Yes, I know Athens is burning as some of the more violent demonstrators threw some Molotov cocktails and the media was given some photo ops so the situation can be understood by those too involved with life’s challenges to read. If that sounds acerbic it is because I have been writing about the Greek debt crisis since December of 2009 when the Chinese investment funds reneged on a promise to purchase $25 Billion of Greek bonds and the debt crisis was in full swing. Again, Athens may be the present battleground but the political and financial games are being played out in Paris and Berlin and of course in the offices of the IMF.
The Greeks will get their money so that the French banks don’t have a credit crisis prior to France’s elections that begin in late April. I am not minimizing the PAIN that the AUSTERITY PROGRAM is causing the average Greek citizen, but the pain is going to come one way or another. George Soros again lays the pain in Greece with German Chancellor Merkel. It is amazing that Soros, a student of Karl Popper, has so little respect for the DEMOCRATIC PROCESS. Soros has been a long time cheerleader of the EU, hoping that a strong EUROPE would be a monetary and diplomatic counterweight to U.S. global supremacy. In an article to be published Monday in Der Spiegel, Soros claims that Merkel is leading Europe down the wrong path.
“Rather than simply forcing troubled governments to save, Euro-Zone leaders should also boost growth in those states with capital injections.” Soros goes on to explain that if there are not huge capital infusions, meaning TRANSFER PAYMENTS FROM GERMAN CITIZENS, “…we will repeat the mistakes that led America into the Great Depression in 1929. Angela Merkel simply doesn’t understand that.”
What Soros fails to accept is that Germany is a democratic country and is bound by rules of law. If the German Chancellor overreaches her authority on the EU, the German Constitutional Court (GCC) will have its say–as will the Bavarian Burghers. Soros conveniently forgets that Merkel’s party suffered several regional election defeats, which forced her to change tactics and take a tougher stance on the European bailouts. It is not that Merkel doesn’t understand. It is that unlike the GLOBAL PHILOSOPHER KING, the German Chancellor is held accountable. Those who would override the rule of law for political expediency are FASCISTS. That much should be understood. Karl Popper is rolling over in his grave.
***In tomorrow’s Financial Times there is a story that CHINA has told its banks to roll over loans that were made to regional governments as part of the large Chinese stimulus program that was enacted to counteract the 2008 Global Recession. The Chinese government has told the regulators to not pressure the banks and to allow “regulatory forbearance to extend the duration of the loans by up to four years.” The Chinese claim they need more time say as to work through the problems of overextended regional and city balance sheets.
This is why it is so difficult to get a handle on what is really happening in China and it is important to examine all data with a very critical eye. The total amount of loans made to regional and local governments to fund infrastructure projects was on the order of $1.7 trillion, a huge number relative to the size of the economy. The markets will applaud this extend and pretend model for it will prevent a near-term hard landing.
***Just a quick hit on the housing bailout plan worked out by the Justice Department, 49 States Attorney Generals and the TOO BIG TO FAIL banks. It is so complex so I don’t really know what to make of it, but the criticism most often hear is that the TBTF BANKS got the best of the deal and BOND HOLDERS and PENSION FUNDS got the worst of it. The mortgages will be written down but owners of first and second mortgages will share the loss rather than the HOME EQUITY LOANS BEING REDUCED/OR WIPED OUT, as would generally be the case.
Again, the Geithner group has prevailed and softened the blow for the banks. The bondholders will be forced to take some hit but they would be hit even bigger in a massive REFI. The Obama group should just REFI all mortgages for as I have argued, that would be a much more significant stimulus. The BOND HOLDERS should not really be upset for ultimately TARP bailed out the BOND HOLDERS by not allowing a massive meltdown of the entire housing market and rendering the entire MBS market a massive default.
Bloomberg’s Kathleen Hays has a guest on her radio show Friday, Feb. 10, who explained how the BOND and MBS holders were to take a hit and the banks get off easy. I failed to catch the guest’s name but he had the line of the year in explaining the agreement’s outcome:
“IN WASHINGTON IT IS UNDERSTOOD THAT IF YOU DO NOT HAVE A SEAT AT THE TABLE YOU ARE PROBABLY ON THE MENU.”
Think about that for a moment and understand who is not at the table…