Financial Mudslide Goes On

Stock markets fell heavily again Jan. 6 across Europe and the United States, while restoring the Glass-Steagall Act — the one action which can shut down the Wall Street casino before it destroys the economy again — was the subject of widespread debate.

The drops in commodity prices and stock markets were led by the oil price dropping below $34/barrel, an incredible development with extreme religious-war tensions spiking among the major oil producing nations in the Mideast. One major criminal bank, UBS, called for the U.S. Federal Reserve to reverse itself in 2016, return to zero interest rates, and start QE4.

The extraordinary danger of a financial crash is the condition of precisely such megabanks, loaded with bad and delinquent debt. The first impositions of the “bank bail-in” policy, since last month, have led to bailed-in banks immediately having their credit ratings downgraded and bank stocks falling across the board.

A Financial Times piece of Jan. 4, based on an interview with the new European Commission bank bail-in czar, Elke Koenig, made clear that her office has become an arbitrary tyranny over Europe’s banks and savers, but one which is out to protect the giant London-centered banks from the bail-in regime. A former UniCredit chief tells the FT, “For the big banks this change should be like the atomic bomb; they know it’s there, but it will never be used.” The paper reports finding widespread skepticism that “bail-in” will be used against megabanks even if they face insolvency; rather, the EU “resolution fund” will be used to bail them out.

But the small and medium-sized banks loaded down with delinquent real estate debt are Ms. Koenig’s targets. The suicide of at least one among many thousands of expropriated bank bondholders in Italy does not move her; it “should not be seen as undermining the case for creditor bail-ins,” she said, even though she acknowledges that those savers were “mis-sold” bank bonds (i.e., by fraud and deception). “We all know that especially in Italy, but also in some other countries, you have a lot of retail investors [in bank bonds],” Ms. Koenig allows. “I feel sorry for each and every one who loses money. But at the same time an investor also has his own responsibility, and we should have learned to make sure that mis-selling … is addressed.”

Ms. Koenig is in the inner circle of fascist German Finance Minister Wolfgang Schaeuble. Her Single Bank Resolution Authority now has just what it sounds like: sole authority, free of any set rules, to order bail-in — or no bail-in — for each bank in all of Europe. And power that will be thrown against any national effort in Europe to legislate Glass-Steagall bank reorganization.