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Posts Tagged ‘bailouts’

People finally starting to notice that German Taxpayers on the hook no matter what

June 7, 2011 4 comments

A few weeks ago I pointed out that German taxpayers are going to pay for a bailout in a post.  Either they pay for Greece and Ireland upfront, or they let Greece leave the Euro and pay for a bailout of their banking system.  There is not a scenario where the German taxpayer does not pay.

Today, John Mauldin has to go to a guy from the UMKC (University of Missouri-Kansas City – this economics school is the leading place for MMT in the country) to get someone to start to say this. Even then, the lede is buried somewhere in a few thousand words.

The German taxpayers will have to pay, period.   They think they can get away from this truth, but it will – it must – happen.

From Michael Hudson via John Mauldin via Pragmatic Capitalism:

“Hudson first lays the European crisis at the feet of banks and the institutions (ECB, IMF, and the EU) that are taking the Greek (and other) bank debt and putting it into public hands. He has a very real point. Then he points out that Greece is far better off just walking away, a la Iceland (at least read the last part of this post, on Iceland). And in polls he cites, 85% of the Greek people are against taking on the debt and paying the banks.

As I wrote last week, there is a revolution going on all over Europe, slowly building up as people realize that the “solution” being offered benefits banks and not German taxpayers or Greek creditors. Ireland will be watching. There is no easy way out. If there is a referendum on this new “troika” proposal, it is likely to lose. This is not over”

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German Taxpayers will pay for Greek and Ireland problems no matter what

May 24, 2011 13 comments

One truth I do not see mentioned in the financial press is the fact that German taxpayers will be paying for a bailout of Greece and Ireland almost no matter what.

Unless the Eurozone follows Warren’s advice, Greece and Ireland will either writedown their debt in a negotiated settlement, or default and force bondholders to take a lesser amount, or the Euro will break up and these countries will default.  In any of these “acceptable” scenarios, the holders of the debt will take losses.  The holders of the debt are German banks, and to some lesser extent U.K. and French banks.

Specifically, the banks holding this debt are German Lundesbanks.  These are state associated, regional banks of Germany. They provide loans to mid-sized German businesses.   These banks are not exactly Fannie and Freddie, but their status could be considered to be similar in that they are closely associated with the government.

In other words, these banks will not be allowed to fail.   These banks will get bailed out.

So Germany has a choice.  They can remain in the Euro, and bailout Greece and Ireland directly.  Or they can let these countries default and the Euro breakup, and bailout their own banks when they become insolvent due to writedowns of Greek and Irish debt.

I would think they would consider the first choice – keeping the Euro going – would be better for them.  Germany can continue to dominate export markets with a dramatically underpriced currency, which is considered to be a good thing.  However, this scenario may result in unacceptable levels of inflation for Germany.

The political situation isn’t clear.  Nobody has explained to the German taxpayer they will be paying no matter what happens, so of course they are balking at paying for bailouts now.

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