There is a ripe whiff of discontent in the air these days as educated highly compensated professionals, unaccustomed to rummaging in trash dumps for their next meals are taking to the streets and crashing the financial gates. First there were protests at Country wide, then Bear Stearns had it’s granite lobby soiled by outraged investors and now inflamed and emboldened shareholders have stormed the gates of IKB. The bank has been mortally wounded by the collapse of the subprime mortgage market and shareholders have lost 70% of their value in six months. Pleading his case
Supervisory board president Ulrich Hartmann told the assembly that the board had no way of heading off the catastrophe that almost pushed IKB into bankruptcy.”The crisis broke without warning,”
The risk of blatantly lying to recently fleeced shareholders, themselves facing unrestrained inflation because their central bank cut rates into the teeth of a commodities bubble to protect a criminal, irresponsible bank is that it can set the torch of rebellion ablaze.
European Central Bank president Jean-Claude Trichet reminded European Union lawmakers in Brussels that central bankers had issued several public warnings a year before the crisis broke that financial markets were underestimating risks. “I remember myself saying that we have to be prepared — and the message was for the private sector in particular of course — for a market correction,” Trichet said.
“That was visible in the level of spreads, in the level of risk premia in the level of volatility that was observed in a large number of markets,” he pointed out.
With most of its directors gone and IKB barely hanging on the counter parties smell a way to relieve themselves of guarantees and are turning their backs and walking away. Just like dropping so much dead weight.
FGIC Corp. said it’s walking away from an agreement to provide $1.9 billion in guarantees on mortgage-linked securities because Credit Agricole SA and IKB Deutsche Industriebank didn’t live up to their side of the deal.
Some are already critizing the bond insurers for abandoning IKB, but they were not the first.
“These guys should have a new motto: Heads we win, tails we rescind,” said Julian Mann, the vice president for fixed income at First Pacific Advisors LLC, which manages $3.4 billion of bonds.
Those now departed directors must have lined their pockets in the subprime prime times only to abandon the sinking ship once SIVs began leaking. So the directors and bond insurers keep their cash and the shareholders keep the shaft. Revolutions can be caused by that.
One Response to “Enemy at the Gate”
This is not a mortgage crisis per se. We have to ask what is causing folks to decline to pay their mortgages. Following in the wake of institutionalized neoliberal economic policy enforcement at home and abroad, translating to reduced pay and benefits, rising inflation and energy prices, the result of the American PNAC junta’s sadistic foreign policies, have driven up the price of foreign goods and oil to the extent that those with the greatest propensity to spend now have that much less to spend and are defaulting on some of their loans.
To remedy this will take time but we must start by getting disposable income to those with the greatest propensity to spend. There are two ways to do this. One, increase credit flows, which is now counterintuitive being that the banks are witnessing widespread defaults. Two increase the income of those with the greatest propensity to spend, the working poor and middle class, another counterintuitive measure during an economic downturn.
A loophole exists with the latter, though. Abolishing the unConstitutional Federal Income tax will immediately put money in the pockets of those who will immediately spend it.
Offset the revenue deficit by admitting defeat, closing down military bases abroad, withdrawing troops, downsizing government, and returning predominant power to the individual states.
Do this or face economic collapse.
By George Hayduke on Mar 28, 2008