by David Malone
The Irish are now openly saying they want to make the senior bond holders take some of the bank losses. That is most definitely not in the European Financial Class’s game plan. Neither France nor Germany nor the UK will like the sound of it. Because for senior bond holders read their banks, big funds and insurance companies.
This was always about bailing out other nations’ banks and any restructuring of who takes what losses will simply make that clear. We will simply get to see which banks in which countries suddenly have to raise cash or get another bail out. Not only would it be a very public humiliation but it would also tell the world which banks were weakest. Given that banking is almost entirely based upon lies this would not be a good outcome for them.
Of course, the obvious answer is for the big European players to use the ECB to quietly and confidentially buy up those bonds and make all Europe’s tax payers pay by a more indirect and less democratic route. The problem is, while it prevents a convulsion and a nasty leak of raw truth in the short term, it doesn’t undo the real damage.
The real damage is that if Ireland sticks to their threat nearly all possible outcomes for the big banks become very bad. Which, providing they have the balls, puts Ireland in a very strong position.
If Ireland goes through with forcing senior bond holders to take their share of the losses, then it will be revealed that it was the big banks who were being protected at the expense of ordinary people all along. A whole new season of banker bashing would open.
It would also mean people in other countries who are being told day after day that they ‘have no choice’ but to impose even greater austerity measures or that they ‘must’ have an IMF/EU ‘rescue’ package imposed upon them and accept whatever punitive terms the IMF/EU see fit, might decide they too are going to simply call everyone’s bluff and say no.
Even the possibility of such a contagion of rebellion would be quite sufficient to induce another credit crunch of banks refusing to lend to each other. Because who would know which banks would be affected next if Portugal or Hungary or even Spain or Italy were to start talking about their senior bond holders? That kind of uncertainty is what stopped banks lending to each other the first time.
So Ireland doesn’t even have to go through with it. They need only engender a worry that they might.
Equally bad for the big banks and the financial class/senior bond holders is if the ECB bails them out and buys the bonds. Because once that happens for Ireland, after all the adamant proclamations that it would never happen, then who is going to believe that Portugal or even Greece, couldn’t force the same concession? Or Spain?
Then it becomes a political nightmare. Merkel is already wounded. If it looks to her domestic enemies that she is further losing control then the fragile Franco/German unity, such as it is, will collapse. The UK will not hold it together.
David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php