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The Next Big Taxpayer Bailout? IMF Could Get Hundreds of Billions for European Banks
The bailout of private banks and financial institutions has become a touchy political issue in the United States, ever since President Bush's Treasury Secretary and former Goldman Sachs CEO Hank Paulson asked Congress for a $700 billion dollar blank check last September.
Now the Obama administration is asking the Congress for $108 billion for the International Monetary Fund. This was in accordance with a plan that the administration has helped organize to raise $500 billion in additional funds for the IMF. This would add to the approximately $200 billion that the IMF has on hand, $100 billion in gold reserves, and another $250 billion that the Fund will create in its own currency. These are enormous sums of money that the IMF has never come close to before.
What is all this money for? There is an answer staring us in the face from the financial press: European banks.
It seems that Europe's banks have gotten into a mess in their own neighborhood that is comparable to the "troubled assets" that our financial institutions accumulated in the course of the housing bubble - which they also shared. These banks had a fit of irrational exuberance in Central and Eastern Europe in recent years, with the result that they now have at least $1.4 trillion - and that is a conservative estimate - in exposure there to loans that are certain to have a very high default rate.
Most of the Central and Eastern European economies are in free fall right now. To make matters much worse, much of their borrowing from European banks was in foreign currency. This extended even to households: e.g. over 60% of Hungary's mortgages are in foreign currency. When these currencies fall, as some already have, many of the borrowers - both businesses and households - are faced with unpayable debt burdens. Others, such as Latvia, are teetering on the brink of devaluation, which could set off a chain reaction in other countries, as well as mass insolvencies.
The exposure of European banks to the region is astoundingly large relative to their economies. Austria is off the charts with about 64 percent of GDP lent in Eastern Europe; Belgium and Sweden both have more than 20 percent, and Switzerland and the Netherlands are in double digits.
This is where the IMF comes in. In the United States, we have not only the $700 billion TARP bailout, but more than three times that amount, which has been dispensed by the Federal Reserve. The Fed has been used because it is non-transparent and unaccountable to Congress - unlike for the TARP, where Congress attached some rules for accountability, the taxpayers do not even know who has received the more than $2 trillion on the Fed's balance sheet.
For various reasons, the European Central Bank is not going to play the role that the Fed has played here. (The Fed itself has recently been hit by strong demands for more transparency, with 186 Members of Congress sponsoring a bill that would require it to be audited by the Government Accountability Office). The European banks are therefore counting on the IMF to help save them from the costs of their bad decisions.
The Obama administration has argued that the money is necessary to help provide a global stimulus, and to help poor people in poor countries. But the facts do not support this claim. Almost all of the agreements that the IMF has concluded since the global economic crisis began have included the opposite of stimulus programs: for example spending cuts or interest rate increases. The amount of money that will help poor countries is tiny. And it is difficult to see why the IMF would need hundreds of billions of dollars to help governments with balance of payments support: for sixteen Standby Arrangements negotiated since the crisis intensified last year, the total has been less than $46 billion.
On the other hand, European banks are facing potential losses in the hundreds of billions of dollars. Some, like France's Societe Generale, have already gotten billions of dollars from the TARP bailout. If the purpose of adding these vast sums to the IMF's coffers is to bail out these banks, then the taxpayers of the United States (and other countries who are being asked to contribute) ought to know about it.
7 Comments so far
Show AllSioux Rose
And in spite of this wreckage, the use of a PHONY concept of a "product" (derivative) sold 'round the world to absolutely devastating results, STILL there is no meaningful regulation put back in place to plug this dam! Now the banksters will go on to play their self-created lotto (with the public's funds) by betting on carbon futures and whatever other exotic NON-products they treat as the genuine article, so long as hard working citizens, rather than their corporate members, get stuck with the red ink and must pay the piper with REAL assets, the lifelong fruits of their labors. If this isn't grounds for a beginning GLOBAL revolution of workers against their corporate pharaoh overseers, I know not what is or shall be. And there could be empathy with American workers as citizens of other lands learn that so many have been put out of their homes by this banker-parasite-caste, their children courted for wars, and their access to basic health care denied. America is a travesty of its proclaimed self regardless of the most expensive PR campaigns in the history of the planet.
Latin America must be breathing a sigh of relief that they made the right decision to send the IMF packing:
http://www.brettonwoodsproject.org/art-507679
Europe may want to follow LA's advice and do the same before it's too late.
