If Michael Hudson — former Wall Street economist and Research Professor at University of Missouri, Kansas City — is right, we’ve not seen anything yet in the meltdown facing Europe, the euro and the future, your future dear reader.
Wall Street Financial Analyst Michael Hudson offers a troubling view
Hudson suggests its war out there and that Iceland in facing down the threats of the banker’s friends in the British and Dutch governments, may pave the way for Latin American-style debt repudiation across troubled Euroland. The issue essentially lies in the foolhardiness of our governments “taking reckless private sector bank debts onto the public balance sheet”.
The quotes below are from his pre Iceland referendum analysis here.
Also on his website is his post-outcome piece here.
(H/T FTAlphaville blog)
“Nice try! But we’re not falling for it. Your creditor game is over! No nation can be expected to keep committing financial suicide Ireland-style, imposing economic depression and forcing a large portion of the labor force to emigrate, simply to pay bank depositors for the crimes or negligence of bankers.”
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On February 23, Moody’s threatened: “If the agreement is rejected, we would likely downgrade Iceland’s ratings to Ba1 or below.”
Perhaps not many Icelanders realize that credit ratings agencies are, in effect, lobbyists for their clients, the financial sector. One would think that they had utterly lost their reputation for honesty – not to mention competence – by pasting AAA ratings on junk mortgages as prime enablers of the present global financial crash. The explanation is, they did it all for money. They are no more honest than was Arthur Andersen in approving Enron’s junk accounting.
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Argentina’s experience should provide the model for how writing off a significant portion of foreign debt makes the economy more creditworthy, not less. And as far as possible lawsuits are concerned, it is a central assumption of international law that no sovereign country should be forced to commit economic suicide by imposing financial austerity to the point of forcing emigration and demographic shrinkage. Nations are sovereign entities.
PostScriptum: The IMF also has concerns about eurobanks: ”Overall, despite the transfer of risks from the private to the public sector during the crisis, confidence in the banking systems of many advanced economies has not been restored and continues to interact adversely with the sovereign risks in the euro area. Analysis presented in this report suggests that in order to restore market confidence and reduce excessive reliance on central bank funding, considerable further strengthening of euro area bank balance sheets will be needed. This will require higher capital levels, if a detrimental process of deleveraging is to be avoided, and a set of mostly smaller banks will have to be restructured and, where necessary, resolved…”
See French News Online Money
UPDATE: The “Can’t pay, Won’t pay” street chaos spreading across Greece due to punitive IMF/EU imposed austerity, appears set to hit French and German banks.
According to this report Greek leaders are publically talking about “sovereign debt restructuring” as an alternative, but rioters on the streets seem more interested in an Icelandic solution – telling bankers to jump.
If Greece defaulted it could spread by contagion to Portugal and Ireland with a severe impact on German and French banks which would then face significant impairments to their loan book. The Euroland crisis seems about to deteriorate.
