July 13, 2014

The end of Central Banking -- Germany moves on bail-in

I called the end of Central Banking many moons ago, which of course went down like a lead balloon. Now, in the post-Cyprus era, we see that one of the legs of Central Banking -- the rescue of the failed bank -- is being unwound:


BERLIN--Germany's cabinet Wednesday approved plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions.

The new bail-in rules are part of a package of German legislation on the European banking union--an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.

Germany "leads the way" in Europe by implementing European rules quickly and "creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk," the country's finance ministry said in its draft bill seen by The Wall Street Journal.

"This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers."

It is probably clear to most Euro-skeptics that the (a) nothing has been fixed, and (b) the troika cannot handle anymore bailouts. At least, it's more clear to the Germans, who have their own problems:

I have warned that about 50% of the German municipalities are on the verge of bankruptcy. The pensions have been unfunded and are absorbing everything. As we saw in Detroit with more than 50% of current revenue going to pensions, taxes either rise, the borrow more, or they are out of business. We are in a giant bull market for taxes increases on every level. This is the real downside of Marxism they theory that just keeps taking.

Central Banking is unsustainable in our interconnected world. It's also unnecessary, as the invention of securitization, and other financial cryptography inventions to come are removing the fundamental economics need for the banking charter.

However, the way Central Banking dies is difficult to predict. The behemoths that they allowed to grow and devour still have much fat to carry them forward, and the Central Banks themselves aren't ready to call it a day. The carnage will continue for a while.

Posted by iang at July 13, 2014 03:39 AM | TrackBack
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