- Le clin d'oeil de Jean-Claude Trichet aux "indignés"


Le patron de la Banque centrale européenne a entendu "une partie du message" du mouvement.
À deux semaines de la fin de son mandat à la tête de la Banque centrale européenne, Jean-Claude Trichet a adressé, dimanche, un clin d'oeil aux "indignés" qui ont manifesté la veille dans le monde entier, disant adhérer en partie à leur message. Sur Europe 1, celui qui est l'une des bêtes noires des "indignés" fustigeant partout sur la planète la finance et les politiques d'austérité leur a donné en partie raison. "Il y a évidemment un ensemble de leçons à tirer de la crise qui sont des leçons très dures : il n'est pas possible de laisser un système financier et, par voie de conséquence, un système économique au niveau mondial qui soit aussi fragile", a-t-il dit.
Il prône donc un renforcement des règles et des contraintes imposées à la finance. "J'interprète une partie du message qui nous vient de ce mouvement (des indignés, NDLR) comme allant précisément dans ce sens", a-t-il ajouté. Il a dit s'opposer cependant à "démolir" les banques, car, souligne-t-il, elles financent les trois quarts de l'économie, mais il a dit être d'accord pour renforcer les règles de prudence et s'est adressé aux banques réticentes. "Même si, de votre point de vue, vous voyez que c'est contraignant, nous vous disons que ça va protéger l'ensemble de l'économie", a-t-il dit. De la même manière, Jean-Claude Trichet a dit être opposé à l'idée de "démondialisation" mais y voir un message en faveur d'un renforcement de la gouvernance économique mondiale, dont, selon lui, il faut tenir compte. Cette idée, défendue par le candidat à la primaire socialiste française pour l'investiture à la présidentielle de 2012, Arnaud Montebourg, est actuellement au centre du débat politique en France.
Modification des traités
Pour Jean-Claude Trichet, elle n'est pas recevable si on parle de freiner les échanges économiques mondiaux, car cela supposerait notamment d'empêcher le développement de pays jadis pauvres où le niveau de vie reste bas, estime-t-il. "Il faut dire à ceux qui sont dans les pays émergents qu'on n'est pas très contents de leur propre développement et donc qu'on entend bien que leur développement soit entravé", a-t-il ainsi expliqué ironiquement. Il a rappelé que ce développement de pays du tiers-monde, et donc la concurrence qu'ils font aux pays industrialisés, est l'objectif de la communauté internationale depuis 1945.
Cependant, le président de la BCE a dit voir dans ce slogan politique de "démondialisation" un message. "Je l'interprète comme il faut renforcer la gestion, la gouvernance de la mondialisation et la renforcer dans tous les domaines", a-t-il dit. Dans ce sens, il a suggéré aux pays de l'Union européenne de réformer les traités pour empêcher à l'avenir un de ses États membres de créer des problèmes pour les autres, comme c'est le cas actuellement, notamment pour la Grèce. Il s'exprimait au moment où les pays européens tentent d'endiguer la crise provoquée par la dette grecque et ses conséquences sur les banques du continent qui lui ont prêté de l'argent. Un effacement pouvant aller jusqu'à la moitié de la dette grecque qui est d'environ 350 milliards d'euros est désormais envisagé, avec en corollaire la nécessité de renflouer les banques européennes créancières.
"Il faut réfléchir à l'avenir. Demain, à mon avis, il faut changer le traité pour être capable d'empêcher un membre de la zone euro de vagabonder et de créer des problèmes pour tous les autres", a-t-il déclaré. Selon lui, "pour cela, il faut être même capable d'imposer des décisions". Le Conseil européen devrait, à ses yeux, pouvoir statuer sur des sanctions à la majorité, sur la base d'une proposition de la Commission européenne. "La leçon de la crise, c'est que, en effet, il faut aller plus loin que les recommandations, éventuellement avec les sanctions", a-t-il dit. Jean-Claude Trichet n'a pas voulu dévoiler quels étaient ses projets à la fin de son mandat de président de la BCE, précisant seulement qu'il se considérait comme "citoyen français et européen".


- "Merkozy" agace les dirigeants européens


Les autres pays de la zone euro reprochent au couple franco-allemand de les mettre sur la touche
José Manuel Barroso avait rendez-vous vendredi après-midi avec Nicolas Sarkozy pour préparer le sommet de la zone euro du 23 octobre qui devra, coûte que coûte, mettre au point un plan global de sortie de crise. Sans quoi, prévenait récemment le président de la Commission européenne, l'ampleur de la crise, devenue "systémique", ne pourra que s'accroître, pour menacer toute l'économie mondiale.
José Manuel Barroso se fera-t-il l'écho auprès du président français des sentiments mêlés d'exaspération et d'attente envers le couple franco-allemand dont lui font part les autres dirigeants européens ? Beaucoup soulèvent la question franco-allemande, confirme un proche de Barroso, mais pas toujours de façon négative. "Quand le couple franco-allemand ne fait rien, on lui reproche son manque de leadership. Et quand il fait mal, comme à Deauville, on lui reproche d'imposer ses vues. La voie est étroite pour Merkel et Sarkozy", résume un diplomate européen.
Ah, Deauville ! octobre 2010, "Merkozy", comme on surnomme les deux dirigeants dans les institutions européennes, propose une vaste réforme du Pacte de stabilité et une révision des traités européens d'ici à 2013. C'est l'exemple type du donnant-donnant concocté sans consultation des partenaires. La Commission et plusieurs dirigeants réagissent très mal. "Inacceptable", condamne Jean-Claude Juncker, président de l'Eurogroupe et Premier ministre du Luxembourg. "Ce serait irresponsable de mettre sur la table des chimères à propos de nouveaux traités", renchérit Viviane Reding, vice-présidente de la Commission.
Marre de rouler à l'aveuglette
Aujourd'hui, le couple franco-allemand a-t-il retenu les leçons de Deauville ? Pas franchement, s'il faut en croire Jean-Claude Juncker. Le dirigeant luxembourgeois, connu pour ses convictions fédéralistes, a encore récemment dégainé contre ses voisins. Le gouvernement économique de la zone euro, tel que le prévoient les pays membres de l'union monétaire, "ne doit pas être un commando franco-allemand. La coordination de la politique économique ne peut pas vouloir dire j'atterris à Paris et je roule à l'aveuglette derrière une voiture marquée follow me", a-t-il déclaré au quotidien allemand Handelsblatt.
Même son de cloche à Rome. Peu après la réunion, infructueuse, de Berlin, dimanche dernier, entre Sarkozy et Merkel, le ministre italien des Affaires étrangères s'est fait un devoir de critiquer "l'axe" franco-allemand : "Cette rencontre est une perte de temps alors que la Grèce est aux abois. Une situation globale ne se résoudra pas par des axes bilatéraux", a lâché Franco Frattini.
Rien ne change ? Pourtant si, dit-on à La Haye, où l'on se réjouit "du bon travail et des contacts fréquents que nous avons avec la chancellerie à Berlin". Forts de leur triple A, les Néerlandais sont très actifs. Ils ont fait des propositions pour renforcer la discipline budgétaire, comme la nomination d'un commissaire européen doté de pouvoirs forts pour sanctionner les États laxistes. Le Premier ministre Mark Rutte en parlera d'ailleurs mardi à Paris avec Nicolas Sarkozy.
Énervant, mais indispensable
"Le problème du couple franco-allemand, c'est que les marges de manoeuvre sont infimes, résume un diplomate. Nous sommes dans une situation de crise aiguë. Du coup, plus encore que d'habitude, on ne peut rien faire sans un accord franco-allemand, mais, plus encore que d'habitude, cet accord est si bordé, les enjeux sont si importants, et les conséquences si énormes, que c'est difficile de modifier un seul paramètre de l'accord sans le mettre à mal entièrement."
Commentaire de José Manuel Barroso, vendredi, invité des journées parlementaires de l'UMP : "Évidemment, rien ne peut aboutir en Europe sans une coopération étroite entre la France et l'Allemagne et nous ne pouvons que désirer et appuyer tous les efforts pour une convergence entre les deux plus grandes économies de la zone euro. Mais en même temps, il faut travailler ensemble avec nos institutions, c'est la seule façon d'avoir avec nous tous les autres États membres, grands et petits, riches et moins riches, anciens ou nouveaux."


- German foreign minister hits out at US over debt crisis

Germany's foreign minister today lashed out at the United States over criticism the eurozone is not doing enough to solve its economic woes, noting that US debt had also contributed to the current crisis.

By AFP - Guido Westerwelle told the Bild am Sonntag weekly: "Let us not forget that the cause of the current crisis is too much debt in Europe, but also too much debt worldwide.
"Therefore, I cannot understand some of the critical comments from our American friends regarding our policy of reducing debt."
Westerwelle's remarks were the latest in a series of barbs between Berlin and Washington over Europe's perceived dithering over the crisis.
Last month, US President Barack Obama urged Europe to act faster to find a solution, saying the debt and banking crisis was "scaring the world," prompting a furious and undiplomatic response from Germany's finance minister.
"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," said Wolfgang Schaeuble.
"Even if Obama is thinking the opposite, I don't think the problems of Europe are the reason for the problems of the US," he said.
And on Friday, German Chancellor Angela Merkel took a clear swipe at the US, saying that she could not accept that those urging faster action on the debt crisis were also blocking a proposed tax on financial market transactions.
However, Obama and Merkel discussed the crisis on Friday and top American finance officials appeared to be happier with Europe's progress towards a solution at a meeting of the G20 in Paris a day later.
US Treasury Secretary Tim Geithner said finance ministers and central bankers had "heard encouraging things from our European colleagues in Paris about a new comprehensive plan to deal with the crisis on the continent."
Westerwelle hinted at a three-point plan: "Europe must become a stability union worthy of the name; we need hard punishments for nations with permanently weak budgetary situations; the competitiveness of EU states must be raised."
He reiterated Berlin's opposition to eurobonds - issuing eurozone-wide debt - that several economists suggest would be an effective solution to the crisis.
"We shouldn't make it easier to rack up debts. Quite the opposite: solid budgets and reducing debts are the order of the day," Westerwelle said.



