From Volume 38, Issue 37 of EIR Online, Published September 23, 2011

Global Economic News

Taibbi: UBS 'Rogue' Trader, My Ass

Sept. 16 (EIRNS)—UBS, the Swiss financial company, has put out the old story that a "rogue" trader, Kweku Adoboli, ran up a $2 billion loss in unauthorized risky trades. A similar "rogue" loss (of $50 billion!) occurred at UBS in 2008-09 in the subprime mortgage market; UBS was bailed out with $69 billion in Swiss taxpayers' money in 2009, and claimed it had instituted new risk management practices.

In a Sept. 16 Rolling Stone article, author Matt Taibbi states, "Rogue Trader, my ass," to UBS's rationalization of its latest crime. Taibbi points to the takedown of the Glass-Steagall Act in 1999, which allowed speculators the same protection as commercial banks. The new scandal puts wind in the sails of Swiss parliamentarians promoting a "Glass-Steagall"-type law.

Adoboli was a trader at UBS's "Delta Desk," which supposedly made small trades in pure derivatives with a high degree of debt leverage. UBS would often hedge derivatives bets "for clients" by betting the opposite. The investment banks' so-called "Delta Desk" traders, which included both Adoboli and Société Générale's Jerome Kurviel, who was jailed for his huge 2008 losses, essentially use the leveraged derivatives strategy of the infamous Long Term Capital Management (LTCM) hedge fund, which nearly collapsed the world financial system when it exploded in 1998. UBS was, by that time, the bank most associated with and exposed to LTCM, and an entire phalanx of UBS's top leadership was forced out.

Taibbi says, "Rogue traders are treated like bad accidents ... but rogue companies are protected at every level of the regulatory structure and continually empowered by deregulatory legislation giving them access to our bank accounts."

BIS Chairman: Glass-Steagall a Wrong, Good Idea

Sept. 16 (EIRNS)—Bank for International Settlements chairman Christian Noyer, also currently governor of the Banque de France, called Glass-Steagall "a wrong good idea" in an interview published in the Sept. 12 issue of the French weekly Challenges.

Questioned about British moves for "ringfencing," which Challenges asserted go in the direction of Glass-Steagall, Noyer said, "I don't believe for an instant that the Glass-Steagall Act is a remedy to the crisis. On the contrary! And Lehman Brothers is the perfect example: It was an investment bank whose bankruptcy had global repercussions; as for Northern Rock, it was a purely retail bank!" Noyer also insists that the French banks are perfectly solid and adequately capitalized, citing as proof that Moody's downgraded Société Générale and Crédit Agricole only one notch, instead of the expected two.

Sinn Fein: Europe Needs Orderly Default on Toxic Debt

Sept. 16 (EIRNS)—Sinn Fein finance spokesman Pearse Doherty told a meeting Sept. 15 that officials in Brussels and Greece are preparing for the default of Greece's debts, according to reports. "There are those," he said, who argue that the only solution to these very serious issues is to take fiscal and economic power away from member states and centralize it in unelected EU institutions, such as the European Commission and the European Central Bank."

"We in Sinn Fein say that there is a better way ... in order for debt levels to be sustainable in Greece, Portugal and Ireland, banks must shoulder their share of the burden. This will require an orderly default on portions of toxic banking debt.... Citizens should not be forced to pay for the debt of private banks."

Greek Default Certain; Question Is When and How?

Sept. 16 (EIRNS)—While ECB and leading EU politicians still pretend that Greece could be saved from default, the media generally already report that "the markets" have begun to price in that default, because they believe it would come, whatever the size of the "haircut" on the debt, or if there were a "haircut" at all.

Today Germany's mass tabloid Bildzeitung sketches a scenario in which, late on some Friday, the Greek prime minister could announce Greece's exit from the euro, and that debt titles would be cut by 50%. Since there would be no trading until the Asian markets reopened at midnight Sunday (European time), there would be time to sort things out. Greek banks would be kept closed for several days, to stop depositors from emptying bank accounts. Since Greece would not have enough drachmas at the beginning, it would use old euro bank notes with a drachma stamp on them—the same would be done elsewhere in the Eurozone. The new drachma might have an exchange rate of 10:1 to the euro. The central message of this and similar scenarios is: It would be ugly, but it could be manageable.

Germans Momentum for Return to D-Mark Grows

Sept. 16 (EIRNS)—An online poll by Der Spiegel on Sept. 14 showed that 51.5% of those polled were in favor of returning to the D-mark, while only 42.7% wanted to stay with the euro, with 5.7% undecided. Helga Zepp-LaRouche's BüSo campaign in Berlin has recently called for a referendum on leaving the euro.

Handelsblatt has joined the campaign, running an op-ed by Euro-bailout adversary Hans-Werner Sinn, who testified for the plaintiffs in the recent Constitutional Court case challenging its constitutionality. Sinn debunks a new survey by the state-owned Kreditanstalt für Wiederaufbau (Reconstruction Bank), which claims a return to the D-mark would be a catastrophe. Sinn counters the scare statistic that leaving the euro would revalue the new D-mark by 15%. Sinn says, that it would be a blow to exports, but the other side of the coin is that imports would be 15% cheaper, and if one looks at Germany's import bill, that 15% would mean a net benefit of EU150 billion for the German economy—three times the disadvantage of the effect on exports. Case closed.

All rights reserved © 2011 EIRNS