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Posts Tagged ‘Banks’

Greek Banks Close for a Week as Crisis Grows

Posted by Steve Markowitz on June 29, 2015

The Wall Street Journal reported that Greece has ordered that its banks remain closed for the next week to the stem panicked cash withdrawals by depositors.  This drastic move indicates that the five year long Greek debt crisis is coming to an end game.

After the financial meltdown occurred in 2008, the economic folly of Europe’s single currency, the Euro, became apparent.  The European Union was created in an effort by Europeans to create a political climate that would lessen the likelihood of future wars on their continent.  This desire was a reaction to the carnage that inflicted on Europe during two world wars in the 20th century.  While the political idea was noble, little thought was given to the economic consequences that a central currency would lead to.  Those consequences are now playing out.

The Euro was destined to create an economic calamity because the political union was not accompanied by a truly economic union.  European countries maintain their own banking systems and Euro central bank was weak.

After the European Union and the Euro were created, the more efficient and stronger economies of North Europe, specifically Germany, obtained the lion share of benefit created by the Union. With nearly all European countries having a single currency, less efficient countries had their cost of labor increased in relation to more efficient ones.  As a result, the poorer countries had a artificially strong currency that enabled them to consume increased amounts of the more efficient countries’, i.e. Germany.  Through the Euro, Greece had to access to relatively cheap borrowing via an overall European credit rating that did not reflect the realities of individual countries.  As a result, Greece and other Southern European countries borrowed more funds than they could afford to pay back and use these funds to purchase imports from Germany and other exporting countries.

When the recession hit, Greece and other countries were unable to make payment on their debt.  This led to a battle between the creditor countries such as Germany and debtors like Greece.

For five years the Greece debt crisis has been a can kicked down the road.  Creditors including, Germany, have been unwilling to forgive Greece’s debt, even though Greece is not a position to repay it.  Had Greece continued to have its own currency, it would have devalued versus the German currency making its exports cheaper and more likely that it would have been able pay back its debt obligations.  The single currency has curtailed this natural rebalancing mechanism of sovereign debt.

Greece has been operating under an austerity program for some years in an effort to pay down its debt obligations.  That effort was doomed to fail since austerity does not address Greece’s uncompetitive position.  Its current efforts to stop the panicked withdrawals At the Greek banks will also fail since this radical step will only create more panic in Greece and other southern European countries.

It is difficult to determine how the next few days will play out with the Greek crisis.  There are basically two long-term solutions 1) Greece drops out of the European Union and reverts back to its own currency, while at the same time defaulting on its debt, or 2) Greece’s creditors, mainly Germany, writes off the loans.  Either scenario has very painful economic consequences.  Either would require a realignment of the Euro and the European Union to correct the economic deficiencies of this unnatural union.

Greece is a relatively small economy.  Had it not been for the Euro, its default would have had only minor consequences for the world economy.  However, similar to international banks that were allowed to become too big to fail, the European Union’s single currency has made the consequences of even smaller economies European countries defaulting too big to fail.

Given the hard choices for Europe, look for the politicians and bankers to do whatever is possible to kick the can down the road.  This means that it is likely they will give Greece more loans to continue the illusion that the country is not defaulting on its loan obligations.  However, that bit of alchemy would only push the crisis off for a short period of time.

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New Consumer Credit Scores Promote Risky Lending

Posted by Steve Markowitz on April 5, 2015

The Wall Street Journal reported the most often used creator of consumer credit scores, Fair Isaac Corporation (FICO), is introducing a new metric for rating consumer credit worthiness.  These metrics will use consumers’ payment history for items like utility bills and how often they have changed their address.  Previously, FICO scores have been created from information obtained by the major credit reporting firms.

In making the announcement, FICO indicated that over 50 million Americans who currently do not have acceptable FICO lending scores would be able to obtain them under the new system.  This fact alone should raise significant concern as to the motivation behind FICO’s change.  However, for those that need more convincing, the FICO’s rating changes come as a result of significant pressure from lending institutions and the real estate industry.  These self-interest groups do not seek change for any other reason than a desire for greater profits.  In the past, relaxing lending standards has resulted in significant economic damage to the greater society.

