Euronomics Decomposing, Raise a Glass of Cheer!

Saturday, December 31, 2016
By Paul Martin

By David Haggith
TheGreatRecession.info
December 30, 2016

Europeans must have been delighted to discover that one thing is working as well as it has since the start of the Great Recession. Behemoth banks that are failing are still able to pay their Christmas bonuses to their top executives and give nice dividends to their shareholders thanks to Super Mario Draghi.

Keeping up the tradition of central bankers looking out for other bankers, Mario Draghi, chief of the European Central Bank “agreed to lower the minimum capital requirements for Deutsche Bank on Tuesday, ‘giving the lender more leeway to structure bonus payments and dividends.’” (Zero Hedge).

Thank God for that, huh? The needs of the stockholders and top execs have been taken care of before one of the world’s oldest megabanks falls on everyone else. While Deutsche Bank’s stocks sit at all-time lows after it has been required to pay $8 billion in fines, at least the golden parachutes are in top condition.

Italy surrenders to Germany

Meanwhile, the world’s oldest bank in Italy got nationalized for Christmas so that the losses of capitalists — many of whom exist outside of Italy — could all be socialized to the people of Italy. However, when the People’s Republic of Italy became the new owner of the bank, they found out the hole in the bank’s core was bigger than they thought. (Surprise.)

The ECB now estimates to hole to be 8.8 billion euros, rather than the 5 billion of additional capital that they formerly believed it needed. That’s a 75% increase in the bank’s capital shortfall that took place from November through December. What a sleigh ride!

Turns out that all the talk of nationalizing the bank caused depositors to rapidly withdraw funds (who woulda thought?), creating something of a black hole in the bank’s core. Lingering depositors don’t need to worry, though, because the Italian parliament has assured them that all Italians are equally on the hook for the bank’s losses by guaranteeing a 20-billion euro fund to stabilize any Italian banks that are too big to fail.

In Monte’s case, the Italian government will invest 6.3 billion euros of this fund into filling the growing hole, and rest will be squeezed out of bond-holders. (Of course, that news is bound to send even the lingerers running if they know what’s good for them, but obviously they don’t, or they wouldn’t still have been there when all this went down, as warnings have been evident for a couple of years.)

Gee, whatever happened to bail-ins putting the bank’s salvation primarily in the hands of share-holders, bond-holders and major depositors? Look’s like the government still believes general taxpayers should front the biggest wad. So, you’ll be glad to know that, even in Italy, the principles of saving too-big-to-fail banks at the start of the Great Recession are still largely in play. The costs of failing capitalists shall be largely socialized upon the poorer parts of the population because their citizens have happily allowed banks to remain too big to fail.

The Rest…HERE

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