Comments on: The Dijsselbloem Principle A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: traducere romana daneza Mon, 29 Sep 2014 14:02:15 +0000 whoah this weblog is fantastic i like studying your articles. Keep up the great work! You understand, lots of persons are looking around for this info, you can help them greatly.

By: y2kurtus Wed, 27 Mar 2013 01:13:51 +0000 @Strych09, I work at a mutual savings bank (no stockholders public or private) with 265 employees. I work at one of the banks who pays into the FDIC fund every year never to draw on it. I work at one of the 5,000 strong small banks now paying the price (as we should) for the horrible actors at the TBTF banks.

I’m man enough to say that you are right, the CEO of GS is still in place. (Lehman, Bear, Citi, BofA, MS, Wachovia, are have all been ousted… yes with golden severance but outed just the same.)

Lets see if you are man enough to admit that I am right about at least some of the things I wrote. At a minimum that most of the TBTF’s have new management in place, that the equity holders of Wachovia, Lehman, Merril, Countrywide, & Bear were wiped out entirely or almost entirely, and that at todays market close BofA and Citi are still looking at losses of 70 and 80% from 5 years ago. (take a peek at their 5 year charts to verify that.)

JPMorgan stepped in to rescue the national banking system in 1907. The bank that carries his name stepped up to the plate again in 1998 to backstop the Longterm Capital Management failure. When the world was burning again in 2008 the Fed called upon the house of Morgan again to ride to the rescue. Yes the JPM minions are well paid but if you think a bunch of government workers were going to work 80 hours a week for a year unwinding the unholy mess… well than we’ll just have to agree to disagree.

I consider myself one hell of a patriot but there is EVERY INDICATION that this nation will fall before the house of Morgan.

By: Vrijhoeve Tue, 26 Mar 2013 15:09:49 +0000 This type of blog annoys me. I have the impression that the parasitic part of the banking system can only survive because as soon as someone really says what is going on, he is called “incompetent”, by some blogger. Oh, we have to be so careful, as to not hinder these bankers in their freedom to take risk that destroy the economic backbone of entire states and not to restrict the market in any way, because else we are immeditely punished and pummeled by the media. Short-term fear makes a real solution impossible. It is of course quite sour for some people that the limits of the system are in sight.

By: Strych09 Tue, 26 Mar 2013 12:09:36 +0000 y2kurtus, you must work at a TBTF bank or on wall street or just be in general an apologist for the banksters, because what you wrote isn’t even remotely what happened in 2008 and 2009. What you wrote is so unhinged and detached from reality that it’s almost not worth responding to.

In the U.S., we didn’t “fire all of the top executives” except in the case of GM, which of course you aren’t including in your universe of discourse. All of the top executives at the banks which were rescued indirectly from the 100% bailout of AIG, for example, were left in place.

Vikram Pandit was still there at Citi after the bailouts up until very recently.

The CEOs of JP Morgan Chase and of course, most notoriously Goldman Sachs are still there, in place.

By: MWellerGFT Tue, 26 Mar 2013 12:04:04 +0000 Who would have thought we’d be looking back wistfully at the days of Jean-Claude Juncker?

Regardless of whether the Cyprus situation is the new paradigm, you can’t deny that Dijsselbloem has botched the PR aspects of the job.

By: greydogg Tue, 26 Mar 2013 09:56:12 +0000 It’s important to remember that this global economic crisis is COMPLETELY MANUFACTURED.

By: bv36 Tue, 26 Mar 2013 07:39:48 +0000 Mr Dijsselbloem is right. Regardless of the consequences.

By: JohnHill Tue, 26 Mar 2013 05:48:20 +0000 Felix, what you call the Dijsselbloem Principle, I call ordinary bank capital ladder. All that Dijsselbloem is doing is pushing back on this notion that we have gradually come to accept over the past five years: that banks have to be saved by the taxpayer, no matter what.

While there is systemic importance, TBTF and so on, we have definitely overshot the goal a number of times in the past years when shareholders and bondholders escape relatively unscathed while billions of public funds get handed over for a bail-out. Why were Citi’s depositors not hit harder? How come RBS is still listed? Why did preferred shares of the likes of ING happily continue paying dividends even as the bank went cap in hand to the government for a capital injection? Why were AngloIrish bondholders treated so kindly?

What Dijsselbloem is doing puts at least some of the risk of bank restructuring back where it belongs: with the shareholders and bondholders who stand to profit when things go well. And he has made it clear that the depositor participation is an ultimate measure, only to be used in extremely messy circumstances, like the Cypriot banks.

And indeed, even though there are fair share of troubled banks in Europe, you’d have to look long and hard to find another example of the level of undercapitalisation and bloatedness that was Laiki/BoC. Surely you’d agree that it would not be ok for a bank to fund itself with large swathes of deposits by offering high interest rates, minimal equity and other capital (because investors smell the rotten fish from afar), drive a business model on this, and then expect the government to pick up the bill once the house of cards collapses.

If by putting the risk back where it -largely- belongs, we spook bank shares and ‘the markets’ – so be it, for that is what the market should be focusing on: pricing the risk/reward potential accurately. A perception of willingness by authorities to always rescue banks from themselves is moral hazard in its most elementary form and will end in teats sooner or later anyway, even if it is only because of gross risk mispricing in such circumstances.

By: y2kurtus Tue, 26 Mar 2013 02:05:29 +0000 Cyprus is a unique case… the pro-gov EU had little interest in bailing out the untaxed earnings of Russians.

The model for fixing bad banks is exactly what we did in the U.S.

Step 1 you kill the equity of the worst actors like Bear (90%), Lehman (100%), Wachovia (I forget but I think 100%)

Step 2 you “save” the other too big to fails. By save I mean fire all of the top executives force them to accept hugely dilutive equity and kill the common dividends.

Step 3 you fine the survivors for tens of billions of dollars as they begin to recover. Someone add up what we’ve extracted from BofA, Citi, Wells, MS, Goldman, and JPM. Count the equity, the GSE pushbacks, the servicing settlements, the loan mod commitments. I’m pretty sure you’re most of the way to 50 billion in extracted wealth… with a bit more to come I’m sure.

Too big to fail is still an issue but 48 months after the crisis trough our banks are the strongest in the world and both the FED and the Treasury are cash positive from their rescue involvement (I am NOT including the GM/Chrysler money.)

By: johaster Mon, 25 Mar 2013 20:55:16 +0000 It is good that the other tax havens have to start sweating after Dijsselbloem’s candid statements, not in the least that of his predecessor Juncker. Tax havens, like The City, do and have done enormous damage to the world economy.