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Bank of America Settles with US Justice Department for $17 Billion

Posted by Steve Markowitz on August 21, 2014

The Wall Street Journal reported that mega-bank, Bank of America, has agreed to pay a $17 billion fine for its role in the mortgage crisis that led to the 2008 financial meltdown. This is only a piece of the nearly $60 billion the bank paid during the last five years to settle legal problems.

Those who cheer the huge Bank of America fine are missing the larger picture. Certainly many banks used dubious tactics and business practices that help lead to the 2008 economic meltdown. However, willing partners included the US government that pressured banks into giving mortgages to individuals who could not afford them, and the Federal Reserve whose easy money policies were major factors in creating the housing bubble. These issues, along with banker greed and borrowers, were significant factors in creating the bubble and subsequent meltdown.

How did the government respond to those largely responsible for creating economic calamity? First they bailed out large banks and other companies. Then they bailed out some individuals who borrowed too much money.

Perhaps the biggest problem relating to the huge monetary settlements between large banks and the Department of Justice is that the penalties are not placed on the perpetrators of wrongdoing. No executive or bank employee has been charged criminally by the DOJ. This is not by accident. Further, the current fines will be paid by shareholders including pension funds who had nothing to do with creating the problem.

The Department of Justice understands the misplaced logic behind the large penalties imposed on banks today. However, this populist action not only protects those in the private sector responsible for the bad behavior, but deflects attention from the government’s own role in creating the economic problems.

Posted in Bailouts, Banks | Tagged: , , , , , | Leave a Comment »

Cypriot Bungled Bailout Matters

Posted by Steve Markowitz on March 30, 2013

The European Union’s first bailout attempt of Cyprus was a dismal failure.  That plan included a tax on all bank deposits that was rejected by the Cypriot Parliament.  A more recent deal scraps the tax on depositors, but will still include losses for depositors and bondholders.

Cyprus’s largest bank, Laiki Bank, will be wound down with major bondholders taking losses.  In addition, depositors with over €100,000 will be penalized.  Some of Laiki Bank’s debt will be moved over to the Bank of Cyprus, the country’s largest lender, which will survive after the bailout.  However, many Bank of Cyprus depositors facing losses over 50% of their assets.  Since this will not be a tax it does not require Cypriot parliamentary approval.

Cyprus is a meager part of the European Union’s GDP, less than 1% with less than 1 million residents.  The banking crisis became a much larger problem for Europe for two reasons.  First, Cypriot banks became haven for foreign investors, mainly Russian making its banks eight times larger than the entire economic output of Cyprus.  In addition, as part of the European Union, allowing it to implode risk contagion to other peripheral EU countries.  Finally, it should be noted that the Cypriot banks took huge losses and became insolvent because of its holdings of Greek sovereign bonds, another EU basket-case.

While Cyprus’s is an insignificant piece of the European Union’s economy, the way the crisis has been “resolved” will likely lead to huge consequences for Europe going forward.  Unlike in other EU bailouts, Cypriot depositors were forced to take haircuts on deposits.  This brings into question an issue not raised in Western banks since the Great Depression; the safety of deposits.  If the issue is contained to Cyprus, it will be insignificant.  However, it is only a matter of time before depositors in other weak European countries become concerned about the safety of their bank deposits.  This will lead to a run on those banks.  Prime candidates are Italy and Spain, countries that are indeed “too big to fail”, but at the same time the EU does not have the assets to bail them out.

The bailout of Cyprus is reported to cost the EU less than $10 billion.  Given this relatively small amount as compared to the total European Union GDP, why have they risked so much for the future of the larger EU banking system?  The answer is political.  Germans voters are wary of the bailouts of weaker neighbors and Andrea Merkel’s party faces an election.  This tough approach to Cyprus is designed to mollify German voters.  However, in the long run it places much more at risk for European unity.

Another interesting question is why the fiscally conservative Germany remains part of the European Union with its many weaker and fiscally irresponsible partner countries.  The answer is self-interest.  Germany is much more efficient than its southern partners.  In previous years these countries could have lowered the value of their currency to become competitive against Germany.  With the creation of the Euro, the cost of products from these inefficient countries has risen compared to Germany’s products.  Is not surprising, therefore, that while Spain’s unemployment rate is currently 25%, Germany is a mere 6%.  While the cost of the bailouts for Germany is high, the cost of dissolving the European Union would be even higher.

