was brought to the fore this week by a vote to reject the EFSF in Slovakia.

My post earlier this week coincided with a furore in Slovakia over approval of the European Financial Stability Facility. The EFSF is yet another mechanism for ill-transparently transferring taxpayer funds via governments and central banks to bankers, bondholders and bank shareholders.

An obscure leader, Richard Sulik, of an obscure minority party, SaS, objected to impoverishing his already poor countrymen to enrich foreign bankers. Under the terms of EFSF financing, taxpayers in Slovakia - the second poorest nation in the EU - would bear a disproportionate share of the EFSF burden relative to the size of the economy.

When the prime minister made support for the EFSF a vote of confidence, Sulik and his party brought down the government. The EFSF is likely to pass following a reorganisation of the coalition government, but in the meanwhile we have a teaching moment of real value.

I respect any politician who acts out of principle rather than self interest. Since the occurence is relatively rare, I was prompted to take a closer look at Mr Richard Sulik and his views on the EFSF. Fortunately he has documented his objections fully in a paper available online:

European Financial Stability Facility: A Road to Socialism

Just like it is impossible to extinguish fire with a fan, it is equally impossible to solve the debt crisis with new debts. The only thing that will help is to face the truth. Greece must declare bankruptcy, Italy must start saving and the rules set up by the eurozone upon its establishment must finally start being observed. It will hurt, but it is the only solution. . .

I would like to point out that this is not the same eurozone we entered in 2009. There are rules that should have been observed but all of them have been violated. Temporary EFSF and permanent EFSF will cost us 1 to 1.5 the amount of our annual state budget! Moreover, there is no guarantee that the attempts for the EFSF increase are over. . . .

EFSF ratification by the National Council will be a decision that will harm the citizens of Slovakia in the long run and to a great extent.

SaS will simply not sign up for something like this.

Whether you are for or against the EU, for or against the Eurozone, for or against bailouts, this is an important document to read. It catalogues the lawlessness and lack of accountability that made a bad financial crisis into a bad banking crisis then worse sovereign debt crisis and an even worse currency crisis.

I wish Mr Sulik had a career ahead of him in central banking or EU public policy. I fear after this week, he may once again be relegated to obscurity. His fellow Slovakians should be grateful for his principled stance and his foresight, and perhaps return him and his party to government when the costs of the betrayal of other parties become all too clear.

This just in! Berlusconi must face a vote of confidence tomorrow in the Italian parliament after defeat in a routine vote on government budget and accounts yesterday. Perhaps the Slovakian teaching moment will last longer than one day?

UPDATE (2): The three outgoing coalition parties have agreed with the opposition SMER party to pass the EFSF in a further vote to be scheduled before the end of the week. An election will be held on 10 March 2012. I hope the Slovakian voters remember then that the party that did not betray them to Brussels and the banksters was SaS.


Anonymous said...

If LB really thinks that there is no realm of human endeavour more lawless than international banking then maybe he or she should consider holidaying in Somalia.

Seriously, the EFSF may be objectionable but cannot be described as lawless if it is ratified by the legislatures of all of the EU member states. It certainly redistributes money from taxpayers to special interests but that's what generally happens with taxpayers' money. In the past it's been farmers, failing industries, the unemployed, the old and the sick. Maybe it's the bankers' turn now.

Richard said...


I suspect, or at least hope, that the teaching moment will not be lost on the Germans. They appear to think that compliance with the law is beneficial.

As for the EFSF, we are a long ways from Wall Street and the rest of the bankers getting their hands on this cash.

Part of the reason for my optimism is that the NY Times and the Wall Street Journal have finally begun focusing on the issue of investors not trusting banks.

This is a major, major shift.

Suddenly, investors who are questioning the solvency of US banks are being heard from - all they need to do is focus on derivatives.

More importantly, these investors are asking for granular level data - not assurance from bank executives or regulators.

This movement has implications for how the EU addresses its problems. Merkel intends to do "everything necessary" to ensure banks are recapitalized and investors believe it.

If she follows through, part of everything necessary will be massive disclosure of granular data by the banks.

Yes, this pushes out the timing of when banks are recapitalized (say 3 -5 years). But what is important is it also stops the Wall Street and the bankers from getting their hands on the EFSF funds.

The beauty of disclosure is that investors will be happy to wait knowing that it is coming.

Anonymous said...

Relevant re: previous "turns"

dennis the menance said...

I see no end to the debt crisis in europe' jim rogers has commented recently that the only real solution to this problem and the problem of that national debt of the united states is for these countries to just declare their inability to repay their debts' and than just default.

Anonymous said...

