Jump to content
House Price Crash Forum
Sign in to follow this  
cashinmattress

Eu Orders Germany To Start Onboarding "bad Debt" To Sovereign Balance Sheet

Recommended Posts

Bad news

In what could be the most important news of the day, German Die Zeit reports that, in a stunning move, the EU has ordered Germany to count the holdings of WestLB and Hypo Real Estate (the latter of which failed the stress farce from last month which nobody cares about or remembers anymore) as government debt!

As Bloomberg notes, "That could raise Germany’s debt to 90 percent of gross domestic product, Die Zeit said." Of course the implications of this decision are massive, as it takes out all the guess work of whether insolvent institutions are or are not on the government's balance sheet.

The net result, for Germany alone, is that just the addition of Hypo's debt would push German debt/GDP from 79% to 90%, both of which are well above the Maastricht limit of 60% (not like anyone cares that is - everyone is now aware the EU is a failed experiment).

The next question: what happens to nationalized RBS and it $168 billion in debt?

Total UK debt is $1.2 trillion meaning a comparable action in the UK would rise UK debt by 15%!

And then there is a whole slew of other banks in the pipeline in Europe that are full of trillions in toxic debt: will the sovereign hosts be able to onboard this debt?

Most importantly, what happens to our administration's adamant claims that Fannie and Freddie's $6+ trillion in debt should not be counted as part of total Federal debt.

America already has its hand full with $13.3 trillion in debt.

What will happen when it moves to $20 trillion (140% of GDP) overnight.

We are confident that unless this decision by the EU's statistics office is overturned, it will likely set off the next leg in the sovereign debt crisis as suddenly European Debt to GDP ratios will increase by about 15-20%.

More from the WSJ:

The bailout of Germany's banking sector may swell the country's public debt rate to 90% of gross domestic product, Die Zeit weekly newspaper reports Wednesday.

The weekly based this estimate on a recent decision by Eurostat requiring Germany to include the balance sheets of public-owned bad banks--set up to help financial institutions offload toxic and non-strategic assets--into its overall debt ratio.

State-owned WestLB AG bank has already offloaded EUR77 billion into such a rescue bank. Going by the Eurostat decision, EUR54 billion of WestLB's toxic assets transferred to the bad bank must be included in Germany's overall debt level.

Finance ministry spokeswoman, Jeanette Schwamberger, said the "winding-down entity of WestLB has already been included in the government's recently published calculations of the debt level."
In July, it forecast Germany's debt level will rise from 73.1% in 2009 to 79% of GDP in 2010, 80% in 2011, to 80.5% respectively in 2012 and 2013 before easing to 80% in 2014.
Die Zeit said that if nationalized mortgage lender Hypo Real Estate is added to the equation, Germany's debt level could widen to 90%.
However, the impact from Hypo Real Estate is yet unclear because a rescue bank hasn't been set up and it's unknown how big the volume will be, according to Schwamberger.
Hypo Real Estate has said it plans to offload EUR210 billion into such a bad bank, but has already added that it might need less fresh capital than previously said. A consolidation of assets might reduce the widening of Germany's debt.
A debt ratio of 90% of GDP would be much higher than the 60% threshold set under the European Union's Maastricht Treaty.

Who have the Germans pissed off so much to get straddled with this one? Are we next?

I think so. RBS, LLoyds, Barclays, HSBC, Rock, etc...

Share this post


Link to post
Share on other sites

Bad news

Who have the Germans pissed off so much to get straddled with this one? Are we next?

I think so. RBS, LLoyds, Barclays, HSBC, Rock, etc...

The article refers to WestLB AG bank as "state owned" and Hypo Real Estate as "nationalised".

As far as I'm aware, only NR has been nationalised in the UK, some of the others have substantial state shareholdings but are not publicly owned (?)

Edit: however the article claims (techically incorrectly, as far as I'm aware) that RBS is nationalised.

Edited by huw

Share this post


Link to post
Share on other sites

Germany said no to a central EU tax saying all taxes should be raised at a country level. This is the EU response.

It must be the Viagra that all Brussels officials and politicians can obtain plus methadone free of charge paid for by the taxpayer.

The Viagra for those who can`t keep up. :D

The methadone to give them the energy. :unsure:

Believe it or not this is true and these people run the lives of 500 million people. :rolleyes:

Share this post


Link to post
Share on other sites

The article refers to WestLB AG bank as "state owned" and Hypo Real Estate as "nationalised".

As far as I'm aware, only NR has been nationalised in the UK, some of the others have substantial state shareholdings but are not publicly owned (?)

Edit: however the article claims (techically incorrectly, as far as I'm aware) that RBS is nationalised.

Technically - 84% or somesuch taxpayer owend but still free to trade and operate on its own with its own listing. A disgusting entity floating around the market like a turd that can't be flushed becuase it is too big.