With the template of the Cypriot bailout in place, the EU has made it policy that under some circumstances it will demand member states seize depositor assets as a price for bailing out its banks.  The message for depositors in European peripheral countries is clear; should banks in your country become financially at risk, your deposits will also become at risk.  Human nature demands action of these depositors.  Depositor funds will move from weaker countries to stronger ones, thereby exasperating the already existing financial strain on weaker European countries’ banks.  This has the makings of Europe’s next banking crisis and it will be the result of self-inflicted wounds.

Posted in Banks, European Union | Tagged: , , , , , , | Leave a Comment »

Cypriot Parliament Rejects European Bailout

Posted by Steve Markowitz on March 19, 2013

Yesterday we posted Cyprus Bailout Taxes Bank Deposits that reviewed the proposed bailout of Cypriot banks by the European Union.  The entire banking system in Cyprus is insolvent and requires a bailout from the European Union, which means from Germany.  Germany has a case of bailout fatigue after the bailouts of Ireland, Greece and Portugal.  Prior to agreeing to the proposed Cypriot bailout, the EU placed some unique demands on Cypriot bank depositors in the form of taxing the deposits.

Today the Cypriot Parliament not surprisingly rejected the bailout plan with not one politician voting in favor of it.  Even if taxing bank deposits was reasonable, no politician could survive in a democracy by agreeing to such terms.

The European Union and its Central Bank should have understood the political realities of their proposed Cypriot bailout, but instead with arrogance proposed a plan that could not be approved by the government.  There is a more dangerous aspect to this error than merely bad judgment.  Should depositors in other European banks fear for the safety of their deposits, contagion could result in runs on banks far outside of Cyprus.  Should that type of panic begin it is hard to determine where will end.

It would not be surprising to see upward pressure on the price of gold as a result of the Cypriot bailout fiasco.

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Cyprus Bailout Taxes Bank Deposits

Posted by Steve Markowitz on March 17, 2013

Cyprus is a miniscule part of the 17 country European Union accounting for only 0.2% of the EU’s total economic output.  Its total economy is valued at only €18 billion.

Cyprus has become the fourth EU country requiring a bailout after Ireland, Portugal and Greece.  Spain has so far avoided an official bailout, but its banks have been given assistance by the European Central Bank.  Other countries are not far behind including Italy with a much larger economy.

This weekend the European Union announced a bailout of Cyprus that includes an unusual requirement.  In return for €10 billion, CNN reported that all depositor accounts in Cyprus’s banks will be taxed a one-time fee on Tuesday.  Those with less than €100,000 in deposits will pay a tax of 6.75% and those with over €100,000 will pay 9.9%.

Not surprisingly citizens of Cyprus have responded with panic, mobbing ATM machines in attempts to withdraw deposits.  However, the banks placed a limit on withdrawals of only €400 and it is reported that there is a shortage of cash.

After making the announcement, Cyprus’s President Nicos Anastasiades justified the action Sunday saying, “A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation”.  In other words, Anastasiades offered the same Progressive doubletalk that the steps were required to protect the people.  However, this justification will be more difficult to accept given the tax levied on depositors.

The reality of the Cypriot bailout is similar to bailouts that have occurred for banks and sovereign debt throughout the world in recent five years.  These actions were taken to protect the banks and their investors, both private and sovereign investors. These flawed policies have also resulted in economies worldwide jumping from one crisis to crisis in a downward spiral.

Attempting to pay for bailouts by taxing bank depositors is a ratcheting up of wealth redistribution towards the financial sector, protecting large banks and fiat currencies.  While the policies may have some success in the first two goals, this move in Cyprus will increase the pressure on fiat currencies.  It is only a matter of time until fear contagion spreads.  If the Cyprus can take money from bank depositors to pay for the irresponsible behavior of others, it is only a matter of time until other countries take similar steps.

In justifying bailouts and irresponsible government spending, those supporting these actions often refer to the learned economist John Maynard Keynes who was a proponent of government spending to offset slowdowns in the private sector.  However, such rainy day Keynesians ignore the second half of Keynes’ theory that requires governments to save for a rainy day during more vibrant economic times.  This part of the equation has not been met in decades.

