Global Economic News
Amidst Hallucinatory 'Upswing' Fantasies, a German Bad Bank
Nov. 25 (EIRNS)In a clinical case of today's reigning economic lunacy, the Financial Times Deutschland today carries the front-page headline, "Upswing Almost Unstoppable," with a glowing picture of a golden 2010 and a blue sky with rays behind it. It refers to German economists, who predict that, from January on, everything will become better, with 2.5% growth to come.
It is suspected, that the only industry to which these figures might eventually apply, is the pharmaceutical industry.
Right next to this article is one on the state bailout of WestLB, Germany's third-largest state bank. It is bankrupt, and was only saved by the decision of SOFFIN, the state financial rescue committee, to jump in. WestLB, with a balance sheet of EU254 billion, was considered to be "too big to fail." Before this, the state had only intervened with the private banks Commerzbank and Hypo Real Estate.
The owners of WestLB are the state of North Rhine-Westphalia and public NRW savings & loans banks. WestLB is now creating a "bad bank" in which to dump EU85 billion in toxic paper, which is the result of its highly speculative activities over many years. For that, it is taking EU3 billion from the "healthy part" to cover for upcoming writeoffs into the bad bank. For further writeoffs, up to EU17.5 billion, the "owners" have to give a guaranteei.e., the taxpayers and the S&Ls' clients. For the "good bank," SOFFIN is providing EU3 billion (the same amount that is being put into the bad bank) for the core capital.
All of this is being used to finally abolish the Landesbanken (state-owned banks), which are at the same time under attack from the EU, which is demanding step-wise privatization. Thus, the former instrument of the S&Ls/state bank system, which was designed as an important credit instrument for regional and state development, is being eliminated.
IMF's Strauss-Kahn Calls on States To Prepare Austerity
Nov. 25 (EIRNS)IMF managing director Dominique Strauss-Kahn, a former French finance minister, has been in France for several days, campaigning for coming austerity budgets as head of the IMF, but also trying to use his IMF "competence" to become the Socialist Party candidate in the 2012 Presidential elections.
Yesterday, he was the guest of a conference organized by the Financial Times at the Inter-Allied Circle. He will be on national TV today and has given interviews to the main dailies, Le Figaro and Le Monde. Today, in Le Figaro's economics section, he put out the line that "the financial crisis is more or less under control," but that "it is only during the Summer of 2010 that unemployment will begin to contract in Europe and in the United States."
Despite this so-called good news, Strauss-Kahn insists that the U.S. should not drop its stimulus packages and other aid, because "we don't believe in a new collapse, but we cannot exclude it completely, either." He said that as soon as the upswing is secured, governments will have to adopt austerity packages to reduce deficits and debt. Finally, the IMF boss, while not using the term "Glass-Steagall," indicated that he is against splitting banks into investment and commercial bankswhich the FDR-era Glass-Steagall Act did in the United States, until it was repealed in 1999. "I support the objective of limiting risks, but, if the investment part of the bank is well supervised and if it pays an insurance premium, then the value in separating the banks in two, is less," he said. Strauss-Kahn believes that banks large enough to cause a systemic risk if they fail, should have to pay a large tax.