- G20 has three weeks to solve eurozone debt crisis

Germany and France were under pressure on Friday night to step up their efforts to resolve the eurozone debt crisis as finance ministers from across the world met in Paris.


By Philip Aldrick - At a working dinner of the G20 deputies, Germany's finance minister Wolfgang Schaeuble and Francois Baroin of France were reminded they have just three weeks left to unveil a credible solution, or risk deepening the global slowdown.
The renewed pressure came as German Chancellor Angela Merkel said there was no "big bang" miracle cure for the eurozone's problems, and once again rejected the idea of eurobonds.
"As this crisis didn't arise overnight, it won't be fixed overnight," she said, arguing that structural reforms to improve nations' competitiveness are necessary.
Greece's private sector creditors may need to accept deeper losses than the 21pc already agreed, she added. However, she accepted the "haircuts" would only be tolerated "to avert worse and bring about structural reforms".
A deeper haircut now seems inevitable. Mr Baroin said on French radio on Friday: "It will be more, that's more or less certain."
Despite the public attacks on Europe's leadership, Chancellor Merkel came out fighting on Friday. As a quid-pro-quo for devising a comprehensive eurozone solution, she suggested, the US and the UK should back plans for a Financial Transaction Tax.
"It can't be that those - in particular outside the euro area - who repeatedly ask us for sweeping action to deal with the debt crisis, at the same time completely refuse the introduction of a financial transaction tax," she said.
The UK has said it will only adopt a so-called Tobin tax if it is introduced internationally. At present, the US is against the idea.
Despite the differences, talk at the summit focused on the "positive momentum" gathering among eurozone members to address their problems.
Speaking ahead of the meeting, Chancellor George Osborne, who is attending with the Governor of the Bank of England, said: "The countdown to the [November 3] Cannes summit begins this weekend.
"The biggest boost to global and British growth would be a resolution to the eurozone crisis. Momentum is now finally building towards that. We should use this weekend to keep up the pressure and step up the pace."
The French finance ministry confirmed the focus remains steadfast, three weeks after the Washington summit that fired up the sense of global urgency.
It said the "absolute priority" in the run-up to the G20 in Cannes was to take measures to stabilise the eurozone, which was "the epicentre" of the crisis. But it said the co-ordination of the whole G20 was needed to contain a slowdown in the global economy.
Hopes that Europe is edging towards a political solution helped lift markets.
The shape of a solution is beginning to emerge. As well as greater haircuts for the private sector, Europe's banks will be recapitalised - probably through state-backed guarantee or insurance schemes set up nationally across the single currency area.
France has been pushing for a central recapitalisation pool, funded through the €440bn (£386bn) European Financial Stability Facility (EFSF) bail-out fund. However, that looks unlikely.
Christophe Frankel, the EFSF's finance director and deputy chief executive, said recapitalisations should first be sought from the private sector, then from governments, before coming to the fund
"If you consider the three-step approach - private sector, national level and then European - as the EFSF would come in last, the amounts required may actually be reasonably limited," he said.
Leading nations also pledged to ensure the International Monetary Fund (IMF) would play a role as a financial backstop if required. But it was made clear that any grand plan to restore confidence in the euro area would have to be led by member states.
On his way to Paris, US Treasury Secretary Tim Geithner said that Europe "has enough resources of its own to deal with debt crisis".
He added: "If Europe has a comprehensive strategy in place that looks like it makes sense, and is using the very ample financial resources of Europe, we're happy to see the IMF play a continuing role in supporting what the Europeans are doing,"
Although the eurozone crisis will weigh heavily on talks this weekend, no official statement is expected as only three single currency members sit on the G20 – Germany, France and Italy. Eurozone ministers meet next weekend.
Top of the G20 agenda are issues of financial regulation, including how to deal with too-big-to-fail banks, and the imbalances in the global system, with China and the US likely to square up over the protectionist trade tariff that the US has proposed if China does not start allowing its currency to appreciate.



- How likely is it that the eurozone will solve its debt problems in three weeks?


Stock markets are rising again. This time on what would appear to be the most unlikely event in the universe. Namely that the eurozone will somehow solve its utterly intractable and highly complicated debt problems in time for the G20 meeting in three weeks.
Now stock market fortunes can be made by betting on highly probable events. But by betting on the highly improbable? That’s a madness every bit as unreal as the debt crisis itself.
Bank insolvency
How did eurozone banks come to lend to insolvent sovereigns thereby rendering themselves insolvent? Well, the banks were handed out money from the 2008-9 bailouts by the sovereigns and lent it, often under compulsion, back to the same governments.
With interest rates on ’safe’ sovereign debt comfortably higher than bailout funds it was a slam dunk. Only as with all cannot-lose schemes it went wrong. For a whole clutch of eurozone nations’ sovereign bonds have now plummeted in value and their interest rates have soared.
For the banks who count these bonds as assets on their balance sheets that leaves them insolvent. Now what can governements do? It was their lending to the banks that got them insolvent, so will more lending to them help or make things worse?
Can the banks raise new funds from the markets? Not with their share prices at current levels for very good reasons. No they are bankrupt.
What is needed is for a whole series of banks to go bankrupt. Then you lose the bad debts and level the playing field. But you do risk an awful lot of collateral damage, so to speak, in the process. Not just the bank’s collateral but the public purse will be exposed.
But if you go along with the US solution to the eurozone you just pump up an unsustainable bubble of bank debt for one last time. Then the bubble will be even bigger when it blows up.
G20 meeting
Instead of bankrupting Greece, Portugal and Ireland, you will also have Spain and Italy facing national ruin with France on the brink. Could a body as amorphous as the G20 meeting of world leaders actually agree something like this?
Obviously not, they want a consensus on a bailout not a controlled implosion of global debt. But perhaps we are looking to the wrong place for a decision on this. It is the same markets that are currently moving a bit higher on some odd hopes about the future and low volumes that will cast their vote.
A mad panic meltdown is the classic response to a total loss of confidence.



- Europe rejects U.S., IMF recommendations on debt crisis, stirring doubts about plan

By Howard Schneider PARIS — European officials working to address the region’s financial crisis have rejected key recommendations from the United States and the International Monetary Fund, casting doubt on whether an emerging plan will be as broad or fast-acting as hoped.
As crisis negotiations continued this weekend, European officials said they had reached general agreement on a response they were confident would restore faith in European banks and government finances.
The detailed plan to be agreed on by European officials next weekend “will be decisive,” French Finance Minister Francois Baroin said Saturday as he concluded a two-day session with finance ministers from theGroup of 20 major economic powers.
But the plan excludes the open-ended use of the European Central Bank as a guarantor of government debt and the swift infusion of public capital into banks that U.S. and IMF officials say could be critical to restoring confidence in the euro region. Both were central elements of the effort to shore up the U.S. financial system three years ago.
“They clearly have more work to do,” U.S. Treasury Secretary Timothy F. Geithnersaid after the meetings adjourned, withholding judgment on whether the European plan will prove convincing.
“It’s all in the details,” he said. “In financial crises, it is more risky to act gradually and incrementally than to act with bold force.”
At the peak of the U.S. crisis, then-Treasury Secretary Henry M. Paulson Jr. summoned major bank executives to an October 2008 meeting in Washington and ordered them to immediately accept billions of dollars in government money. Paulson argued that the infusion of funds was vital for saving the financial system and that all the banks had to take the money, regardless of whether they needed it, so none would be singled out for accepting a bailout.
European leaders have rejected a similarly swift and dramatic response.
Their planned effort to prepare banks for a possible default by Greece or another heavily indebted European nation could take until June to complete. Banks first will be asked to raise extra capital from private sources — such as their own profits or a new sale of stock — and then, if necessary, to appeal to their governments for public help. If a government cannot afford it, officials could ask to borrow the money from the new bailout program, the European Financial Stability Facility.
Funding: Public vs. private
The step-by-step process is a concession to European politics. Officials in Germany, the most influential voice in the euro zone, are insisting that new bank capital should come from private investors before public sources. Taxpayers in many nations are weary of footing the bill for bailouts already underway in Greece, Portugal and Ireland.
But some analysts say the plan means months more uncertainty while potentially weakening banks that have to turn to public sources for help and admit they cannot raise money on their own.
It “is going to be very tricky and very long,” said Anne-Charlotte Com, a bank analyst with the Aurel BGC investment firm.
The approach also runs counter to the recommendations of the IMF, which has urged a fast, conclusive and mandatory infusion of new money into the European financial system.
“We would recommend a mandatory approach in the sense that no bank can say, ‘I don’t need this,’ ” IMF Europe division director Antonio Borges said at a recent conference.
European banks hold hundreds of billions of dollars in bonds issued by Greece and other highly indebted European nations. After initial months skirting the issue, officials now want banks to have set aside enough capital to withstand a Greek default, as well as any problems that would occur in the aftermath.
In the worst-case scenario, a Greek default on its bonds could catch banks unprepared, prompting the kind of global credit meltdown caused by the failure of the Wall Street investment bank Lehman Brothers in 2008.
Greek debt
Baroin said European leaders are likely to agree within days on a way to cancel some of Greece’s debts. Such a step represents a recognition that Greece cannot return to financial health unless some of its $300 billion in outstanding bonds are reduced in value.
Over the summer, Josef Ackermann, chairman of Deutsche Bank and then-chairman of the Institute of International Finance (IIF) trade group, developed a proposal under which banks would agree to swap existing Greek bonds for new ones to be repaid over a longer period, lightening Greece’s burden. The proposal was accepted by European leaders and the IMF at the time. The deal was heralded as a breakthrough, with banks and other private investors voluntarily accepting losses that would do little damage to their financial health. But the IIF proposal included no actual reduction in the face value of Greece’s bonds.
The European Central Bank does not want private investors to face forced losses in Greece, arguing that this could undermine the financial health of the euro area even further. But some analysts said Greece cannot be made solvent without more substantial debt relief, which would hit banks harder.
The new capital requirements being developed could help banks absorb losses on Greek bonds. But calculating precisely how high capital levels should be depends on what could happen to bonds issued by a range of countries beyond Greece. Market analysts now expect at least some losses on bonds issued by Portugal, Ireland, Spain and Italy. Yet it is difficult for European officials to factor those possible losses into capital standards, because each of the countries insists that it will pay its obligations in full.



