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Larry Fink Calls for ‘Bailing Out’ European Banks

Posted by Larry Doyle on May 31, 2011 7:43 AM |

Here we go again.

Who is going to pay for the massive embedded losses in the European sovereign credits of Greece, Portugal, and elsewhere? Will it be the bondholders, primarily the European banks, or will it be the European citizens and taxpayers?

While this European “can was kicked down the road” over the last few years, the market pressure is increasing on Greece primarily but other European sovereigns as well. What might happen in this ultimate game of “financial chicken”? Who and what will break first?

Well the “king of Wall Street”, Larry Fink, just stated on a Bloomberg interview that prior to any restructuring of sovereign credits occurring, the European banking system as a whole needs to be recapitalized and restructured. Fink actually stated that the European banks need what we here in America know as TARP (Troubled Asset Recovery Program). The TARP was in actuality nothing more than a massive bailout of the banks by the government.

Let’s navigate as Bloomberg reports, Europe Problems Go ‘Way Beyond’ Greece,

“The European problem is way beyond Greece,” Fink said in the interview in Hong Kong. “Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we’re probably going to have to restructure Ireland and restructure Portugal.”

Inspectors from the EU, International Monetary Fund and European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($157 billion) bailout in coming days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue package.

Many smaller banks in Europe will need to be recapitalized, said Fink. The largest banks on the continent are well capitalized, though devaluation of some of the sovereign credit will put stress on them, he added.

“The banking system in Europe owns all this debt,” Fink said. “If we restructure one country, we’re now basically putting huge capital stress on these banks. Before we restructure any country, we’re going to have to restructure the banking system in Europe.”

Europe is going to need a “giant TARP,” Fink said, referring to the Troubled Asset Relief Program that the U.S. introduced to rescue financial firms. BlackRock advised the Federal Reserve on illiquid debt portfolios during the height of the financial crisis.

Rewind the clock and the calendar. Is it May 2011 or are we back to mid-2008? Just who provided the bailout of the European banks a few years back? Oh yes, that would have been the Federal Reserve Bank of the United States. Are we going right back down that road again? Will the American taxpayer bear a large part of the ultimate burden as the principles of capitalism are abused in an attempt to stop the contagion?

For those who would like to listen to the ‘king of Wall Street’, I am happy to share this 6-minute clip.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

 

  • fred

    I find it interesting that Fink uses the pronoun “we” rather than using, what I would consider, the more appropriate “they” in his Greek “restructuring related” statements.

    Are we looking at another Maiden Lane toxic waste dump on the Feds balance sheet at the expense of a weaker dollar, higher commodity costs and lower savings rates?

    Will a continuation of current bailout policies ultimately lead to the $US losing its status as the global reserve currency or the U.S.A. relinquishing it’s hard fought sovereign right of unfettered self-government to global creditors?

    Time will tell.

    • Greece had 13 off-market derivative contracts with Goldman Sachs. Maybe this is where the ‘We’ comes from, within the global financial village.

      Ultimately the lens of history will focus on Goldman’s advice and actions in regards of Greece, financial engineering, and the break-up of the Euro-zone. Questions will be asked about ‘in who’s interest was the advice and financial engineering?’

      I don’t see answers being kind to Goldman

      Time will tell

      • fred

        Peter,

        I’m not sure I fully agree with your explanations or conclusions. How can you be so certain GS was not acting as “broker”?

        Might the derivatives have been sold to Greece by GS at the request of or “under the watchful eye of”, the ECB, EU and/or IMF to provide the outward appearance that Greece could meet necessary debt limit standards.

        Most derivatives expire. I can’t see how these “Greek” derivatives would not be in the money prior to expiration, providing the necessary default hedge, unless the originator didn’t honor the terms and conditions of the contract. I have not heard of any charges against GS, or anyone else concerning these matters, have you?

        It is precisely because of future “unknowns” or lack of guarantees that these derivatives should not have been approved by the EU, ECB and/or IMF when they conducted their “due dilegence”.

        Finally, I can only agree with your “global village” explanation for the term “we”, by Fink, if he is posturing for DSK’s vacated post, have you heard anything?

        I guess time will tell.

  • I believe the derivative transactions are related to the appearanace of deficit reduction to enable actual entry to the euro. And to make a nice penny on bond trsnactions.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asBNXSLtlN9E

    Indeed. Time will tell.






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