International Monetary Research says "Eurozone Break-Up Certain"; I say Embrace the Fact "Banks Cannot Be Saved"
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Echoing what I have been saying for years, Christine Lagarde, the new head of the IMF says "Banks Need Urgent Recapitalisation". Unfortunately, much of the rest of what she says is pure nonsense, including the way she wants to achieve that mission.
Please consider European banks set cash test by IMF chief
Christine Lagarde, the IMF’s new chief, set off tremors at the Jackson Hole summit over the weekend with warnings that the global financial system is on very thin ice and vulnerable to the slightest shock.Embrace the Fact "Banks Cannot Be Saved"
“We are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed, so we must act now,” she said.
“Banks need urgent recapitalisation. If it is not addressed we could easily see the further spread of economic weakness to core countries, even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalisation,” she said.
Mrs Lagarde issued a thinly-veiled attack on the ECB’s rate rises and Europe’s fiscal austerity drive. “Monetary policy should remain highly accommodative, as the risk of recession outweighs the risk of inflation. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery,” she said.
Tim Congdon from International Monetary Research said it is folly to force Europe’s banks to raise money too quickly or crystallize losses abruptly. This will cause a monetary implosion and a repeat of the 2008 disaster.
He said the ECB’s restrictive policies over the last 18 months and the lack of EMU fiscal union have doomed the euro to certain break-up.
“It cannot be saved. Banks will suffer large losses,” he said.
This mess cannot be saved. Tim Condgon bemoans the fact. I say, embrace the fact!
Tim Congdon wants to kick the can down the road. Christine Lagarde is clearly angling for more taxpayer bailouts.
Just what the hell does it take for people to realize that throwing more money down the drain cannot solve a damn thing?
Banks are going to take losses. That means bondholders are going to take losses. It is nonsensical to assume anything but that. It is equally nonsensical to suggest there is a way around it. The sooner we embrace the simple facts of the matter, the better off everyone but the bondholders will be.
Attempts to shove more bailouts on the backs of already over-leveraged taxpayers will stunt the recovery for years more to come.
Mike "Mish" Shedlock
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