- A Call for a Write-Down on Irish Debt

BY LANDON THOMAS JR. - DUBLIN — A major write-down on Greek debt appears to be inevitable. But what about Ireland?
Bailed-out Irish banks continue to pay interest to their bondholders on 75 billion euros in debt — about half the country’s gross domestic product — and despite Ireland’s improved economic performance over the past year, many here believe that these institutions should suffer the same haircut that the banks holding Greek debt are expected to absorb.
“We need to write this stuff off,” said Peter Mathews, a voluble banking and real estate consultant who was recently elected to the Irish parliament on a robust bank-bashing platform.
Mr. Mathews estimates that if you include household and non-financial corporate debt, Ireland’s total debt burden is a shocking 490 percent of G.D.P. — which, he claims, makes Ireland the most indebted country in the world.
Of course, such a figure is gross, and does not take into account the significant assets that households and corporations have.
But it is arresting nonetheless and it is what fuels his anger at the thought of banks continuing to pay bondholders even though they were the ones that brought his country to the verge of bankruptcy.
For months now he has been pestering the government to take action on the matter and he even went so far to corral a perplexed Herman Van Rompuy, the president of the Europe Council, on a recent trip he made to Dublin and make the case to him.
“Japan has lost two decades of growth — what the hell are we going do with debt of 490 percent of G.D.P.,” Mr. Mathews said. “I have to say I am getting ready to take off my shoe just like Nikita Krushchev did.”
While his view may be a popular one in a country that reviles its bankers, there is little sign that the Irish government will run the risk of angering the European Central Bank and investors by proposing such a measure — especially now as its bond yields have near-halved to about 7.8 percent from 14 percent this summer.
Nonetheless, Mr. Mathews says he will stay on the case.
“There are losses out there,” he said. “Let’s face up to them and get them financed by countries that can afford it, like Germany.”


- Harrisburg, Pennsylvania’s capital, files for bankruptcy


By Michael A. Fletcher - The city of Harrisburg, Pa., filed for bankruptcy protection Wednesday, which supporters characterized as the only alternative to a state takeover that would force the city to use its most lucrative assets to pay off Wall Street creditors.
The bankruptcy filing was a hotly contested and emotional issue in Pennsylvania’s capital city. It was strongly opposed by Mayor Linda D. Thompson (D), who has said that bankruptcy would leave an embarrassing mark on the city of 49,000 while crippling its future ability to borrow for municipal projects.
Thompson refused to sign the filing and then called the bankruptcy illegal after the papers were signed by a member of the City Council.
Harrisburg’s bankruptcy filing comes as a growing number of municipalities across the country are struggling with mounting debt and a decline in revenue in the recession’s aftermath.
Just last month, Alabama’s Jefferson County narrowly avoided being dragged into bankruptcy from a failed sewer financing deal, although a final resolution has yet to be reached. Earlier this year, the tiny city of Central Falls, R.I., went into bankruptcy, clearing the way for deep cuts in the pensions of retired city police officers and firefighters.
If Harrisburg’s bankruptcy filing stands, it would mark the largest municipal filing since Vallejo, Calif., did so in 2008. For years, Harrisburg has been struggling under a heavy debt burden, more than $300 million of which is connected to an incinerator project that turned into a financial debacle.
The city had suspended payment on the incinerator loans, but almost a quarter of its budget still goes to an assortment of debt payments, crowding out funding for basic city services.
Before voting to file for bankruptcy, a narrow majority of the City Council had voted twice to reject a state takeover plan. The council members said the plan would have brought only temporary debt relief while sparing creditors and forfeiting the city’s fiscal future.
“We would have to sell our revenue-generating assets — parking garages and meters — to pay off our creditors, who we believe have not made a significant contribution to a global solution,” said Brad Koplinski, the council member who introduced the bankruptcy measure.
Without those revenue sources, he added, “we would be structurally bankrupt and have to file for bankruptcy in three to five years anyway.”
The mayor called on the council to rescind its action and added that she would continue working to implement a plan to lease the city’s parking garages and meters and restructure its debt outside of bankruptcy.
Although more cities and towns have been feeling fiscal stress in recent years, municipal bankruptcies occur infrequently.
Since 1980, fewer than 300 of the nation’s 19,000 municipal entities have filed for bankruptcy, experts said. The vast majority were small: special districts and other entities, such as housing development projects, that were unable to raise taxes on their own, according to James E. Spiotto, a Chicago lawyer who specializes in public finance.
But some analysts say that more bankruptcies could be on the horizon, making it far more expensive for local governments to borrow municipal bonds to finance roads, bridges, senior citizen homes, schools, mass transit lines and playgrounds.
In the past, the bond market’s importance motivated local officials to do all they could — including raising taxes and cutting services and personnel — to make payments. If cities miss payments or show severe fiscal stress, their bond ratings are cut, significantly increasing borrowing costs and making it more difficult to balance their books.
Even when municipalities file for bankruptcy, bondholders frequently get paid in full, experts say, further discouraging filings.
But with taxpayers and politicians showing greater antipathy to Wall Street financiers, the dynamic might be slowly shifting.
“I am glad to see we are going to start using the leverage of bankruptcy to get a solution that works for the residents of Harrisburg,” said Dan Miller, the city’s comptroller who has long advocated for bankruptcy. “It can’t be any worse than selling all our revenue-generating assets.”
Similarly, Koplinski brushed aside concerns that the bankruptcy filing would permanently damage Harrisburg’s ability to access financial markets to fund projects. The city is so deep in debt that it should not do any borrowing for the foreseeable future, he said.
In addition, Koplinski said, “as long as there are projects to create and bonds issues to offer, there will always be money managers and lawyers to come collect and put those deals together. If there is money to be made in Harrisburg, they are going to be back.”


- La pauvreté s'installe en Grande-Bretagne


Par Rose Claverie - Membres de la communautédes «travellers» près de Basildon, dans le sud de l'Angleterre.


Le Royaume-Uni comptera 600.000 enfants de plus sous le seuil de pauvreté en 2013.
À Londres
Le quotidien des Britanniques aux revenus les plus faibles va s'aggraver dans les années à venir. Le revenu moyen réel en Grande-Bretagne, qui prend en compte l'inflation, devrait baisser de 7% entre 2010 et 2013 selon The Institute for Fiscal Studies (ISF). Cela pourrait représenter la plus forte baisse en trente-cinq ans. Il faut en effet remonter à la période 1974-1977 pour retrouver trace d'une telle chute du revenu moyen, soit la période post-choc pétrolier. Le centre d'études prend l'exemple d'un couple gagnant un peu plus de 30.000 livres (34.500 euros) par an: ses ressources tomberont à un peu moins de 28.000 livres (32.200 euros), ce qui représente 2300 euros en moins pour vivre dans trois ans. Il faudra attendre six ans pour que les Britanniques retrouvent leurs niveaux de vie de 2009, soit la plus longue période de récupération depuis 1961, l'année où l'institut a réalisé son premier rapport.
Pour Robert Joyce, chercheur à l'IFS, il s'agit là des conséquences directes de la crise de 2008: «On peut parler d'effet à retardement de la récession. Les revenus réels n'ont pas baissé pendant un certain temps quand l'économie a commencé à se contracter, en partie parce que l'inflation était très faible. Mais l'inflation a vivement progressé et les salaires ne se sont pas adaptés.» En effet, selon l'organisme indépendant Office for Budget Responsibility, rien que cette année les revenus moyens devraient augmenter de 2,2% en Grande-Bretagne, alors que les prix à la consommation pourraient bondir de 3,6%. Dans ce contexte, le nombre de pauvres va augmenter en 2013. La Grande-Bretagne devrait compter 2,9 millions d'adultes en âge de travailler en état de «pauvreté absolue», soit vivant avec moins de 60% des revenus moyens en 2009-2010.
Selon l'Institute for Fiscal Studies, le nombre d'enfants vivant dans cette pauvreté absolue devrait même connaître un pic en 2013, à 3,1 millions, soit 600.000 de plus qu'en 2010. L'objectif des députés, à travers la loi sur la pauvreté infantile de 2010, de réduire le taux à 5% en 2020 ne sera pas atteint, prévient le cercle de pensée.
Mesures jugées pénalisantes
L'ISF montre du doigt le gouvernement de David Cameron. Certes, prévient l'institut, le crédit universel mis en place par les conservateurs, qui vise à verser des aides aux travailleurs démunis, va dans un premier temps les soutenir, mais elle ne pèsera pas assez lourd face à d'autres mesures pénalisantes du gouvernement, comme l'indexation des aides sociales à l'inflation des prix à la consommation et non plus à celle des prix au détail (qui augmente plus vite). De quoi indigner Alison Garnham, directrice de l'association Child Poverty Action Group: «Les ministres semblent être dans le déni que leur politique actuelle pourrait mener au pire de taux de pauvreté de notre génération.»
L'étude de l'IFS arrive dans un climat bien sombre en Grande-Bretagne, à l'heure ou le Fonds monétaire international a prévenu qu'un risque de récession planait au-dessus du royaume.

