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October 23, 2011

"A Monstrous Idea" Indeed!

In a normal world, taxpayers bailing out banks from their reckless lending and outright gambling would be viewed by any reasonable person as a monstrous idea.  But, in the upside-down world created during the 2008 financial meltdown the precedent was established that banks and creditors get bailed by taxpayers out at 100 cents on the dollar with no strings and no accountability for their own conduct creating the circumstances that required their own bailout.  

In 2008, banks crashed the financial system and threatened the collapse of the world’s economy and stuck taxpayers and public treasuries worldwide with the bill.  They got bailed-out without any limitations and, within about a year, were paying themselves billions in bonuses and spending their profits on lobbyists, lawyers, campaign contributions, PR-spinners, front groups and anyone else necessary to defeat, gut, delay or avoid any financial reform that might prevent them from doing it again.

Now in this upside-down world we have bankers saying that it is “a monstrous idea” if taxpayers do not bail them out at 100 cents on the dollar for their reckless lending, investments and derivatives.  As the old saw goes, you can’t make this stuff up:

“As the Dexia bailout deal closed last week and was approved by the French Parliament, officials overseeing the restructuring say that the bank will meet all of its obligations in full. Alexandre Joly, the head of strategy, portfolios and market activities at Dexia, said in an interview that the idea of forcing Dexia’s trading partners to accept a discount on what they are owed ‘is a monstrous idea.’ He added, ‘It is not compatible with rules governing the euro zone, and it has never, ever been considered to our knowledge by any government in charge of the supervision of the banks.’”

Think about what he is saying:  taxpayers must forever and always pay banks and creditors at 100 cents on the dollar forever no matter the conduct of the bank, it’s counter parties or anything else.  There is a total, full and complete guarantee of all banks and creditors obligations by the taxpayers of the world.  

This is spelled out in all it’s ugly details in Gretchen Morgenson’s and Louse Story’s front page article in today’s New York Times, which shows how this is really the European version of the AIG bailout all over again, including taxpayers paying collateral calls on credit default swaps and how banks like Goldman are making those same aggressive collateral demands, which seems to have pushed Dexia into the financial abyss and required that nationalization.  

No better way to make sure you get paid 100 cents on every dollar than to have your financially weak counterparty like Dexia be taken over by a government and backstopped by the taxpayers of a country.

If you are a bank or financial institution, this is fabulous.  It’s no downside banking.  Heads, they win.  Tails, they win.  The losers?  Only the taxpayers.  As the concluding quote in this must-read article observed: “‘This is like using public funds to support your local casino.  It is difficult to see how this is good for society in the long run.'”  

“A monstrous idea” indeed! 

Read the entire sordid tail in the full story here.

To read why this isn’t isolated to Dexia, read the post “Bank Extortion and Hostage Taking Continues” here.



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