Belgium Dexia Bailout May Be Illegal

[interestrateripoff]

http://www.zerohedge.com/news/ecb-tells-belgium-not-backstop-dexia-interbank-deposits-says-bailout-plan-may-be-against-euro-c

If anyone is surprised that things in Europe will get massively surreal before this is all over, we suggest finding another thread. In the meantime, for the latest example of the utter chaos and "make it up as we go along" we go to the ECB which has just, in very polite terms, warned Belgium that its bailout-cum-nationalization plan may not be quite feasible. From Bloomberg: "The European Central Bank advised Belgium not to backstop Dexia SA’s interbank deposits and to avoid providing guarantees on debt maturing within three months because it risks interfering with the central bank’s monetary policy." Reading between the lines here, it means that the ECB is effectively telling national governments to not try and become their own central banks under the ECB's umbrella, which would likely result in not only in various sovereign downgrades (that is guaranteed) but in loss of conviction in the European Central Bank, something which the insolvent European continent and the insolvent hedge fund in its core, aka Jean-Claude Trichet Capital et Cie. which holds hundreds of billions of Greek bonds at par, can certainly not avoid. It gets better: "The ECB also said the planned debt guarantees for Dexia may last as long as 20 years, which is inconsistent with European Union guidelines for national support measures to be temporary in nature, according to a statement published on the Frankfurt- based central bank’s website and dated Oct. 13. Belgium sought the ECB’s opinion on draft legislation that would grant state guarantees on Dexia loans." Oops: the ECB may have just scuttled the currently envisioned Dexia bailout plan. Oh well, just like with the Greek 50% bond haircut, so here to it is now back to the drawing board.

Looks like the bailout either needs a blind eye or the rules to be temporarily rewritten. I mean 20 years isn't permanent is it? There's an end date to the support and when we get near the 20 year limit the support can be extended a bit further seeing as we are going zombie.

[betterToDo]

I don't know whether to read this sort of stuff with lascivious delight, or abject terror. Either way, we live in interesting times.

[Redcellar]

http://www.zerohedge.com/news/ecb-tells-belgium-not-backstop-dexia-interbank-deposits-says-bailout-plan-may-be-against-euro-c

Looks like the bailout either needs a blind eye or the rules to be temporarily rewritten. I mean 20 years isn't permanent is it? There's an end date to the support and when we get near the 20 year limit the support can be extended a bit further seeing as we are going zombie.

Bending the rules will also have significant negative impact. For each action there is an equal and opposite reaction.

[Tricksy]

Just remember that ZH confidently predicts financial armageddon hourly on a rolling 24hr cycle. Plays well to the clueless cassandra contingent here and elsewhere, but shouldn't be confused with anything insightful or analytical.....

[Sledgehead]

Looks like the bailout either needs a blind eye or the rules to be temporarily rewritten. I mean 20 years isn't permanent is it? There's an end date to the support and when we get near the 20 year limit the support can be extended a bit further seeing as we are going zombie.

Gordon did the same thing with the Lloyds TSB / HBOS merger. Kind of appropriate.

'Course, having stumped up good cash to buy a bust bank, with the sole consolation of achieving the near monopoly they'd hankered after for years, Lloyds shareholders have now been told it was all a mistake and they must relinquish much of HBOS - at a knock down price! Somebody, directors at the time / Gordon / his government should quite obviously be facing bankrupcy from a massive class action.

At least the Belgian taxpayers are being told before they lay down their readdies.

[wonderpup]

Just remember that ZH confidently predicts financial armageddon hourly on a rolling 24hr cycle. Plays well to the clueless cassandra contingent here and elsewhere, but shouldn't be confused with anything insightful or analytical.....

Armageddon is so 2008, don't you think? Apocalypse is where it's at in today's modern economic meltdown scenario.

To me the real problem is boiling frog syndrome- so much of current reality today would look astounding to a time traveller from 2005, it's hard to maintain perspective.

And if there is a failure of critical analysis I would suggest it's amongst the people in charge- even as we speak they are about to launch trillions more debt in attempt to keep the world economy afloat. Just what we need, more debt.

[bmf]

http://www.zerohedge.com/news/ecb-tells-belgium-not-backstop-dexia-interbank-deposits-says-bailout-plan-may-be-against-euro-c

Looks like the bailout either needs a blind eye or the rules to be temporarily rewritten. I mean 20 years isn't permanent is it? There's an end date to the support and when we get near the 20 year limit the support can be extended a bit further seeing as we are going zombie.

Laws are created by people. As Napoleon said "A throne is just a bench covered in velvet".

[Tiger Woods?]

Armageddon is so 2008, don't you think? Apocalypse is where it's at in today's modern economic meltdown scenario.

To me the real problem is boiling frog syndrome- so much of current reality today would look astounding to a time traveller from 2005, it's hard to maintain perspective.

And if there is a failure of critical analysis I would suggest it's amongst the people in charge- even as we speak they are about to launch trillions more debt in attempt to keep the world economy afloat. Just what we need, more debt.