Economist Keynes was well aware of the dangers of inflation and the related issue of governments debasing a fiat currency.  Keynes’ written below in a 1919 essay says it all.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…. Those to whom the system brings windfalls… become “profiteers” who are the object of the hatred…. the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Posted in Bailouts, European Union | Tagged: , , , , , , | 2 Comments »

US Justice Department’s Bank Fines are Misplaced

Posted by Steve Markowitz on December 11, 2012

CNNMoney has reported on a giant stettlement between HSBC bank and the United States government.  According to the report, HSBC will pay a fine of $1.92 billion for infractions that include money laundering for drug cartels and violation of other US laws for doing business with the likes of rouge nations Iran and Libya.

The DOJ/HSBC settlement adds to a growing list of banks that have paid fines relating to illegal banking activities.  This includes:

Standard Chartered – Paid over $320 million to settle similar money laundering charges.

ING – Paid over a $610 million for illegally serving Cuban and Iran.

Wachovia Bank – Paid $160 million relating to laundering money for the Mexican drug cartel.

Credit Suisse – paid over $530 million concerning its business with Iran and others.

While $1.92 billion settlement is large, it is only a bit more than 10% of HSBC’s 2011 total profits.  In announcing the HSBC settlement, N.Y. Assistant Attorney General Lanny Breuer said: “HSBC is being held accountable for stunning failures of oversight. The record of dysfunction that prevailed at HSBC for many years was astonishing.”  This suggestion is nonsense. The perpetrators of the illegal acts are not being held accountable.  While the HSBC shareholders pay a rather trivial fine, the individuals who broke US laws are neither being personally fined nor criminally prosecuted.  Until such appropriate criminal actions are taken, executives of these banks will continue to flaunt American law

There is an incestuous relationship between governments and large international banks.  When the 2008 financial crisis hit, the American government and others justified bailing out mega banks with the claim that “they are too big to fail.”  The implication was that should these banks fail, greater economic calamities will result for society.  This logic must be questioned given the fact that those large banks have been allowed to become substantially larger in the past four years.  The government’s more recent settlements with the same large banks over illegal practices support this incestuous theory.

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Moody’s Cuts 15 Banks’ Ratings

Posted by Steve Markowitz on June 21, 2012

This morning’s financial news from Europe included an item that Spanish banks would require nearly $80 billion (US) to shore up their capital bases.  However, that was just the start of a bad day that saw the Dow Jones Industrial Average have its largest one-day drop of the year, 250 points.

After US equities markets closed, the news got worse with Moody’s Investors Service issuing downgrades to 15 large banks credit ratings with the largest hits being taken by giants Citigroup and Bank of America.  The two notch downgrade to these banks place then just two levels above the junk category.  In addition, Moody’s downgraded to a lesser extent the ratings of 13 other banks including Morgan Stanley, JPMorgan Chase, Goldman Sachs, Credit Suisse, Deutsche Bank, UBS, HSBC, Barclays, BNP Paribas, Credit Agricole, Societe Generale, Royal Bank of Canada, and Royal Bank of Scotland.  In other words, Moody’s is expressing concerns about a large portion of the West’s banking system.

In announcing the downgrades, Moody’s explained that: “The risks of this industry became apparent in the financial crisis.  These new ratings capture those risks.”  The downgrades are more than a black eye to these banks as the move could further damage them should customers decide to move investments to higher-rated banks creating a negative feedback loop.  In addition, the downgrades may raise the cost of borrowing for the banks further straining their already financial conditions.

As this Blog has proffered since the early days of financial crisis, a problem of excess debt cannot be solved by still more debt.  However, this is precisely the strategy that Western governments including that of the United States have taken since the 2008 meltdown.  Moody’s downgrades of today were therefore predictable.  It is also very predictable that more downgrades are to come.

Progressive governments worldwide have overspent for years on nonproductive programs including massive entitlements.  The reckless spending was financed by borrowing from future revenue potentials, a Ponzi scheme perpetuated by various bubbles fed by government interventions including artificially low interest rates.  Instead of allowing the growing economic imbalances to rebalance themselves in the market, governments continued and continue treating symptoms with still larger interventions creating even greater market imbalances.  The results of this ill advised strategy include the crises now occurring in European banks, European sovereign debt problems, today’s US and worldwide bank downgrades and the exploding US debt.

