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Role Reversal: The Government and Big Banks

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

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"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!

R.P.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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