- L'Europe prépare ses banques à un choc sur la dette grecque

Par Isabelle Chaperon - Paris, s'alignant sur Berlin, envisage d'entrer au capital des groupes financiers, à défaut d'apports privés suffisants.
Les responsables politiques européens semblent enfin sur le point d'accorder leurs violons sur le cas grec et les mesures à prendre pour tenter de résister à une contagion. Cette perspective d'un consensus lors sommet du 23 octobre a avivé les espoirs des marcéhs financiers, mercredi.
Le signal est venu de Paris, où le gouvernement est sorti du bois sur la délicate question de la recapitalisation des banques par des fonds publics. «Nous n'avons aucun doute sur la solidité des banques françaises mais il existe des turbulences sur les marchés financiers qui font que l'augmentation des capitaux des banques européennes est devenue une nécessité», a concédé Valérie Pécresse, la ministre du Budget et porte-parole du gouvernement.
Si Bercy privilégie toujours une recapitalisation par «l'apport de capitaux privés», la ministre a reconnu que la France était disposée à injecter elle-même de l'argent public pour soutenir ses banques. Mais uniquement «si c'est nécessaire, en dernier ressort», insiste-t-on de toute part. Il n'empêche, Paris se range du côté de l'Allemagne, qui la soupçonnait de vouloir recourir plutôt au Fonds de stabilité européenne (FESF), pour éviter de mettre en danger son AAA. Or pour Berlin, il n'est pas question que des Etats ayant les moyens de mettre eux-mêmes la main à la poche bénéficient aient recours au système d'aide mutusalisée qu'est le Fonds. «Le FESF pourra prêter à certains États qui auraient besoin de ces prêts pour recapitaliser leur système bancaire, la France n'y fera pas appel», s'est engagée Valérie Pécresse. Si les banques martèlent ne pas avoir besoin d'être recapitalisées, les pouvoirs publics français se tiennent néanmoins prêts, au cas où…
Paris se rapproche donc de Berlin. Et leur position ressemble étrangement à celle exposée mercredi par José Manuel Barroso. Plaidant pour une «approche pleinement coordonnée», le président de la Commission européenne a appelé les banques à muscler leurs fonds propres «de façon temporaire» mais «d'urgence». Fonds privés, argent public ou secours du FESF, que chaque pays se débrouille: l'Europe veut que la solidité de son système bancaire ne puisse plus être mise en doute.
30% à 60% de décote
Pour cela, le superviseur bancaire européen est à la manœuvre. Selon le Financial Times, l'Autorité bancaire européenne va imposer un ratio de fonds propres durs de 9%, un bond considérable par rapport aux 5% qui avaient servi de référence lors des tests de résistance en juillet. Le tout, au plus tard mi-2012. Mais l'effort va plus loin. Le superviseur collecte les derniers chiffrages sur les portefeuilles de dette souveraine des banques, afin de déduire des fonds propres les décotes sur ces titres appliquées par les marchés.
Si ce renforcement des banques fait désormais l'unanimité parmi les politiques européens, c'est qu'un tabou est en train de sauter: celui du défaut de paiement de la Grèce. Certes, rien n'est acté officiellement. Mais quand Barroso appelle à «une action décisive sur la Grèce» afin qd'assurer la viabilité de l'économie grecque, se profile entre les lignes un abandon de créance massif. Le Premier ministre grec George Papandréou ne cache pas le bras de fer dans lequel il est engagé : «Nous négocions chaque jour pour alléger cet endettement». Des «responsables de la zone euro » cités par Reuters envisagent la possibilité de faire une croix sur 30% à 50% de la dette grecque. Le président de l'Eurogroupe, Jean-Claude Juncker, a même évoqué une décote de plus de 60% en début de semaine, avant que son entourage rétropédale.
Pour le moment, les banques considèrent dans leur comptes qu'elles doivent renoncer à 21% de leurs créances sur Athènes, conformément à l'accord du 21 juillet. C'est pour pouvoir encaisser le choc d'une restructuration bien plus violente qu'il leur est demandé d'afficher des ratios irréprochables.




- Recapitalisation : les banques ne veulent pas du plan Barroso


Les établissements bancaires estiment que la potion présentée par Bruxelles ne soigne pas le mal, à savoir la dette publique de la zone euro.
Josef Ackermann, patron de la Deutsche Bank (Sipa)Josef Ackermann, patron de la Deutsche Bank (Sipa)
Jose Manuel Barroso n'a pas convaincu les banques. En suggérant mercredi 12 octobre d'obliger les établissements financiers à augmenter leurs fonds propres "durs", à défaut de quoi ils seraient interdits de bonus et de dividendes, le président de la Commission espérait faire un retour fracassant dans le grand feuilleton de la crise.
Pari réussi? En tout cas, les annonces ont fait sursauter les banques. Première institution à dégainer, la Fédération allemande des banques privées. Les propositions de Bruxelles sont "inappropriées parce qu'elles ne s'attaquent pas aux causes de la crise actuelle de la dette publique", selon son directeur Michael Kemmer, qui ajoute: "La précipitation est de mauvais conseil dans la situation actuelle".
Même argument dans la bouche de Josef Ackermann, le patron de la Deustche Bank. "Il me paraît douteux qu'une hausse du niveau des fonds propres pour l'ensemble des banques soit une mesure appropriée pour résorber la crise de la dette publique", a-t-il expliqué. Comprendre: les banques sont les victimes de la crise de la dette dans la zone euro, et non sa cause.
Un plan pire que le mal, pour les banques
Pour les établissements financiers, le plan Barroso pourrait même aggraver la situation. "Il faut faire attention à ce que le secteur bancaire ne soit pas celui sur lequel on empile les contraintes. Il faut laisser de la souplesse pour permettre le financement de l'économie", a abondé Bertrand Corbeau, le directeur général de la Fédération nationale du Crédit Agricole, qui représente les caisses régionales du groupe.
Pour Michael Kemmer, cibler la distribution de dividendes alors que l'on prépare une recapitalisation n'est pas un mauvais message envoyé aux investisseurs: "L'interdiction du versement de dividendes serait contre-productive parce que cela compliquerait encore plus les levées de capitaux sur le marché."
Un sentiment partagé par Josef Ackermann, qui pointe l'incohérence du discours politique. "Le débat actuel sur la recapitalisation est contre-productif parce que d'une part il envoie le message qu'une (nouvelle) décote est plus probable, et d'autre part comme les moyens nécessaires à une recapitalisation ne vont sûrement pas venir des investisseurs privés, ce serait finalement aux Etats de lever les fonds, ce qui ne ferait qu'aggraver la crise de la dette", s'est-il étonné.

- Les "égoïstes" de la zone euro : pourquoi ils renâclent à aider les "maillons faibles"


On les appelle les "égoïstes" de la zone euro. Ces pays, qui, comme la Slovaquie, rechignent à payer pour sauver la Grèce et les dérapages budgétaires des autres "maillons faibles" du sud de l'Europe.
Après avoir voté contre, le Parlement de Bratislava a finalement approuvé, jeudi 13 octobre, l'élargissement du Fonds européen de stabilité financière (FESF) nécessaire au sauvetage d'Athènes. Mais en hésitant, le pays a effrayé les dirigeants européens et mis au jour la rigidité de la gouvernance de la zone et l'exaspération de certains membres : la Slovaquie mais aussi les Pays-Bas, la Finlande et, dans une moindre mesure, l'Allemagne. Point sur ces "égoïsmes".
La Slovaquie : ne pas payer pour plus riches qu'eux. Le blocage du vote sur l'élargissement du FESF au Parlement slovaque a d'abord répondu à un calcul purement politique. Il a permis à l'opposition de précipiter la chute du gouvernement de centre-droit.
Mais il a aussi fait écho à un ressentiment, "compréhensible" de la population, reconnaît Sylvain Broyer, économiste chez Natixis. La Slovaquie, entrée dans la zone euro en 2009, reste un pays pauvre. Plus pauvre que la Grèce et les autres nations que le pays est censé secourir. La retraite des fonctionnaires slovaques s'élève en moyenne à 600 euros par mois, contre 850 euros en Grèce. Même si le coût de la vie est moins cher en Slovaquie, le pays a le sentiment de payer pourassurer les retraites des fonctionnaires grecs.
Le soutien au FESF pourrait coûter au pays jusqu'à 7,7 milliards d'euros en garanties, soit 13 % du produit intérieur brut (PIB), souligne M. Broyer, qui rappelle que le pays bénéficie des fonds structurels européens, soit 1,6 milliard d'euros par an.
Les Pays-Bas : l'éthique protestante et l'esprit du capitalisme. Membre du club fermé des pays notés AAA par les agences de crédit, la Hollande est un exemple de rigueur et de discipline budgétaire. Selon les calculs de Natixis, compte tenu des recettes courantes, le pays ne mettrait qu'1,7 an à rembourser sa dette contre 2,02 ans pour la France et 2,3 pour le Royaume-Uni. Selon le Fonds monétaire international (FMI), son déficit budgétaire représentera 3,8 % du PIB en 2011 et 2,8 % en 2012. En dessous de la ligne jaune du traité de Maastricht (3 %).
"Cette discipline exemplaire est le résultat d'une fiscalité sévère qui trouve son fondement dans une forme d'éthique protestante", estime Shahin Vallée, économiste au centre Bruegel. Au Pays-Bas, on comprend donc mal de devoiraider encore et encore un pays comme la Grèce, "qui n'a pas présenté un budget à l'équilibre depuis cinquante ans", pointe Charles Wyplosz, professeur d'économie internationale au Graduate Institute de Genève.
La Finlande : le refus de l'aléa moral. Le pays peut mettre en avant des finances saines malgré la crise. Selon le FMI, la Finlande sera en excédent budgétaire en 2012. Le pays rappelle aussi s'être sorti seul d'une crise bancaire dans les années 1990. Pourquoi aujourd'hui soutenir ceux qui, comme la Grèce, n'ont pas respecté les règles du jeu ?
La Finlande incarne aussi le réflexe de repli sur soi. Après sa percée aux dernières élections législatives (19 % des voix), le parti nationaliste les Vrais Finlandais a puexiger et obtenir des garanties contre les prêts à la Grèce. De tous les "égoïstes", le pays est ainsi, selon M. Vallée, "le seul à présenter un véritable euroscepticisme".
L'Allemagne : échaudée par la réunification. Angela Merkel affiche depuis quelques semaines une grande fermeté pour sauver la Grèce et éviter la contagion de la crise. Mais jeudi, la chancelière s'est encore fait rattraper par l'opinion publique.
Huit instituts d'économistes ont lancé un appel aux gouvernements pour arrêterd'investir leur énergie dans le sauvetage de la Grèce. "Les sommes engagées peuvent augmenter à l'infini", alertent-ils.
Ces experts savent de quoi ils parlent. Les transferts financiers entre l'ex-RFA et l'ex-RDA après la réunification ont coûté 1 300 milliards d'euros en vingt ans à l'Allemagne de l'Ouest. Et les Allemands considèrent avoir souffert pour redresserleurs finances publiques. Avec succès : le déficit budgétaire devrait atteindre 0,9 % du PIB cette année.
Si l'Allemagne, l'un des principaux contributeurs de l'euro, ne peut être considérée au sens strict du terme comme "égoïste", elle appartient au clan des durs, adeptes de la discipline budgétaire, et veut s'assurer que toute aide sera assortie d'engagements fermes.