Sioux Rose, one of the great well informed idealists to post on this site, is hoping for a global revolution of workers against their corporate pharaoh overseers based on empathy of American workers with the workers of other lands. I WISH such an outcome was possible, but I don't hold out much hope. Those in power have long been skilled at playing workers off against one another. The Jim Crow racism of the southern U.S. was kept in place by instilling the fear in the poorer whites that black people would supplant them. The same fear is used to scare people about hispanics coming across the current southern border. People I know in Arizona constantly carp about "Mexicans coming here illegally and taking jobs away from real Americans." The fact that in construction work one can't find caucasians who are willing (not to mention able) to do that kind of hard physical labor -- I've asked construction foremen about this.
Most Americans who are working class don't think of themselves that way. They think they're somehow on the way to becoming rich themselves.
The same story plays out again and again, and it will take a Gandhi-like charismatic leader to get working people to see how all throwing in together would be to their advantage. It would be wonderful if the workers of the world would unite, but I only see progressives hoping.
But I do hope the progressives keep hoping (as in "don't listen to me"), and that someone becomes the "great communicator" of the left -- Obama was just pretending, packaging himself to get elected. Much as I relate to Bob Dylan's immortal line "don't follow leaders, watch the parking meters," I think only a great charismatic leader who truly, passionately believed in the stuff Barak Obama said while trying to become president and was, like Martin Luther King, willing to lay his life on the line to get us there.
Sioux Rose
PARANOID: I am fully aware of the mechanisms by which the elites manipulate facts (and the US MSM) to get workers to fight each other over crumbs, BUT... it's becoming clear in a great many places that leaders are buying weapons rather than invest in the types of infra-structure that will guarantee to "the least of these" a decent life. The Internet makes possible a knowledge of events on a global scale that was never before the case. The choice in a continued rabid use of fossil fuels as global warming events escalate will also have an impact on workers around the world, as will the reduction of the value of their currency. So the combination of: Internet, global trafficking in arms WHILE a serious recession has only just begun, added to climate change, and nothing done to really benefit the average person's life (the leaders for the most part just carry out the old agenda, one that was somewhat fitting to a previous paradigm) will operate together to force old chains to burst. Indigenous movements, groups trying to protect water from becoming privatized, internatiional delegations for peace are just some of the groups about to come together. I think this explains the real reason why there is so much energy streaming towards the ruse of terrorism. It's the way to make the surveillance of citizens (seeking to detect any who are positioned to upset the status quo, any with sufficient charisma to cause a movement to form) palatable.
In ancient times the kings often consulted with astrologers. It's my view that some world leaders recognize what the astro-logos portends and are doing what they can to "arm" against it; but the wheel of time turns and when a great cycle comes to a close, human beings that seek to sustain what was are the ones at the greatest loss regardless of the powers at their disposal. These pale in comparison with the greater tides of destiny.
One final point: I don't think this movement involves ONE leader, rather, it's more of an organic uprising based on a kind of "200th monkey" event that reverberates. Call me a romantic, but the scene in Cecil B. Demille's take on Moses, and "The Ten Commandments" when the slaves finally rise up together (okay, Moses was THE leader then), illustrates that critical mass moment when things have gone too far. I wonder how much television and anti-depressants have blurred the cognition of that very thing in America? Still, when those who have become accustomed to a style of life see it stolen brick by brick, and this happens to enough of them (us), the energy is not unlike the human equivalent of an earthquake reverberating. (P.S. I can't live without my idealism, but it's more in the Spirit of Truth, decency, and justice than in persons, per se.)
If we live till the end of the year 2020, I think some kind of global constitution will be drawn up, and I would not rule out an international governing body that has a really diverse group of citizens at its helm. The era of rule by wealthy white male is coming to an end. (And counterfeits like Condi Rice & Obama don't count as "change" the cosmos believes in, either.)
At least the Obama daughters got to do some private shopping in a toy store in Paris as well as getting some high class clothing at Bonpoint the other day. And that makes it all worthwhile doesn't it?
Meanwhile, in the real world.....
Krugman warned about this months ago, the global crisis would worsen if Eastern Europe, which is built on air and speculation, is to be allowed to collapse like the Asian "Tigers" did back in the 1990s.
So it makes sense that someone would take steps to cushion the blow. The populist bitching amounts to "why are they getting a bail out while I'm losing my Amerikkkian dream?"
Why? Because if the global economy tanks again, we will be screwed for another 3 years, were as if Average Joe goes bankrupt the only ones suffering are Average Joe and his family, which is regrettable but not insurmountable or cataclysmic.