While the world jumps from crisis to crisis in increasing frequency, it is not possible to determine when it will hit a tipping point.  Generally, market inequities and imbalances can continue longer than logic would deem possible, especially when governments work together at interventions.  However, in the long run, the laws of the market, i.e. supply and demand, are infallible and will have their day.

Posted in Banks | Tagged: , , , , , , , | 3 Comments »

Housing Market Damaged by Ongoing Governmental Interventions

Posted by Steve Markowitz on February 9, 2012

Federal and state officials today announced a $26 billion settlement with five of the country’s largest home finance providers.  The settlement relates to problems with home foreclosures that have been referred to as “robosigning.”  As part of the settlement, the government indicated there will be relief offered about 5% of the homeowners underwater who owe more on the mortgages than the homes are currently worth.

In announcing the settlement, government officials bragged about its benefits that include punishment for the lenders and benefits for homeowners hurt by the housing market downturn.  Both benefits are dubious at best.  First, the penalties to be paid by the banks will be charged to their shareholders, not the employees responsible for the problematic actions.  In addition, those who had their houses repossessed inappropriately will get about $2,000, a very minor benefit. In addition, any benefits underwater homeowners receive in refinancing houses will only be an artificial incentive to stay in the dwellings whose value will fall further hurting their savings long into the future.  Such homeowners would be better served giving these houses back to the banks and forcing them to eat the losses. This would be appropriate punishment two banks who made inappropriate loans in the first place.  This is the type of punishment free markets are supposed to and out, not those dictated by government

The settlement is yet another supposedly plan by the government to help revive the housing market.  Like the previous programs, this intervention will increase the length of the housing downturn.  Inherent in any governmental economic intervention is the belief that bureaucrats and politicians understand the many complex interactions of a dynamic economy better than the free market.  It also demands belief in a “free lunch” whereas the government actions will only have positive effects.  Neither axiom is correct.

The housing downturn is going into its fourth year and is at the heart of the worldwide recession caused by the financial meltdown in 2008.  Before attempting corrective steps, governments must have an understanding of how the economy got into this morbid state.

Economic cycles affecting the housing market have occurred throughout history.  However, the current downturn is the worst in since the Great Depression of the 1930s.  As this Blog has proffered previously, the United States government shares culpability in this downturn and its extent.

In the 1934 the US government began intervening in the housing market with the creation of the Federal Housing Authority (FHA).  The FHA became a backstop for mortgages in order to lower the cost of borrowing and promote homeownership.  The government’s policy of promoting homeownership created the mistaken belief by consumers that home prices always increase making them good investments.  However, home prices increase only as long as demand outpaces supply (basic Econ 101).  An oversupply decreases prices, as occurred in 2007 that occurred because of changing demographics and other governmental interventions.

Fast forward a few decades.  Progressives pushed the FHA’s charter even further.  In 1977 Congress passed the Community Reinvestment Act promoting homeownership to lower income levels, i.e. people who could not afford the mortgages.  In the 1990’s Congress pressured Fannie Mae and Freddie Mac to offer loans to even higher risk buyers to promote more housing.  These interventions increased more demand for housing inflating home prices.

Adding to the housing bubble creation, former Fed Chairman Alan Greenspan and later President George W. Bush pushed interest rates artificially low each time the economy hiccupped.  It also further breached the moral hazard by seemingly indicating that the government through low interest rates can and will resolve any future market disruptions.  The rest is history, as they say.

Remarkably, with the repeated failures of governmental market interventions, the government has doubled down on this same bet with more interventions.  The negative consequences include a lengthening of the housing downturn and more problems to come.

Since his election, President Obama and other Progressive politicians have offered various programs to “fix” America’s housing downturn.  They all failed because they stopped the markets from correcting the imbalances in supply and demand.  Had these interventions not occurred, while initially housing problems would have been greater, it is likely that we would now be in recovery instead of the ongoing housing downturn.  At the appropriate prices as determined by the markets, investors would be buying houses for ownership and four income properties and prices would be on the rise.  This self-correcting process will not even begin until a bottom in the housing market is reached, something that cannot occur until the government gets out of the way.