- [Assemblées annuelles du FMI et de la Banque mondiale
La mondialisation a ruiné l’économie mondiale->http://www.lapresse.tn/05102011/37959/la-mondialisation-a-ruine-leconomie-mondiale.html]


Par notre envoyé spécial à Washington Lassâad BEN AHMED
Il a suffi juste une quinzaine d’années pour que la mondialisation mette l’économie mondiale à genoux. En effet, depuis la conclusion des négociations de l’Uruguay round et la création de l’OMC en 1995, les pays du monde entier se sont engagés dans une course effrénée pour réaliser le maximum de croissance et de prospérité. Les multinationales, de leur côté, ont bénéficié d’avantages fiscaux et de conditions de production très favorables pour dégager des bénéfices exceptionnels.
Mais cette période a été « riche » en crises, à commencer par la chute des dragons asiatiques à partir de 1997, puis les crises russe et argentine, etc. Et maintenant, la crise est globale. La croissance mondiale est doublement confrontée à la baisse de la demande dans les pays développés, mais aussi à la baisse des investissements, puisqu’elle est logiquement liée à la demande. Et dans l’immédiat, la relève n’est pas encore assurée par la Chine qui enregistre pourtant le taux de croissance le plus important au monde ces dernières années.
Il en résulte une menace sérieuse : si rien n’est fait pour ranimer la demande, la difficulté des multinationales à trouver des marchés pour écouler leurs marchandises risque de les ruiner et de compliquer davantage la crise de la dette et la situation financière des banques, les flux commerciaux à partir des pays en développement risquent d’accuser une baisse considérable, etc. Et c’est déjà le cas au niveau global car l’OMC, elle aussi, vient de réviser à la baisse ses prévisions de croissance pour le commerce mondial en 2011 à 5.8% contre 6.5% initialement.
C’est ainsi que le FMI et la Banque mondiale recommandent aux pays membres de rééquilibrer la demande, de renforcer la capacité des banques et de résoudre au plus vite le problème de la dette souveraine mais aussi celle des ménages, outre une multitude de solutions à caractère général. Facile à dire !
Au fait, le pessimisme qui a gagné les opérateurs n’est pas sans justification. Il est argumenté par plusieurs paradoxes donnant des signaux négatifs qui commencent au niveau de la communauté internationale elle-même et qui finissent au niveau des solutions proposées, aussi paradoxales que les problèmes.
Paradoxes
C’est d’abord une question de leadership. Avant la libéralisation et le démantèlement des barrières tarifaires, la régulation était assurée par chaque Etat, les politiques de réformes étaient donc relativement plus faciles à penser et à mettre en œuvre. Aujourd’hui, les Etats ont cédé d’une certaine manière cette capacité de régulation. C’est le FMI et la Banque mondiale qui gèrent l’économie globale mettant à contribution tous les Etats membres, sans pour autant avoir un caractère contraignant, puisque chaque Etat est souverain quant à l’adoption des politiques économiques intérieures. Or, dans un contexte d’ouverture, toutes les politiques économiques intérieures renferment une dimension internationale.
Deuxième paradoxe : la correction de la dette par une nouvelle dette. Contrairement au principe communément connu « qu’on ne prête qu’aux riches », la communauté internationale, en adoptant la solution de renforcement des capacités des banques pour rééchelonner les dettes des entreprises et des ménages, voire pour octroyer de nouveaux crédits, risque d’enfoncer le clou encore plus. Il a été prouvé dans plusieurs pays, entre autres en Tunisie, que le financement par le crédit est un investissement difficile qui risque de plonger les entreprises dans des difficultés dès les premières années d’activité, surtout si la conjoncture est défavorable. Et c’est d’ailleurs la raison pour laquelle plusieurs économistes estiment que l’investissement par une contribution dans le capital est plus judicieux, dans la mesure où il permet de partager les risques et de minimiser les frais.
Troisièmement, l’augmentation de la demande. Depuis la nuit des temps, le libéralisme a misé sur la consommation pour créer des emplois et des richesses. Aujourd’hui aussi, il n’y a pas d’autres solutions devant les multinationales que d’augmenter la demande dans les pays émergents pour accroître leurs ventes. Or cette solution s’estompe devant deux obstacles qui ne sont pas des moindres. Le premier est lié à la rareté —de plus en plus sensible— des matières premières, ce qui se traduit par une inflation des cours et une atteinte à l’environnement. Ce n’est donc pas une solution durable. Et le deuxième est en rapport avec le pouvoir d’achat des populations dans les pays émergents et à faible revenu. Plusieurs d’entre eux affichent pourtant des taux de croissance positif. Cela nous conduit à évoquer une problématique majeure qui a conduit la mondialisation à ce stade de dégradation : la compétitivité.
Les multinationales sont concernées
En effet, depuis le début de démantèlement des barrières tarifaires, les pays en développement se sont engagés dans une course pour attirer les investissements étrangers. Et les multinationales se sont mises à se frotter les mains pour produire moins cher dans « les paradis fiscaux » et les pays à faibles revenus, bénéficiant de plusieurs avantages de tout genre. Les Etats, en accordant des avantages fiscaux, devaient chercher des ressources budgétaires alternatives en créant de nouvelles taxes sur la consommation par exemple.
Aujourd’hui, se pose la question si ces investissements étrangers ont vraiment créé des richesses là où ils sont implantés ou pas. Il n’y a pas de statistiques détaillés à ce propos, d’autant plus qu’il n’est pas prudent de généraliser. Mais disons que plusieurs multinationales ont réussi à créer des dynamiques économiques dans leurs environnements immédiats et plusieurs autres ont juste exploité une main-d’œuvre bon marché comme des sangsues. Ce sont généralement les entreprises qui délocalisent pour le moindre motif. C’est une anomalie.
Il y a eu libéralisation du commerce et des flux de capitaux « mais il n’y a pas eu libéralisation de la main-d’œuvre », constate Josef Stieglitz, prix Nobel de l’économie, lors d’un séminaire sur la « mondialisation et la croissance inclusive », tenu en marge des assemblées annuelles du FMI et de la Banque mondiale. Les deux institutions s’arrêtent à ce niveau d’analyse et confient aux Etats membres de trouver comment. Elles recommandent une croissance plus inclusive, donc avec une meilleure répartition des fruits de la croissance, sans rentrer dans les détails.
A aucun moment, personne n’a évoqué par exemple l’impératif de mettre en œuvre les règles du commerce équitable, ni de rendre la norme sociale indispensable dans le commerce mondial. Les multinationales n’accepteraient pas. La Chine n’acceptera pas. Pourtant, lorsque le processus de mondialisation a commencé, les économistes ont projeté que le nouveau contexte allait être plus favorable aux pays en développement et le monde serait meilleur. Or il s’avère aujourd’hui que ce n’est pas le cas. Les plus riches se sont enrichis davantage et les plus pauvres se sont compliqués la vie, quoique la Banque mondiale ne fasse état de 400 millions d’âmes ayant sorti de la pauvreté (en Chine). Mais en contre-partie, dans plusieurs pays, le pouvoir d’achat s’est dégradé, et plusieurs millions de personnes ont replongé dans l’extrême pauvreté.
En Tunisie, par exemple, la politique économique du régime déchu a été amenée, faute de bonne gouvernance, de brader le pays pour attirer les touristes et les investisseurs, ce qui a contribué à la dégradation du pouvoir d’achat et la propagation de la pauvreté sur environ un quart de la population selon les chiffres corrigés après la révolution. Le pays qui a beaucoup investi dans les ressources humaines s’est retrouvé aujourd’hui en difficulté politique et sociale et le marché s’est beaucoup éloigné de la réalité des prix. Le monde meilleur qui a été promis par Ben Ali n’est pas aujourd’hui si meilleur que cela ne l’était dans les aspirations des Tunisiens, du moins une majorité.
Le problème qui s’ensuit c’est que ce processus est irréversible. La mondialisation est aujourd’hui un fait accompli avec lequel il faut composer. Les multinationales qui sont déjà parmi nous ne vont pas quitter facilement une richesse humaine qualifiée bon marché (Smig inférieur à 140 euros). Et évidemment on ne va pas procéder à une hausse rapide des salaires (cela va se traduire par une inflation injustifiée), mais si ces multinationales partageaient leurs bénéfices avec leurs employés comme on le faisait auparavant dans le domaine agricole (on continue de le faire jusqu’à présent dans la cueillette des olives à raison de 50% / 50%), cela leur ferait plus de motivation pour produire davantage d’une part. Cela ralentirait sans doute la croissance de ces multinationales mais, d’autre part, cela créerait de nouveaux gisements de croissance, permettrait d’augmenter la demande dans les zones les plus défavorisées du monde (où sont implantées ces entreprises) et générer de nouvelles ressources budgétaires pour les Etats. N’est-ce pas mieux que les crédits ?
A bon entendeur…



- [EDITORIAL
The Banks Falter->http://www.nytimes.com/2011/10/14/opinion/the-big-banks-falter.html?nl=todaysheadlines&emc=tha211]


As the first of the major banks to report its earnings each quarter, JPMorgan Chase is a barometer of conditions in the financial industry. The mercury is falling.
JPMorgan reported on Thursday that its third-quarter revenue had dropped by 11 percent from the second quarter; its profit fell by 4 percent from a year earlier. And since JPMorgan is arguably one of the nation’s healthier banks, results for firms like Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are likely to be considerably worse.
These declines are worrisome in the sense that they reflect the weakness of the broader economy. Joblessness, damaged credit and falling home values have left people unable to borrow or to repay debt and businesses reluctant to hire and invest. But the results also reflect how the banks built profits abusing their customers.
Long overdue federal restrictions on hidden overdraft charges and excessive debit card fees have begun to take a bite out of bank profits, and that should be happening. But the banks and their investors tend to see any rules and regulations that slow revenue growth as undue and overly burdensome, and they are pushing back. The question is whether lawmakers and regulators will stand up for the new fee restrictions and other rules as banks resist.
Banks, habituated to gouging their customers, are already trying to recoup lost revenue with dubious new charges, like Bank of America’s $5 monthly fee for using a debit card. The move has infuriated customers and led President Obama to rightly warn against mistreatment of customers in the pursuit of profit. But Bank of America has yet to relent — a stubbornness that may be from of a belief that aggrieved customers won’t do better elsewhere. On Thursday, five Democratic congressmen led by Peter Welch of Vermont asked the Justice Department to investigate whether the big banks were engaging in “price signaling,” a form of collusion in the setting of prices.
The big banks are also resisting proposed regulations on capital levels, derivatives and investing practices. If successfully implemented, the new rules will help to curb the kind of reckless trading and irresponsible lending that caused the crash and recession. That will slow revenue growth, but it is the price of a more stable system.
The banks also have gotten themselves into a legal mess for which they have no one to blame but themselves. JPMorgan had to set aside another $1 billion last quarter to prepare for legal claims from investors who want to recoup their loss from mortgage bonds backed by bad loans.
The banks face legal challenges from federal and state governments over foreclosure abuses and other mortgage-related issues. In all, analysts say mortgage problems could cost JPMorgan up to $9 billion. Bank of America, the most exposed of the big banks to mortgage-related litigation, is potentially on the hook for far more.
Investors, meanwhile, are pricing banks’ stocks below the banks’ book value — a sign that they don’t believe the banks are worth what the banks say they are. The questions generally involve whether banks are properly valuing their loans and investments and the extent of their exposure to shaky European debt. Banks could fix this with increased and detailed disclosure. Government officials and regulators could compel that disclosure. The general failure on this front feeds the air of skepticism.
One of the lessons from the financial crash is that there is no substitute for transparency. In the new earnings season, investors are still in the dark.


