Author : John E. Charalambakis
Date : May 19, 2011
On June 1, the French-German channel called Arte will broadcast a controversial documentary titled “The Octagon System”. The website www.Rue89.com claims that the producer started the project in 2007, but then the channel backtracked, due to its controversial topic, with the result being that the original showing scheduled for 2008 never took place. According to the producer-director the current governing German party CDU took advantage of the treasures that the Nazis had confiscated in order to build up itself into a powerful governing machine.
According to the producer-director, the CDU immediately after the war used a simple but also sophisticated system of money laundering, and the front was a company called Octagon. You’ll have to judge for yourself the validity of this commentary, but it should prove to be an interesting flick nonetheless, assuming it ultimately airs.
Let’s fast forward to nowadays and we see four events unfolding down the Deutsche Lane. First, it is the CDU of Chancellor Angela Markel that wants to keep a hard line regarding the Eurozone crisis. Second, Deutsche Borse is the main contender to the buyout of NYSE. Third, Mr. Dominique Strauss-Kahn resigned as the head of the IMF today and Mr. Axel Weber, the current head of Bundesbank – who recently resigned and also refused to be nominated for the presidency of the European Central Bank (ECB) – may end up heading the IMF. Fourth, the postman may be getting ready to ring the bell for some German banks regarding their capital positions.
The new European bank stress tests are expected during the summer months. Last year’s tests have lost their credibility due to their inadequacies (some of which we also pointed out in a commentary last year). A day of dire warnings may be approaching (first postman’s ring) for some German banks. What constitutes capital and how much of that should be set aside as reserve may emerge as the hot topic for the tests. The survival of the banks may come out as the focus point, given that dozens of them hold the bonds of peripheral EU countries, and most importantly the bonds (paper “asset”) issued by banks in those countries. The trading of paper “assets” that took place in discounted forms and made banks, institutions, and portfolios drunk due to exorbitant returns, will require a catharsis. The IMF estimates that within the next two-three years this kind of debt, which needs to repaid, is in the amount close to four trillion dollars. If the appetite for recycling it is low, then the newly established European Banking Authority (EBA) will be forced to institutionalize strict regulatory rules regarding banks’ own capital reserves.
In that case the attention will be on the Landesbanken – the local county banks – which mostly belong to local counties. If they need to raise substantial amounts and/or forced to be shut down, then the costs will fall on the local taxpayers who are already upset with the German contributions to the EU bailouts. These dark clouds in the midst of the Eurozone crisis will only exacerbate the uncertainty and the political instability because if the Landensbanken are affected, then the smaller German savings institutions known as Sparkassen will also be affected, and thus the debt repayment issues will take another turn for the worse.
There is no redemption without repentance, and as economic history has shown there cannot be a New Day without financial catharsis.
Ode to catharsis then!