Yes. We have very quickly, in a period of 4 years, come from a world that was absolutely shocked by 50 billion dollar bailouts, to one that barely bats an eyelid when 2 trillion is bandied about.

Remember the financial armageddon that was Long Term Capital Management? That required a bailout of 3.625 billion, and the total losses at the end of the fiasco were less than 5 billion. Remember how big that news was?

You'd have to be an incredibly unimaginative plonker to not see that this cannot end well.

[interestrateripoff]

Just remember that ZH confidently predicts financial armageddon hourly on a rolling 24hr cycle. Plays well to the clueless cassandra contingent here and elsewhere, but shouldn't be confused with anything insightful or analytical.....

So your saying at some point they will be proved correct?

[fluffy666]

Yes. We have very quickly, in a period of 4 years, come from a world that was absolutely shocked by 50 billion dollar bailouts, to one that barely bats an eyelid when 2 trillion is bandied about.

Remember the financial armageddon that was Long Term Capital Management? That required a bailout of 3.625 billion, and the total losses at the end of the fiasco were less than 5 billion. Remember how big that news was?

You'd have to be an incredibly unimaginative plonker to not see that this cannot end well.

Wasn't Barings about £700 million? That'd be noise nowadays..

[interestrateripoff]

Wasn't Barings about £700 million? That'd be noise nowadays..

http://en.wikipedia.org/wiki/Nick_Leeson

Wiki gives losses at £827m, pocket change compared to today's banker losses. It's like whole banks have dozens of Nick Leesons working together.

[interestrateripoff]

http://www.theguardian.com/business/2013/aug/07/dexia-bank-loses-another-905-million

Nationalised Franco-Belgian bank Dexia, which was one of the biggest casualties of the financial crisis, lost another €905m (£777m) in the first half of 2013, although a fall in funding costs helped it do slightly better than in the same period a year ago.

Dexia, once the world's largest municipal lender, fell victim to the 2008 credit crunch, which deprived it of access to short-term money it relied upon to fund largely long-term loans. It had to be bailed out three times.

Its results matter because France, Belgium and, to a lesser extent, Luxembourg are guaranteeing its borrowings by up to €85bn and are threatened with losses that could derail their efforts to rein in their budget deficits.

The bank, about 95% owned by the French and Belgian governments, had made a €1.17bn net loss a year ago.

A name that just keeps cropping up and losing money.

[interestrateripoff]

I Thought Dexia Was Already Saved

Dexia Bailout 100% Payout To Giant Squid And Morgan Stanley

Dexia Nationalization Imminent?

Belgian Bank Dexia Was Biggest Borrower From Federal Reserve Discount Window

Maybe one of the mods could put all these threads together?

[fluffy666]

Yes. We have very quickly, in a period of 4 years, come from a world that was absolutely shocked by 50 billion dollar bailouts, to one that barely bats an eyelid when 2 trillion is bandied about.

Remember the financial armageddon that was Long Term Capital Management? That required a bailout of 3.625 billion, and the total losses at the end of the fiasco were less than 5 billion. Remember how big that news was?

You'd have to be an incredibly unimaginative plonker to not see that this cannot end well.

My impression (which may or may not have anything to do with reality) is that we have 2 worlds now..

- The 'real world' where money is earned and spent on tangible objects, and

- the 'financial world' of credit and assets, where real world connections are minimal.

These world may use the same units of currency.. but otherwise they don't have a lot of connection. The fact that mortgages have very low interest pates and savings return f-all means that there is only a loose connection. Hence the 'financial world' can lose all touch with reality. Blow a wild house price bubble? Stack up a few trillion in derivatives? Detach the price of major commodities from anything to do with physical supply and demand? All just numbers on a computer.

Now.. if you reconnect these worlds (for example, put interest rates up to 5% or more) then that means that either the 'financial world' would have to deflate to match the 'real world' - thus bankrupting pretty much every financial institution on the planet - or the 'real world' prices would have to jump to match up with 'financial world' prices - i.e. wage price inflation of several hundred percent.

Neither is particularly welcome to TPTB, I suspect. It's interesting that those who are closest to the 'financial world' not only pay themselves at 'financial world' rates but probably don't see it as excessive..

Current policy is making this situation progressively worse as well. Austerity is causing wage deflation, consequently stopping the 'real world' catching up with the 'financial world', and at the same time ultra-low interest rates are allowing the 'financial world' to balloon ever further away.

As far as Dexia and other bailouts go..the 'financial world' can only exist by virtue of entities borrowing money off of each other, with a starting capital based in the 'real world'. If entities in the 'financial world' are not bailed out, then I suspect that there is a reasonable chance that the resultant cascade of loans being called in could deflate the whole sector.. and in the process wipe out the entire 'real' capital base of the western world. Which is probably why TPTB are keen to keep bailouts going.

Sounds plausible enough. Reality may differ, of course.

[koala_bear]

http://www.theguardi...her-905-million

A name that just keeps cropping up and losing money.

+1, of course this is nothing to do with it being the biggest lender to French local (regional/departmental) governments that over borrowed.

Also diversified into greek / spanish local government lending .

If Dexia were to go under there would be no one to lend to to french local government and france would get messy very quickly.