- US to Play 'Very Major Role' In Helping Europe: Geithner


By: Jeff Cox CNBC.com Senior Writer
The U.S. plans on being an active partner as efforts intensify to get Europe get back on its feet financially, Treasury Secretary Timothy Geithner told CNBC Friday.


With global leaders preparing for next month's Group of 20 nations (G20) summit in Cannes, France, the International Monetary Fund — of which the U.S. is the greatest contributor — is being relied on to help underwrite whatever efforts are needed to backstop toxic Europeansovereign debt [cnbc explains] .
Geithner said the International Monetary Fund (IMF) [cnbc explains] has "very substantial" resources to fund a device that could look like the Troubled Asset Relief Program, which helped navigate American financial institutions through the crisis in 2008 and 2009.
"Through the IMF, of course, we're already playing a very major role," he said in a live interview in Paris. "We're happy to see the IMF continue to play that role in support of a more forceful, comprehensive strategy where Europe's own resources—very ample resources—are deployed on a much more substantial scale."
The comments give a lift to U.S. stocks, which have been highly volatile in the past several months as proposed solutions have come and gone for the euro crisis.
Geithner declined to give a specific number on what would be required to aid Greece and any other potential countries that need help meeting their obligations.
Estimates have run as high as $2 trillion for a liquidity fund, and Geithner said that whatever the figure is, it should leave no doubt that there will be more than enough.
"A basic rule of financial crises management is you want to make sure you have a level of resources that are larger than the potential need you face," he said. "If markets see that then they'll have the incentive to continue to lend, invest, to get more exposure to those countries."
By next week, IMF participants should have "a more comprehensive strategy" to solve the problem and put in place a plan at the G20 summit, which begins Nov. 3.
While that is happening, Geithner said the threat of a massive global recession [cnbc explains]has decreased, making solutions easier to devise.
"The numbers as we see them around the world have been somewhat encouraging over the last couple of weeks," he said. "You've seen steady, gradual—not strong, but gradual—growth across large sections of the U.S. economy and you're seeing a little bit of that outside the United States, too."
He added: "The concerns you saw over the summer that the world might be headed into a much weaker growth outcome have receded a bit."
Geithner said he understands the concerns of widespread protests that emanated from the Occupy Wall Street movement, and said the administration is taking steps to address concerns of economic imbalances.
"What you see is a general sense across the country from concern that the U.S. economy is not growing faster, you're not seeing unemployment come down more rapidly, you're not seeing incomes rising," he said. "People to make sure that the government — Washington — is acting to make things better now.
"
- Analysis: Greek debt enters Argentina-style twilight zone


(Reuters) - The prospect of a hefty Greek government debt restructuring and writeoff has sent the bonds into a twilight zone that's attracting specialist distressed-debt traders more used to dealing with defaulted emerging sovereigns like Argentina.
Greece was ditched last year from developed country government bond indices that are typically tracked by the big, often conservative, global institutional funds.
But the fact that it's still not part of official emerging market indices means the debt is languishing in a sort of no-man's land that excludes funds reluctant to stray off their benchmarks -- a world occupied by only a few intrepid players such as hedge funds or private wealth managers.
Ahead of a make-or-break summit of European leaders on October 23 at which a comprehensive new Franco-German crisis plan is expected to be discussed, four euro zone officials told Reuters this week that losses of between 30 and 50 percent for Greece's private creditors were under consideration.
Even that would be a better deal than levels of a 60 to 70 percent haircut currently priced into Greek debt. Most Greek bonds are trading at around 35 cents on the euro.
For emerging market players with experience of Argentina, which defaulted on $100 billion in debt in 2002, Greece may still look a touch expensive but it's now in familiar territory.
"If you looked at where Argentina bonds were priced after the 2002 crisis and up to the 2005 debt exchange, the whole curve was flat at about 25 cents to the dollar, so you could say Greece is getting to that level where as an emerging market investor you can think about buying," said Kevin Daly, emerging debt fund manager at Aberdeen Asset Management.
Investors would probably look to buy the cheapest Greek debt, the bond due to mature in 2040 which is currently trading at 31 to 32 cents on the euro, he said.
Argentina's debt experience is not a cheery one for Greece, which has a far larger $500 billion debt burden, suggesting the euro zone member may stay in the distressed debt zone for years to come.
Argentina carried out two debt exchanges in 2005 and 2010 but is still suffering challenges from "hold-out" investors, has failed to complete debt negotiations with the Paris Club of sovereign creditors and has not raised capital on international markets since the default.
FRONTIER TRADE
An orderly restructuring of Greek debt would probably involve several Greek bonds being rolled into one large liquid bond that could be reasonably easily traded, analysts say.
This happened with the restructuring of Ukrainian state-owned Naftogaz' debt in late 2009, when Naftogaz called bondholders together and combined a Naftogaz bond that was technically in default with bilateral loans to form a larger new bond. The bond received a relatively warm reception from investors, relieved that the restructuring was not worse.
But a disorderly restructuring or a default would leave Greece's debt splintered into many illiquid issues, which would then attract the kinds of investors who focus on the more infrequently traded frontier emerging markets.
"We have been trading some of the bonds at the moment and we would probably continue to do so," said Gabriel Sterne, economist at frontier markets broker Exotix.
"The more disorderly it gets, the more frontier it gets."
Some funds, such as Distinction Asset Management, have been buying short-dated Greek debt in the hope of a short-term stay of execution for Greece, for instance if it gets the next tranches of its IMF loans.
That trade is getting shorter, Sterne said, as the outlook is getting bleaker.
"If you are holding it till March 2012, it only takes a couple more IMF disbursements and you're there -- it's a calculated risk play for people with quite broad shoulders."
Greek debt and even other riskier debt markets are likely to plummet and initially show virtually non-existent trade in the case of default, as investors back off. The situation is comparable with a drying-up in emerging market liquidity in early 2009, during the global financial crisis.
But the debt could get a boost if the European Financial Stability Facility (EFSF) rescue fund buys it up.
Russia's recapitalization of its banks in 2009 enabled them to buy their own debt back at 50-60 percent of face value, kickstarting a recovery in emerging market debt.
"The sell-off may offer some huge opportunities, which is what you got in 2009," said Luis Costa, emerging markets strategist at Citi. "Before the recovery comes the storm -- we are trying to look beyond the pain threshold, though it is not going to be easy."





