The Saved and the Damned

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By David Malone 
 
I had a meeting the other day with one of Ireland’s very top bankers.  This person agreed to meet me and answer a few questions on condition of complete anonymity.  That this person was willing to talk to me at all was a surprise.
 
One of the things we talked about was the up-coming European meeting concerning the endless bail-outs of Europe’s’ banks.  I asked what she thought was going on in the seemingly endless back and forth between France and Germany about the EFSF and the nature of the bail out and if there was going to be one at all.

By David Malone 
 
I had a meeting the other day with one of Ireland’s very top bankers.  This person agreed to meet me and answer a few questions on condition of complete anonymity.  That this person was willing to talk to me at all was a surprise.
 
One of the things we talked about was the up-coming European meeting concerning the endless bail-outs of Europe’s’ banks.  I asked what she thought was going on in the seemingly endless back and forth between France and Germany about the EFSF and the nature of the bail out and if there was going to be one at all.

What she said is this: There is horse trading going on but not what is being reported in the press.  According to this very senior banker it was now known that the plan was all but agreed to re-capitalise all the banks but to the very minimum degree.  France and Germany were agreed on this. As I wrote before I left, there has been a bidding war looking for the lowest amount.

The horse trading and arguing is of a quite different nature.  What is being thrashed out is a list, for use after this across the board, minimum bail out, of which banks will be saved and which will be left to die when they next have a problem.  The horse trading is over who will be saved and who damned.

In other words the decision has been reached that this is the last pan-Europe, all bank bail out attempt.  After this it is recognised that Europe and the IMF cannot save all the banks.  And so only the most systemically vital are going to be saved and the rest will be allowed to save themselves if they can or die if they cannot.

I believe the banker who told me was being candid.  But could it really be true?

First, who would be able to draw up such a list?  Who would be party to the discussions?  If any news of who was on the list leaked out then it would become a self-fulfilling prophecy.  The ‘damned’ would see their shares and bonds crash and the ‘saved’ would shoot to the moon.  So who could be trusted?  Merkel and Sarkozy could not draw up such a list on their own.  Would the heads of the central banks be consulted?  Ministers of Finance?  Surely if any minster at all were included then the details would leak out and the plan would crash the banks immediately.  So could such a list really be drawn up?

So far I’d have to say the whole idea seems unlikely.  On the other hand we do all know, and the banker was candid and clear, that there just is no way the EFSF or the ECB or the IMF, not even of them together, can bail out everyone’s banks and so someone is going to be left out to die when they have their next crisis.  Once you accept that idea then how sensible is it to have NOT thought through which banks you will save and which you will let go?  Does it make sense to allow each event to take you by surprise and to always be having crisis talks with a gun to your head?

Thinking of it this way makes the list seem not only possible but essential. Taken together the two sides of the argument seem to me to suggest that the ECB and the top European leaders would have to draw up a list of those banks in each country which they felt were absolutely systemically essential and those which weren’t. 

Note that it is those which are essential to the broader system of banks not to the country in which they are located.  So it could be that no bank in Ireland or Portugal or Greece, for example, would be considered essential ‘for the system’.  And this is the critical point.  It seems likely to me that some nations, the powerful nations, will have most of their banks on the list of the ‘saved’.  While other nations, perhaps unbeknownst even to their own governments, will secretly have most of their banks on the list of the damned.  The decision would already be taken that they are to be left to die.  A nation in that position would essentially find it was to be sacrificed and crippled so that the ‘system’ would be judged to be better off. 

What it means is that as banks collapse we will see some nations in which many banks will be allowed to die and their ‘good’ assets will be cannibalised first by the ‘saved’ banks from their own nation and later, if there are no large enough banks still standing in their nations, then they will be eaten by banks from those nations who are not yet in trouble.  Nations would find themselves facing default but neither their people nor even their government would have been party to the decision. They would be thinking they had been working towards saving their banks but would find them crashed, by others, for the good of others.  It would not be the ‘orderly default’ we sometime hear about, it would be an ‘imposed default’.  The markets would trigger the event but the outcome would have been decided and imposed by, and at the convenience of, others.

But in the meantime, in every nation we, the people, will continue to be forced to pour money into the banks in order, we are told, to ‘save’ them. And yet the truth may be that many of those banks may already be on a list of the damned.  The leaders of France and Germany and maybe of the ECB and IMF, and maybe even our own prime ministers, already know that the banks into which we are pouring our wealth are already condemned.  When they have their next crisis they will be left to die but until then we will continue to ruin our nations by pouring our wealth into the bodies of dead and condemned banks.  And when they do finally go they will each take with them all the money we have poured in to them.  That money, those billions, will be gone.  The money will not be retrieved.  The money will have gone to enrich the Bond holders.

I cannot say that this list exists.  All I can say is that the banker who told me that it did exist seemed truthful to me and the grim logic of the current banking and political crisis points towards it.

 

Courtesy of David Malone – http://www.golemxiv.co.uk

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