Hello there LB.

Long time no speak. Hope all is going well for you. As you know, I’ve gone extremely part time with this blogging gig. (Actually, my last piece really ruffled some feathers. I had to scour the internet and have it taken down because I had “people” contacting my “interests”. That’s why I should’ve stayed a bit more anonymous!!! (I actually considered re-releasing it as “Miss Anonymous” thus keeping the whole “Miss A” in tact…))

Anyhow, I posed this question to Hellasious over at Sudden Debt, and I figured, why not throw it by you and your audience???

(p.s. How about that EU??? I still think it’s doomed, as I stated about 5 years ago…. …and my whole theory of doom (if you remember) was based on no “central bank” nor any cross border legal system to hold each other accountable. You argued stability, I argued crash. We shall still see…???)

Hello Hell.

Rich H / (Miss America) here.

OK… you’re my go to guy on this stuff. (as I assume you know, I love your foresight/analysis)

Now with the whole Greece debacle “fixed” what are the downstream effects? (I thought Greece was still operating in the red so even if there was a 100% haircut, they still couldn’t meet their demand, let alone still trying to even meet the other half of the 50% they still owe and probably can’t repay… but what do I know)

I know this isn’t your job to educate me. (ha - It’s not mine either!!!)

…but what are the downstream effects of this not being a credit event?
…and what does this do for the bond market???
…or the CDS market???????

The way I understand it, since the creditors voluntarily took the haircut, rather than the debtor being forced into it… this is what is/was the determining factor on whether this is a “credit event”. Is that right?

…and now for those other PIIGS, (or should we say PIIgS) why would someone ever buy CDS on them??? ever? For the billions to trillions of dollars that have been waged on whether or not Greece would fail, and whether or not their fellow PIIgS would fail, have the values of these CDS potentially dropped to 0?

Likewise, how does this effect the bonds themselves? If Ireland has a bond issued at 6%, won’t there be no buyers? @ 7%, nope, 8% nope, 15% nope, etc… since default/haircut risk has shot up to 50%, while at the same time the trillions of dollars hedging CDS programs (built to calculate all these factors) have potentially turned worthless???

Or is this a good thing?

Does this help Greece turn a corner? (can the debt be wiped out and absorbed by non-inflationary printing (because if we all print, (US, EUR, GB, JP, etc) then no one loses) …and does this get the ball rolling in the right direction for a country like Greece??? …assuming they actually get their house in order? even though they still haven’t really “fixed” anything.)

I can’t map this out. I think it’s bad. Very bad! …but I think there may be some upside that I am not seeing or logical theories I haven’t grasped as to how this can be good.

(Forget the legal aspect of this, whereby, if I and millions of others are technically “creditors” to Greece, and I, and millions of other did not agree to this haircut.)

Ahhhhh…. too much for me to get my head around.

Can you help?

Thanks again.

PeterJB said...

Markets mustn't learn about our gold transactions, Bank of England says
Submitted by cpowell on Thu, 2011-11-03 21:42. Section: Documentation
5:44p ET Thusrday, November 3, 2011

Dear Friend of GATA and Gold:

Denying a recent freedom-of-information request from a citizen of the United Kingdom, the Bank of England has insisted on secrecy for its swapping and leasing of gold from the national reserves.

Replying on October 24 to GATA supporter James Bern, who sought a more precise accounting of the British gold reserves, Bank of England spokeswoman Jackie Keating wrote that the gold swap and leasing information is "market sensitive" and its disclosure "would allow enquirers to find out what gold transactions have been taking place." This, the bank's spokesman wrote, would impair the interests of both the British government and the bank's "private customers," to whom the bank "owes a duty of confidentiality."

The statement thus confirms that the Bank of England is surreptitiously active in the gold market on behalf of both the British government and the bank's "private customers" and that the interest of British citizens in knowing how their government is meddling in supposedly free markets is quite secondary.

Thanks to our friend Bern, it thus has been demonstrated again that there is plenty of financial journalism to be done simply by pressing central banks with questions about their surreptitious activity in the gold market. Who will be the first mainstream financial journalist to attempt this and to have enough resentment about being shut out of the public's business that he publishes a news story about it? Is there such a mainstream financial journalist willing to risk his invitation to a few very nice Christmas parties and his access to highly placed official sources?

The Bank of England's reply to Bern has been posted at GATA's Internet site here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Ho hum

Dennis The Menance said...

I would like to comment about all the problems in the euro zone. It seems as if nothing ever gets resolved this thing just goes on and on.

PeterJB said...


See the Freak Show and the Bearded Fatt Lady who has begun to sing.

Ho hum