- China trade surplus shrinks as global woes deepen

By Langi Chiang and Koh Gui Qing

(Reuters) - China's trade surplus narrowed for a second straight month in September to $14.5 billion, with both imports and exports lower than expected, reflecting global economic weakness and domestic cooling that will deepen policy quandaries facing Beijing.
The trade data issued on Thursday laid bare trends at the heart of Beijing's debate about how to handle U.S. pressure for a higher yuan while seeking to protect both export-driven jobs and tame inflationary pressures.
Moments after the data was released, a deputy chief of China's customs agency staked out one position in that debate, saying a higher yuan is already hurting exports.
"The rise in the renminbi exchange rate may limit the room for export growth," Lu Peijun, the deputy head of the Chinese customs administration, said at a news conference about the data. The renminbi is another name for the yuan.
"China is still facing relatively big imported inflationary pressure and trade conditions are also deteriorating," said Lu.
Many traders are already wagering Beijing will tighten its leash on the yuan, which fell against the dollar on Thursday after the central bank set a sharply weaker mid-point for daily trading. Forwards markets are pricing in depreciation of the currency in the year ahead.
But other influential Chinese voices, including an official newspaper on Thursday, say Beijing may be preparing for a widening of the yuan's daily trading band to help fend off speculators and inflation.
September's trade surplus was smaller than August's $17.8 billion and less than half of the $31.5 billion recorded in July. The annual pace of exports to the troubled European Union more than halved from August.
"It is now certain that external demand is falling. Chinese export growth will continue to slow in the rest of the year," said Shi Lei, an analyst for Pingan Securities in Beijing, who said the figures were unlikely to prompt swift policy shifts.
China's annual inflation stood at 6.2 percent in August, and leaders have said taming price rises remains a priority.
"As falling external demand is expected by Chinese policymakers, any broad-based loosening of the monetary policy is unlikely in the short term until we see a clear fall in inflation," said Shi. "The window for possible policy easing is around November and December."
Both imports and exports were weaker than forecast by economists in a Reuters poll and several analysts said no rebound is in sight.
Exports rose 17.1 percent last month from a year ago, slowing from a 24.5 percent gain in August, and imports rose 20.9 percent, compared with August's 30.2 percent increase.
Still, the value of China's imports and exports are near record highs.
"The trade surplus is narrowing on a trend basis. I think this shows that the Chinese economy is (in the midst) of rebalancing," Jian Chang, an economist for Barclays in Hong Kong.
"Going forward, the effect of weakening external demand will slow export growth to mid- to lower teens. We expect import growth to hold up better."
SHRINKING SURPLUS
China's economic growth -- which has averaged around 10 percent for a decade -- has slowed this year as the global recovery from the credit crisis stumbled. Second-quarter growth of 9.5 percent was the weakest since late 2009.
Reflecting some concern about the slowdown, China on Wednesday unveiled measures to support cash-starved small businesses, which account for 75 percent of employment.
Still, if the world did slip into another full-blown economic crisis, China had the means to support its economy, said Anoop Singh, head of the IMF's Asia and Pacific department.
"I would say China has the scope to respond were these downside risks to materialize. What's important to notice is that even China's response would offset a part of the shock. It could not offset entire shock," Singh told a news conference.
A breakdown of China's trade numbers showed shipments of major export and import items slowed markedly.
Compared to August, annual growth in China's electronics exports slowed by a third to around 13 percent, while that for high-tech shipments more than halved to 6.3 percent.
Annual growth in China's commodity imports also slowed. Crude oil shipments fell 12 percent from a year-earlier record level after holding steady in August.
For iron ore imports, annual growth more than halved to 15 percent compared to August, although the volume of shipments was at an eight-month high.
China could point to its reduced trade surplus as evidence that it is moving to deal with economic imbalances that have riled lawmakers in the United States, who point to U.S. trade deficit as evidence that the yuan is drastically under-valued.
The U.S. Senate approved a controversial bill on Tuesday aimed at forcing Beijing to push the yuan higher against the dollar, which supporters argue would reduce a U.S. trade deficit with China of more than $250 billion.
"The shrinking trade surplus and easing imported inflation may reduce some pressure for Beijing to quicken the pace of yuan appreciation," said Du Zhengzheng, an analyst at China Development Bank Securities in Beijing.
"With exports growing at a slower-than-expected pace, I think Beijing could slow the pace of nudging up the yuan in the coming months for fear of hitting its exports too much, especially when the external demand is weakening.
"But the main direction for Beijing's yuan regime reform would not be changed, which is to widen the trading band and guide two-way movements."
In month-on-month terms, China's exports rose in September after calendar adjustment by 1.6 percent, versus a decline of 3.3 percent in August and a rise of 5.4 percent in July.
China's overall balance of trade with the United States, however, remained unchanged in September from August; in both months China recorded a $20.0 billion surplus.
China's trade surplus with the European Union was $12.9 billion in September, down from $14.8 billion in August.
Although the fate of the U.S. currency bill is uncertain, it has drawn sharp rebukes from Beijing. The central bank argued that a stronger yuan would not on its own reduce the bilateral trade imbalance nor save American jobs.
"We should say that the narrowing trade surplus will reduce the risks for a possible world trade war, although the passage of the currency bill in Washington may actually blur the outlook for China's exports," said Zhang Zhiwei, an economist with Nomura Securities in Hong Kong.

-Looking to Save Money, More Places Decide to Stop Fluoridating the Water

By LIZETTE ALVAREZ - MIAMI — A growing number of communities are choosing to stop adding fluoride to their water systems, even though the federal government and federal health officials maintain their full support for a measure they say provides a 25 percent reduction in tooth decaynationwide.
Last week, Pinellas County, on Florida’s west coast, voted to stop adding fluoride to its public water supply after starting the program seven years ago. The county joins about 200 jurisdictions from Georgia to Alaska that have chosen to end the practice in the last four years, motivated both by tight budgets and by skepticism about its benefits.
Eleven small cities or towns have opted out of fluoridating their water this year, including Fairbanks, Alaska, which acted after much deliberation and a comprehensive evaluation by a panel of scientists, doctors and dentists. The panel concluded that in Fairbanks, which has relatively high concentrations of naturally occurring fluoride, the extra dose no longer provided the help it once did and may, in fact, be harmful.
It is a view that also was shared by four out of seven commissioners in Pinellas County who first raised the proposal as a cost cutting measure.
“I’m in opposition to putting a medical treatment into the public drinking water supply without a vote of the people who drink that water,” said Norm Roche, a newly elected Republican county commissioner who spent 10 years doing policy research for the county Water Department and who led the turnaround effort. “We had a dozen to 15 doctors, dentists, dental hygienists and chemists here who want us to continue this practice but who could not agree themselves on how best to use fluoride.”
Some 700,000 people — 75 percent of the county — will be affected by the vote. The rest receive water from a different source.
But the United States Public Health Service and the Centers for Disease Control and Prevention say that the communities that stop adding fluoride to the water supply are misguided. The government continues to recommend the practice, which began in the 1940s and has had its share of recent successes, including San Diego’s move to fluoridate water this year after a long delay. Some 72 percent of the population in the country drinks water with added fluoride.
Keeping fluoride in water is especially important today because many people cannot afforddental care, public officials say.
“We have had big wins and significant losses,” Dr. William Bailey, chief dental officer for the Public Health Service and acting director for the Centers for Disease Control and Prevention’s division of oral health, said about the skirmishes over fluoridation. “Fluoridation helps people of all ages and income groups. And it helps people who can’t get in to receive care.”
The movement to stop fluoridating water has gained traction, in large part, because the government has recently cautioned the public about excessive fluoride. A report released late last year by the Centers for Disease Control and Prevention linked fluoride to an increase among children in dental fluorosis, which causes white or yellow spots on teeth. About 40 percent of children ages 12 to 15 had dental fluorosis, mostly very mild or mild cases, from 1999 to 2004. That percentage was 22.6 in a 1986-87 study.
Fluorosis is mostly a cosmetic problem that can sometimes be bleached away. But critics argue that spotted teeth are a warning that other bones in the body may be absorbing too much fluoride. Excessive fluoride can lead to increases in bone fractures in adults as well as pain and tenderness.
“Teeth are the window to the bones,” said Paul Connett, a retired professor of environmental chemistry and the director of the Fluoride Action Network, which advocates an end to fluoridated water.
Experts say that one possible factor in this increase may be that fluoridated water is consumed in vegetables and fruit, and juice and other beverages as well as tap water. And the consumption of beverages continues to increase.
In January, the federal Department of Health and Human Services recommended reducing the fluoride put into the water supply to 0.7 milligrams per liter of water. The longtime standard had ranged from 0.7 to 1.2 milligrams per liter. At the lowest level, the risk of fluorosis is decreased, the government says.
The government also informed parents of infants who exclusively use infant formula reconstituted with fluoridated water that their children face an increased risk of fluorosis and suggested they use low-fluoride water, like distilled water, some of the time. “It was a trigger,” said Mr. Connett. “People who had heard there is nothing wrong with fluoridation all of the sudden are hearing that kids are getting too much fluoride.”




- Consumer Sentiment Falls, Expectations at 30-Year Low


By: Reuters
U.S. consumer sentiment unexpectedly slumped in early October as worries about declining incomes drove consumer expectations back down to the lowest level in more than 30 years, a survey released Friday showed.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment sagged to 57.5 from 59.4 the month before. It fell short of the median forecast of 60.2 among economists polled by Reuters.
Consumers' outlook also deteriorated with the gauge of consumer expectations falling to its lowest level since May 1980 at 47.0 from 49.4. The index had fallen to this level in early September before being revised up at the end of the month.
The component has shed more than 20 points since the beginning of the year.
"Overall, the data indicate that a recessionary downturn is likely to occur," survey director Richard Curtin said in a statement.
"Even if the economy manages to avoid the formal recession designation by (The National Bureau of Economic Research), real consumer expenditures will not be strong enough to enable the more robust job growth that is needed to offset the negative grip of economic stagnation on consumer behavior."
Thirty-nine percent of consumers cited income declines as the reason why their finances have recently worsened, while 65 percent of all households expected no income increase during the year ahead. Both levels were the highest ever recorded by the survey.
The survey's barometer of current economic conditions dipped to 73.8 from 74.9.
Improvement in inflation expectations was a silver lining, with the one-year inflation expectation easing to 3.2 percent from 3.3 percent. The survey's five-to-10-year inflation outlook fell to 2.7 percent from 2.9 percent.


