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Role Reversal: The Government and Big Banks


The bar tab remains unpaid as one hand washes the other.

"What -- Over? Did you say "over"? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no, and it ain't over now." --Bluto, Animal House

Deutsche Bank (DB) CEO Josef Ackermann -- who told it like it was in 2007 when few dared to do so -- is on the tape, offering that he expects financial companies to contribute to the Greek rescue to avoid a "meltdown" of the global financial system.

"If Greece goes into default," Bloomberg reports him as saying, "we would have a disruption in Europe that could more quickly impact other countries in a way that goes far beyond what Lehman Brothers meant for us." We concur, sir, and have for a long time.

I'm reminded of another quote by Mr. Ackermann, which we highlighted in the first link above, from 2007.

At the time, he said, on behalf of the 31-member board of the finance institute, that it was "premature to make a firm judgment as not all the details are yet known to us or are fully announced." "To succeed in restoring confidence," he continued, "the plan would have to provide 'transparency' to the prices of financial assets."

Oh my, there it is; here we are, over three years later, and the derivative transparency he spoke of is as murky as it's ever been. And confidence? Exactly... that's my point.

Just as we shouldn't confuse a rally with a recovery, we would be wise to draw the distinction between ducking a bullet and actually being safe. Sure, the S&P has doubled since the depth of the crisis, but riddle me this: What, if anything, has been done to solve the off-balance sheet riddles?

The answer is nothing, sans a few high-profile indictments and a slew of Alphabet Soup, hole-digging "solutions." The investors got punished at the top, the savers got screwed at the bottom; wash and rinse, Pete and repeat. It would be funny if it wasn't true.

Professor John Succo once implored Minyans to not just ask "What?" but seek "Why?" Why are the banks behind the governments? Answer: The same reason governments got behind the banks in the first phase of the financial crisis: Self-preservation.

If this feels "shell-gamey" to you, that's likely because it is. Pass the buck, or what's left of it, and push the obligations to our children as policymakers and politicians attempt to preserve their legacies. That's not only selfish, it's endemic of the bigger-better-thing, keeping up with the Dow Joneses' mindset that got us into this hole in the first place!

We don't "do" acrimony in the 'Ville but seriously -- what's it gonna take to make people pay attention? Another crisis? Cross-border wars? Tiered currencies? State cessions? Anarchy?

Here's an idea, why don't we learn from the past, share in the haircuts, and put this process of price discovery behind us? Nah, that would be too "free market" of us and if there's one thing I think we can all agree on, it's that global financial markets are far from free.

See what's going on, Minyans, which isn't to say you should grab a blankee and curl up in the corner. We need to make some serious, hard-hitting decisions and we need leaders who are willing to buck up and tell it like it is, which is entirely different than posturing to populist agendas.

I'm not sure what my point is here, but our goal is to provoke thought and remain relevant in this ongoing discussion. The leaders coming out of this crisis won't be the same as those who entered it, and that's a good thing -- 'cause when the going gets tough…the tough get goin'!

Who's with me? Let's go!


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