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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: pogohere who wrote (113252)	7/28/2010 1:21:15 PM
From: pogohere	Read Replies (2) \| Respond to of 116555

Stress Tests in the EU: The Triumph of the Financial World's Lobbyists The European stress tests failed to reveal much about the true state of the banks scrutinized. In order to prevent future crises, politicians in the EU are pushing for tough new financial sector regulations. But the financial lobby is extremely powerful. Europe's banks -- or at least most of them -- have passed a test that they more or less wrote themselves. A total of 91 banks were checked out. Of these, seven were singled out for being undercapitalized, including five Spanish savings banks, a Greek bank and Germany's Hypo Real Estate (HRE), the Munich-based bank that was bailed out by the German government in the financial crisis and remains on life-support. Does this mean that the rest of the banks are in good shape and that the crisis is over? Will the European authorities in charge of setting economic and financial policies be able to head off future financial crises? Have they at least figured out whether all the hundreds of billions of euros in taxpayer money that they shelled out to stop speculators wrecking entire economies was soundly invested? Have the executives of financial institutions gotten any more cautious? Has the infamous "systemic risk" now become controllable? No one can really answer any of these questions because the stress tests didn't measure such things. In fact, the test's hurdles were set so low that Wolfgang Gerke, a banking specialist at the state-government sponsored Bavarian Financial Center in Munich, quipped that it was more like "giving tranquillizer pills to the market." When the Unthinkable Becomes Thinkable As things currently stand, Greece, Ireland, Portugal and several other countries are so deeply indebted that it is difficult to even imagine how they could ever emerge from their debt spiral. The more public revenues they are forced to divert to paying off the interest on their loans, the less they have to pay for schools, streets, soldiers and social services - which in turn forces them to take on more debt. It is no longer unthinkable that an EU member state might go bankrupt. . . . Likewise, even without the crisis, Europe's banks will have to restructure €3.3 trillion in debt in the coming years. This is a massive and risky task - and one for which there are no better rules and no more effective controls than existed before the crisis. . . . During the critical days of the crisis when Europe was teetering on the precipice, heroic deeds were promised. But, now, powerful lobbyists are trying to block everything. A whole army of lawyers and PR professionals has thrown itself into the political fray on behalf of the gamblers and speculators. They besiege parliamentarians and officials in Berlin and Paris and the EU's headquarters in Brussels. In fact, things have gotten so bad that 22 parliamentarians of various political stripes -- who are among the preferred targets of the financial lobby because they belong to the European Parliament's economic and monetary affairs committee -- recently asked for help. In June, they published a warning that "the asymmetry between the power of this lobbying activity and the lack of counter-expertise poses a danger to democracy." . . . Just how necessary this is can been seen by looking at the backgrounds of the people appointed to the "Expert Group on Banking," which was recently formed to advise the European Commission's directorate general in charge of EU policy related to the financial services sector. When the group held its first meeting, on June 14, only four of its 40 members did not hail from the world of banking and financial markets. spiegel.de