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by Stephen Lendman
Email: lendmanstephen (nospam) sbcglobal.net
04 Oct 2011
Bailout Roulette - by Stephen Lendman
Daily the charade continues as world economies crater. Longtime financial analyst and Progressive Radio News Hour regular Bob Chapman says systematic global risk "lurks around every corner."
The European Systemic Risk Board (ESRB) wants governments to increase bailing out banks close to failure. Taxpayers become lenders of last resort.
When they're their contribution falls short, the IMF becomes the loan shark of last resort. These tactics are Ponzi scheme shenanigans, throwing good money at bad to create more of it.
Europe is weaker "and in more serious trouble than the UK and US." Their problems "have now spread contagiously into Asia, its financial system, and into their economies as exports fall. Europe is one step away from losing control."
It's not a matter of if, but when and how bad. According to Chapman, "Europe is facing another liquidity crisis worse than" Lehman Bros. in 2008. It's fueled by manipulative market machinations, similar to what topped Lehman and Bear Stearns.
In America, a score or more too-big-to-fail banks are troubled. Some are being sued for fraud. Even German banks carry heavy toxic asset burdens. As a result, Europe's crisis is escalating and spreading globally.
Making a bad situation worse, Germany's parliament overwhelmingly approved increasing the European Financial Stability Facility (EFSF) from 400 billion euros to 780 billion, pledging to contribute 253 billion euros.
The EFSF provides moral hazard assurance that bank loans to troubled economies are repaid on time with interest. Under new agreement terms, EFSF can directly bail out financial institutions by buying government bonds, lending money for bank bailouts, and providing contingent credit lines to deeply indebted states like Greece.
The idea, of course, is using taxpayer money to prevent banks from incurring bad loan losses. Instead let healthier economies absorb them, risking future trouble when they'll need bailouts when no one's left standing to provide it.
Moreover, EFSE terms include austerity for troubled workers. As a result, they're forced to accept unbearable growing wealth disparity burdens instead of badly needed help.
On September 30, financial analyst Mike Larson called EU bailout roulette the "Theater of the Absurd," advising readers to "batten down the hatches and prepare for the inevitable!"
He called the EFSF scheme "the messiest, most doomed-to-fail plan you've ever heard of."
After news about it leaked, it said no bailout plan exists, stating:
"There have been media reports about a potential involvement of the EIB (European Investment Bank) in a special purpose vehicle in connection with the EFSF, for the purpose of bailouts."
"The EIB has not been approached and has no plans to be involved in this. The EIB will continue to focus on its mission which is financing viable investment projects."
So which way is it? "Clearly, the left hand in Europe," said Larson, "doesn't know what the right hand is doing!"
Either way, European economies are troubled. Those worst off are dragging down others. Bad policies put off greater pain ahead to perhaps crater the continent.
Worried German Finance Minister Wolfgang Schauble called Washington's suggestion for Europeans to "level up" their bailout fund a "stupid idea (that) makes no sense."
Yet Fed Chairman Bernanke and Treasury Secretary Geithner insist bank bailouts and debt service be prioritized. No matter that doing it wrecks economies and worker households.
On September 26, financial expert and investor safety advocate Martin Weiss named "12 Giant US Banks Vulnerable to Disaster," including JP Morgan Chase, Bank of America, Wells Fargo, Sun Trust, and Regions Bank with combined assets of $4,643 trillion and many multiples of it in toxic debt.
The amount is so staggering that experts are "stumped" to provide solutions to what worried insiders fear ahead but won't say publicly.
It's why Weiss said Treasury Secretary Geithner worries that unprecedented steps are needed to prevent "cascading defaults, bank runs, and catastrophic risk."
According to Weiss, he told IMF/World Bank delegates in Washington last weekend that "time is running out!"
At issue are overwhelming problems panicking global markets, worried about troubled economies and major banks. For example, France's Credit Agricole and Societe Generale with combined $3.6 trillion in assets are so overburdened with toxic debt they're effectively insolvent.
Other European banks face similar problems, and America's troubled dozen are teetering. Weiss rates their credit worthiness D+ or D, meaning "weak."
In fact, he rates 2,553 US banks and thrifts D+ or worse, implying serious systemic risk vulnerability for what Geithner called "cascading defaults."
Last August, noted investor Jim Rogers told Newsmax TV that Bernanke and Geithner are leading America to fiscal armageddon, saying:
"This decade absolutely, probably sooner than this decade," America will likely default.....This is not good news, what is going on in Washington. These guys are really, really out of it. They don't understand what's happening and we're all paying the price, and it's going to get worse."
The Fed "is the main culprit because they kept bailout (out banks) instead of letting the market clear, and instead of letting (them) go bankrupt and start over."
He added that Bernanke and Geithner never should have been appointed. "(T)hey should get somebody else who at least understands economics, finances and currencies."
All Bernanke knows is "print(ing) money....It is absolutely the wrong thing to do, but that's all (he) knows."
All he's got to show for it is America's cratering economy. Key indicators show weakness. Bank lending keeps contracting. Real estate loans declined for three consecutive weeks. Consumer credit fell four of the past five weeks, and commercial and industrial loans dropped together for the first time since January.
At the same time, America's greatest ever housing Depression deepens. Attesting to weak global economies, commodities are plunging.
US consumer and business confidence reflect trouble. French business confidence plunged to a 13 month low. Even the Fed admits downside risks are "significant." Global financial assets are in dire straights everywhere.
Worldwide conditions are so bad that the troubled dollar reclaimed its safe haven in hard times status, investors rating it the best of the worst major currencies, which isn't saying much considering how weakened it is from excessive money creation used for bailouts and speculation, not economic growth.
No wonder Chapman said the Fed and government have two choices - either "inflate or purge the system. They had the same choice in 1990, 2000 and 2008," but passed on doing the right thing.
We've had "20 years of lying, hurting recovery" because of wrong-headed policies. Responsible officials need to replace Bernanke and Geithner. They had their chance and failed.
As a result, global economies and cratering. Job creation is moribund. Troubled households need help, not austerity, and political deviants need replacing by others committed to doing the right thing.
Why else would rage across Europe and America echo a common theme, refusing any longer to put up with policies benefitting the top 1% at their expense.
It's time that spirit gained tsunami strength to transform corrupted Western economies into socially responsible ones that work.
What better place to start than in Washington and on Wall Street, going for a clean sweep!
Stephen Lendman lives in Chicago and can be reached at lendmanstephen (at) sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
This work is in the public domain