- JPMorgan Q3 net falls; bank eyes expenses


(Reuters) - JPMorgan Chase & Co's quarterly earnings fell 25 percent, excluding an accounting gain, as European financial turmoil reduced demand for securities underwriting and acquisition advice.
The results are the first for the third quarter from a major U.S. bank and underscore how market turmoil has clobbered underwriting and merger advisory fees. JPMorgan shares closed down 4.8 percent on Thursday, pulling down other big bank stocks and weighing on the wider market.
"There were some very strong headwinds for JPMorgan," said Marshall Front, chairman of Front Barnett Associates LLC.
JPMorgan Chief Executive Jamie Dimon said the company will cut 1,000 jobs in its investment bank over the next 18 months. Banks globally are laying off staff as new regulations squeeze potential profits and as stock and corporate credit markets weaken. But Dimon said JPMorgan's cuts are mainly due to increased use of automation.
The bank did post 1 percent loan growth, which Dimon said was a positive for the economy and showed that the rest of the bank is generally on an even keel compared with the chronically volatile investment banking business. Mid-sized companies and small businesses, in particular, are borrowing more, he said.
The bank's return on equity, a measure of profitability, was 9 percent, close to the 10 percent that some analysts view as a likely long-term average for major banks under new regulations and capital rules.
JPMorgan posted quarterly earnings of $4.3 billion, or $1.02 per share, down from $4.4 billion, or $1.01 per share, in the same quarter last year.
The results were muddied by adjustments for the market value of the bank's debt, which gave it a $1.9 billion pre-tax gain. When the bank's debt weakens relative to U.S. Treasuries, it can record an accounting gain because it could profit from buying back debt.
The bank reported a private equity loss of $347 million on lower market values and appraisals for its investments. A year ago, private equity investments added $344 million to profit.
FALLING FEES
Despite the weak environment in investment banking, JPMorgan bought back $4.4 billion of its stock during the quarter, reducing its diluted outstanding shares by 3 percent.
"We have a tremendous amount of capital," Dimon said in a conference call with reporters.
Said David Dietze, chief investment strategist at Point View Wealth Management in Summit, New Jersey, "They are putting their money where their mouth is.
"(The buyback) shows a degree of confidence. They don't see a cash crunch. The takeaway here is to be more optimistic about regional bank results but not be jumping up and down about the prospects of Morgan Stanley and Goldman Sachs."
Dimon has complained publicly and in private meetings with regulators that capital surcharges for the biggest banks are unfair and will stymie lending and economic growth.
Shares of Bank of America Corp, Citigroup Inc and Morgan Stanley closed down about 5 percent, while Goldman Sachs Group Inc lost almost 3 percent. All are due to report third-quarter results next week.
JPMorgan took a valuation adjustment for its widening bond spreads that amounted to 29 cents a share after taxes in the third quarter. Given the company's share count, that amounts to $1.1 billion. Excluding that from the quarterly earnings, profit declined about 25 percent from a year earlier.
Further complicating the calculation, the bank generated losses from this same item in last year's third quarter.
The third quarter was rough for investment banks, as the U.S. stock market, as measured by the S&P 500 index, dropped 14 percent. Investment-grade corporate bond spreads widened by more than 50 percent, according to Bank of America Merrill Lynch indexes, an eye-popping move.
With markets gyrating that much, many companies are reluctant to acquire rivals or issue securities. JPMorgan said its quarterly fees for underwriting and merger advisory fell 31 percent from a year earlier to $1 billion. Revenue from stock and bond trading was down 14 percent, not counting the accounting gain.
"Obviously, the worse Europe gets, the worse it is for us, but we think it is something we can handle, just like we handled 2008," Dimon said.
In a change from recent quarters, the bank did not significantly draw down its reserves for bad loans. Some analysts wondered if JPMorgan expects a new round of defaults, but Dimon insisted the bank was just "being conservative."
Staffing in the investment bank fell to 26,615 in the third quarter from 27,716 in the second quarter. Dimon said many of the coming job cuts would made through attrition.
Compensation expense in the investment bank was $1.85 billion, an usually low 29 percent of revenue. Dimon told analysts that for the full year, he expects the ratio to be in the bank's usual range of 35 percent to 40 percent.
The bank recorded $1 billion of litigation expense, mainly for mortgage-related items, down from $1.3 billion last year.
The report from JPMorgan comes as the industry struggles to hold onto recent profits after losing tens of billions of dollars in the financial crisis.
Dimon said JPMorgan is examining expenses in light of new regulations threatening its profitability, and it may cut back on plans to add to its 5,300 branches. Some branches may not be viable now that the government has limited how much banks can charge merchants for debit card transactions, he said.
Asked in a conference call with reporters about an Occupy Wall Street march this week to his New York City home, Dimon said, "When people talk about major issues that are important to the country, you should try to listen and not just have a knee-jerk reaction.
"If you tell me that jobs are all critical, I agree. The important part is to get policy right so that we get this country going again."
Shares of JPMorgan have fallen with other bank stocks, losing 25.5 percent of their value this year through Thursday, compared with a 3.8 percent drop in the S&P 500.
(Reporting by David Henry in New York; additional reporting by Clare Baldwin, Lauren Tara LaCapra and Dan Wilchins in New York and Rick Rothacker in Charlotte, N.C.; editing by John Wallace)



- [Europe's lost decade as $7 trillion loan crunch looms
Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.
Angela Merkel and Nicolas Sarkozy have bowed to pressure from Washington and the IMF for bank recapitalization.
->http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8830072/Europes-lost-decade-as-7-trillion-loan-crunch-looms.html]


By Ambrose Evans-Pritchard - The risk is "Japanisation" without the benefits of Japan, without a single government, or a trade super-surplus, or 1pc debt costs, or unique social cohesion.
Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.
Stephen Jen from SLJ Macro Partners says the loan to deposit (LTD) ratio of Europe’s lenders is 1.2, much like Japanese banks in the early 1990s at the onset of the country’s Lost Decade (now two decades).
How Europe allowed this to happen will no doubt be the subject of many enquiries. Suffice to say that it was an intellectual failure by everybody: lenders, economists, regulators and the European Central Bank. The ECB misread the implications of the global capital surplus in the middle of the last decade (like the Fed) and gunned the M3 money supply at double-digit rates (like the Fed).
This great error further juiced the fatal flood of lending from North Europe to Club Med. Interestingly, it is what US lending did to Germany in the late 1920s. When the music stopped -- when Wall Street cut off loans, as Germany has now cut off loans to Spain -- trouble ensured within two years. Weimar limped on, but not for long.
The Japanese eventually trimmed their LTD ratio to the current safe level of 0.7pc, the same as US banks. It is a fair bet that new bank rules and market pressure will force Europe to do likewise. Mr Jen said this means slashing the loan book from $19 trillion to nearer $12 trillion, given the dearth of fresh deposits.
It will be an ice-cold douche for the world. European banks have $3.4 trillion of cross-border loans to emerging markets (BIS data), three-quarters of the total. They account for 46pc in Asia, 63pc in Latin America, and 90pc in Eastern Europe.
Either these banks will cut funding to Eastern Europe, or they will curtail loans at home. Most likely they will do both. Mr Jen said a lot of nasty "feedback loops" will blight the whole European region for a long time.
The sheer scale of Europe’s bank excesses -- roughly equal to Alan Greenspan’s household bubble in America -- shows what EU leaders are up against as they thrash out their latest "Grand Plan" to save Euroland.
Angela Merkel and Nicolas Sarkozy have bowed to pressure from Washington and the International Monetary Fund for bank recapitalizations, by compulsion if necessary. Lenders must raise core Tier I capital ratios to 9pc or 10pc.
This is a wise precaution given that Germany plans to impose a Greek default on Europe’s banking system. But it is also "pro-cyclical". It tightens credit further. Lenders threaten to shrink their loan books to meet the target rather than dilute their share base by raising money in a hostile market.
If governments are forced to step in, it will not be much prettier. The IMF pitches fresh capital needs at €200bn, but what if Credit Suisse is nearer the mark at €400bn? Such sums would push the public debt of several states over the danger line, intensifying the vicious circle as banks and sovereigns drag each other down.
Indeed, it you look at each components of the Grand Plan, every one creates a secondary chain of consequences that may ultimately prove self-defeating. It is why I fear there may be no plausible solution to Europe’s crisis. The structural damage has already gone too far.
We are told the Franco-German plan will offer Greece debt-relief worth having, perhaps a 50pc haircut for banks. Investors are understandably furious. This unpicks the voluntary accord for 21pc haircuts agreed in July. "A deal is a deal," said Charles Dallara from the Institute of International Finance (IIF). Moreover, 50pc is not enough. It creates a banking panic without actually solving Greece’s problem.
A third of Greece’s €364bn debt is owed to the IMF, EU, and ECB. That is deemed untouchable. Angela Merkel has so far managed to deflect popular anger over bail-out loans by insisting that they have not cost German taxpayers one Pfennig.
Stephane Deo from UBS said Greece might have to "repudiate its debt entirely" with a 100pc haircut for banks to give itself enough oxygen to breathe again. This would be an earthquake.
No sane investor believes this will stop with Greece. Portugal is in much the same trouble, despite the heroic austerity drive of premier Pedro Passos Coelho -- a latter day Marques de Pombal. The country’s total debt will top 360pc of GDP next year, and its current deficit is stuck near 10pc of GDP. This mix is worse than in Greece. It is untenable.
We all told too that the EU’s €440bn bail-out fund (EFSF) -- at last approved after high drama in Slovakia -- will be ramped up with "leverage". It is assumed that the German lawmakers will tamely go along with this, a mere three weeks after finance minister Wolfgang Schäuble seemed to promise that no such that leverage would occur.
The proposal du jour is Allianz’s "Achleitner Plan", letting the EFSF guarantee the first tranche of losses on bonds: 40pc for Greece, Portugal, and Ireland; 25pc for Italy and Spain. This would boost coverage to nearly €3 trillion of debt issuance.
This plan is dangerous. It concentrates risk, like a Lloyds spiral syndicate, or the "CDOs" and other instruments of legerdemain in the US subprime bubble. There is a high chance that this bluff would be called if Europe tips into a double-dip recession.
Credit markets have already begun to issue their verdict. Yield spreads on the EFSF’s 10-year bonds have almost doubled over Bunds since July. French spreads jumped last week to a post-EMU record of 92 points. Remember that France’s banking liabilities are 409pc of GDP (ECB data), compared to 338pc for Spain, 331pc for Germany, 250pc for Italy, 213pc for Greece.
Any such leverage must inevitably cost France its `AAA’ rating, with parallel effects in Austria as it struggles with a wave of fresh woes in Hungary, Ukraine, and the Balkans. This sets off its own treacherous dynamic.
Even if the IMF and the China-led `BRICS’ were to step with in half a trillion or so, this would could create a fresh problem. Foreign purchases of EMU bonds would force up the value of the euro. The effect would tighten the trade noose even further on Spain, Italy, and France. Perhaps that is why Brazil’s Guido "currency war" Mantega likes the idea. It is exchange manipulation behind diplomatic cover.
There is much talk of EMU fiscal union, most recently the "Soros Plan". But what Germany means by EU economic government is better policing of Club Med budgets, not debt-pooling or eurobonds. It should be clear after the ruling of the German constitutional court last month and the fiery debates in Bundestag that Berlin will not alienate its sovereign fiscal powers to the EU.
Merkozy’s Grand Plan may buy time. It may shift the stress point from one part of the unworkable structure to another. But it cannot conjure away the 30pc gap in competitiveness between Germany and Latin Europe that has built up over fifteen years. It is this intra-EMU currency misalignment that is asphyxiating Club Med and destroying the banks.
The ECB can of course can save Euroland, if it is willing to launch stimulus a l’outrance with bond purchases near 20pc of GDP -- like the Bank of England. A reflation policy would undoubtedly lift the South off the reefs, perhaps by targeting M3 growth of 5pc in Italy and Spain for three years. It would allow EMU laggards to claw their way to back to viability.
Any such attempt to correct North-South imbalances from both ends requires an inflationary boom in Germany. That is the price that Germany must pay. But as events have made all too clear over recent months, this runs smack into German ideology and the Teutonic granite of the Bundesbank.
So perhaps there is no solution for EMU after all. Kultur is the ultimate economic fundamental.