Share this post


Link to post
Share on other sites

The article refers to WestLB AG bank as "state owned" and Hypo Real Estate as "nationalised".

As far as I'm aware, only NR has been nationalised in the UK, some of the others have substantial state shareholdings but are not publicly owned (?)

Edit: however the article claims (techically incorrectly, as far as I'm aware) that RBS is nationalised.

I am not sure that consolidation rules require 100% ownership. My guess is that RBS's position requires consolidation into the UK's national accounts by most generally accepted accounting rules for privately owned enterprises.

Of course, governments impose much more stringent rules on businesses when it comes to financial reporting than they impose on themselves so the hypocrisy will only be revealed slowly if we remain in stressed conditions for a long period of time.

There will be a lucky escape for governments if economic conditions improve. This is the bet that the assymetrical Keynesians (those who preach big government in recessions and small government in booms) are making in the hope that they can perpetuate the myth that they know what they are doing.

Share this post


Link to post
Share on other sites

Not strictly related, but Denninger had this post on the Chinese government telling banks to shift stuff onto their balance sheets with provision for 150% potential losses:

http://market-ticker.org/archives/2568-Here-It-Comes!-And-No,-It-Is-Not-QE2.html

Maybe the genius of bank book keeping is truly receding. Although that still leaves the problem of the lies told by the Chinese government.

Share this post


Link to post
Share on other sites

I am not sure that consolidation rules require 100% ownership. My guess is that RBS's position requires consolidation into the UK's national accounts by most generally accepted accounting rules for privately owned enterprises.

This suggests that the UK does not even technically have the option to allow RBS to go bankrupt. If true, it's morally-hazardous in the extreme, because it means that a private bank (privately managed and with significant private ownership) is able to issue bonds that are, to all intents and purposes, UK gilts.

My own suspicion is that the German thing comes out of some EZ stability requirement, but I'll reserve judgement on that until more details emerge.

Share this post


Link to post
Share on other sites

Not strictly related, but Denninger had this post on the Chinese government telling banks to shift stuff onto their balance sheets with provision for 150% potential losses:

http://market-ticker...t-Comes!-And-No,-It-Is-Not-QE2.html

Maybe the genius of bank book keeping is truly receding. Although that still leaves the problem of the lies told by the Chinese government.

They think the carpet hides the dirt.

It does.

But people will still trip over it and it will be revealed in all its filth.

Share this post


Link to post
Share on other sites

This suggests that the UK does not even technically have the option to allow RBS to go bankrupt. If true, it's morally-hazardous in the extreme, because it means that a private bank (privately managed and with significant private ownership) is able to issue bonds that are, to all intents and purposes, UK gilts.

Good point. Bloody frightening, but good point.

Share this post


Link to post
Share on other sites

This suggests that the UK does not even technically have the option to allow RBS to go bankrupt. If true, it's morally-hazardous in the extreme, because it means that a private bank (privately managed and with significant private ownership) is able to issue bonds that are, to all intents and purposes, UK gilts.

and remember, gilts are pounds, to all intents and purposes.

Share this post


Link to post
Share on other sites

We need to be careful here because when on-boarding bank debt to public balance sheets the assets are also onboarded. The majority of government debt has no matching assets because the proceeds raised by bond issuance just get spent on stuff like tanks, unemployment benefits and MPs salaries.

That does make bank debt different because its is backed by far more assets that traditional government debt. Obviously on-boarding of bank debt backed by poor performing assets is still a net loss, but its nowhere near as bad as it looks.

Share this post


Link to post
Share on other sites

We need to be careful here because when on-boarding bank debt to public balance sheets the assets are also onboarded. The majority of government debt has no matching assets because the proceeds raised by bond issuance just get spent on stuff like tanks, unemployment benefits and MPs salaries.

That does make bank debt different because its is backed by far more assets that traditional government debt. Obviously on-boarding of bank debt backed by poor performing assets is still a net loss, but its nowhere near as bad as it looks.

The ability to impose taxes and to put people in jail if they refuse to pay is quite a big asset.

Share this post


Link to post
Share on other sites

The ability to impose taxes and to put people in jail if they refuse to pay is quite a big asset.

yet it hasn't prevented a build up of outstanding government debt now has it?

Share this post


Link to post
Share on other sites

yet it hasn't prevented a build up of outstanding government debt now has it?

Not at all.

Government has either underutilised the asset, over spent or a combination of both.

Share this post


Link to post
Share on other sites

I'm guessing this is why the Euro tanked massively (around 2% against the dollar/yen and 1% against Sterling) yesterday despite Bernanke announcing additional QE and the BofE's inflation and growth pronouncements.

People on here who we're trashing Sterling the other day should try to remember that the developed world is in a race to the bottom and that Sterling has already depreciated appreciably.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.