The low interest rate policies inflicted on economy by the Federal Reserve’s (Fed) will have even more negative consequences.  This policy is flawed on many levels starting with the mistaken belief that the heart of the lengthy economic downturn is a problem of liquidity.  In fact, the problem is one of solvency and cheap money cannot resolve this issue.

Given the complexity of our economy it is not possible to accurately predict the negative consequences that will occur due to the low interest rate policies of the Fed.  However, we can expect more and larger bubbles as investors attempt to improve their returns during a time when they should focus on asset preservation.

Also, it is likely that the Fed’s low interest rate policy will prolong and deepen the housing downturn, inflicting long-term problems on an important part of the American economy.  Not only are current homebuyers obtaining mortgages at historically low rates, but so too are those refinancing existing mortgages.  It does not take a great imagination to understand that when mortgage rates ultimately jump back up from rates of about 3.5% to the historic norm of about 7.5%, , the cost of buying a home with a new mortgage will increase significantly.  This will reduce future housing sales as well as construction of new homes leading to a long-term and ongoing downturn in the housing market.

The law of supply and demand is infallible in the long term.  Progressives have spent trillions and offered massive failed interventions to again prove this reality.  Until governments stop the interventions and get out of the way, the economy cannot begin real recovery.

Posted in Governmental Intervention, Housing Market | Tagged: , , , , , , , , , , , , , , , , , | Leave a Comment »

Markets React Manically to European Solution

Posted by Steve Markowitz on December 12, 2011

On Friday, European countries led by France and Germany announced their proposed “solution” to the significant problems affecting Europe that include sovereign debt issues and the solvency of many European banks.  The initial response from the financial markets was positive to be followed today by a very negative response.  This manic behavior is in keeping with the lemming mentality that exists in worldwide financial markets.  Instead of focusing on the long-term economic prospects and how they will impact corporate profits, the markets look to governments to create wealth.  This, coupled with artificially low interest rates invoked by governments, has cajoled investors into making investment decisions without regard to real market fundamentals.  This is a recipe for disaster for the importunate investors.

Europe’s proposed solutions to the economic challenges and merely kicked the can down the road once again.  In the original European Union treaty, member nations were given limits for their debt to GDP (Gross Domestic Product) ratios.  They ignored the limits and ran up huge deficits that were not allowed under the treaty.  The European Union turned a blind eye to this behavior during better economic times.  After the financial meltdown occurred, the strains of the debt became unsustainable for countries including Ireland, Greece, Spain, Portugal, and most recently Italy.

Making a bad situation worse, the deficit ridden European countries forced local commercial banks to purchase their own governmental bonds that are now risky investments.  This has put at risk many of the large European banks who are in danger of being insolvent.  The result is that should the Europeans not be able to get their house in order, the problematic countries and banks would freeze up simultaneously, creating a worldwide credit crisis.  For this reason, wealthier European countries including France, The Netherlands, and most notably Germany are caught in a dilemma with no good solutions.  To keep the European Union together, the wealthier countries are forced to take on debt responsibility of the poor ones.  The alternative is a breakup of the EU which would likely lead to a European-wide depression.

Friday’s proposed European solution in essence puts stronger teeth into the debt limiting provisions for EU member countries.  Should a country’s deficit exceed certain defined limits, the EU would then have the authority to severely sanction it.  The problem with this solution is twofold.  First, it is difficult to objectively define the debt limits as a percentage of GDP.  More significantly, each member nation must change their constitutions to allow the EU additional control over their sovereignty.  This is a best a lengthy process with no guarantee that voters in individual countries, especially the poor ones, will agree to the changes that will severely impact their ability to support expensive social programs.  It is this reality that the market is reacting negatively to today.

Governments worldwide have nearly universally used the same tonic in response to the financial meltdown of 2008.  This includes bailouts and interventions in efforts to keep markets from correcting the imbalances created during the bubble years.  While it is possible that the initial interventions forestalled a worldwide economic calamity, it is evident that succeeding interventions are becoming less effective with ever shortening durations of any benefits.

The European experiment initially created, and since maintained by governmental interventions, is a textbook example of how ineffective governments are in managing markets.  Europe is now approaching their endgame.  The problem of excessive debt cannot be resolved by still more debt.  Deleveraging (paying down debt) is painful and naturally contractive for economy activity.  Ultimately, Europe and other over indebted nations must face this reality.

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