Thursday, March 28, 2013

The Financial Crisis And The End Game

Below is yet another insightful article from the Daily Bell and once again, the theme of "big crisis = big change" appears to be a planned event:

Instead Of Doing His Job, Jeroen Dijsselbloem Has Given Us A Glimpse Of The Euro'End Game' ... If you've been following the Cyprus bailout story at all, you're probably familiar by now with Jeroen Dijsselbloem, the Dutch Finance Minister who became President of the Eurogroup of euro zone finance ministers in January. As President of the Eurogroup, Dijsselbloem has one extremely important job: communicating to the public the decisions taken by the group. After all, he is the figurehead. ... Dijsselbloem, who has basically spent the first two days of this week, following the inking of the Cyprus deal on Sunday night, going on and on about how this is not, in fact, a special case. – Business Insider

Dominant Social Theme: It is time to apply the free-market to bank depositors.

Free-Market Analysis: According to Business Insider, Jeroen Dijsselbloem has provided an "end game" for the euro that shows clearly what strategy is being contemplated.

And the strategy is to shift responsibility from taxpayers to bank depositors for insolvencies. The idea, apparently, is to bring the discipline of the free-market to the euro crisis.
The Eurogroup president spent several days backing away from remarks indicating that the Cyprus solution was going to be applied elsewhere, but later remarks, according to Business Insider, tended to confirm his initial statements. Here's more from the article above:

Yesterday, in a bombshell interview with Reuters and the FT, Dijsselbloem essentially said Europeans can count on a similar fate for uninsured deposits elsewhere in the euro zone if their banking systems need to be restructured in the future.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'" said Dijsselbloem in the interview. "If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."


FT Alphaville editor Paul Murphy called for Dijsselbloem's firing for making those comments. Several others have lashed out at Dijsselbloem for his apparent ineptitude.
The market reaction (bank stocks tanked) even caused the Eurogroup to issue a two-sentence clarification of what Dijsselbloem said.
However, the Eurogroup statement didn't really refute anything he actually said. Instead, it seemed to be an attempt to combat the use of the word "template" in describing the Cyprus deal, which is how Reuters played it in the lede.
And when you look at the full transcript of the interview, which the FT published online today, it's clear that Dijsselbloem absolutely meant what he said.

The Business Insider article later points out that media reaction to the Cyprus situation generally has been that "authorities are 'stupid' and 'have shot themselves in the foot'."

But Business Insider then raises the question, "What if they're not stupid?"

We've raised this question as well, though in a different context. We do believe that those running the eurozone are following a kind of program and it is one intended, in fact, to deepen the crisis rather than to alleviate it.
We base this on comments reported over the years in which top Eurocrats stated clearly that the only way to achieve a full-on political union was via a deep economic crisis. We've amply documented those comments.
From this vantage point, the Cyprus shock and subsequent statements are not only deliberate but have contributed to spreading uncertainty throughout Europe. Now people no longer trust their banks, contributing to their destabilization.

If you have a bank crisis, the last thing you want to do is further destabilize trust and confidence in the system. But Brussels Eurocrats have done just that.

One is left with two choices. Either this strategy was a deliberate one or it was a mistaken one. If it was a mistake, why is Brussels declaring that this sort of approach shall be banking policy going forward?

Conclusion: Nope ... Don't think it was a mistake. If one accepts that line of thinking, the ramifications are serious and deep from a sociopolitical, economic and investment standpoint.

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