If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Wednesday, 26 October 2011

Germany Euro Abfahrt?

For some time there has been a discussion going on Greece possibly leaving the Euro. Greece's current sovereign debt is unsustainable. It can only be propped up with Germany's help. In fact this process to some degree suits Germany as long as it does not cost it too much. Greece's financial problems make Euro weaker. This helps German economy which is based to a great degree on export. So Angela Merkel has to play a balancing game of spending as little as possible on saving the Euro from collapse still keeping the Euro weak, whilst at the same time making sure that Germany, and especially their exports, keep growing. But this process cannot go on forever. Now there is a talk of Italy's joining Greece as the financially failed state of Eurozone. This will elevate the crisis onto a stratospheric level. Italy's debt is, circa, six times greater than Greece's (assuming there are no hidden financial arrangements of some sort of creative accounting) and the business of propping up Italians will be a game of completely different magnitude.

Germany is well known for meticulous planning and forward thinking. They must realise that it would only be a matter of time that if Greece's debt is written off to a large degree, others, Italy, Spain, Portugal, will pick up a begging bowl and join the queue. Germany can hardly afford to pay for Greece's debt. Forget about the rest. German policy and decision makers must understand that. They cannot feed the rest of Eurozone and, through them, the entire failed financial industry (which engineered this entire mess in the first instance). Therefore it appears increasingly likely that Germany end-game of bailout delays and never ending discussions is delaying a real market event: Germany leaving Eurozone. The discussions, and agreements even if made, have very little short and medium term market credibility in any event, let alone long term credibility. The discussions and negotiations time is used by Germany to prepare properly for their exit, gearing up their financial system, and in the meantime keep benefiting from a weaker Euro. If Germany leaves it is likely to take with them a couple of financially prudent and trustworthy countries such as the Netherlands, Luxemburg, Austria and Finland. And the rest of the Eurozone led by Sarkozy and Berlusconi will be left to their own devices. No doubt they will hold interesting summits. If the new German currency gets too strong (for example to impede its exports) there are many ways to weaken a currency in a way far more beneficial to Germany than subsidising failed Eurozone with some of its dysfunctional economies (Greece and Italy) and lining up bankers pockets with massive bailout tranches.

If Germany thinks and plans its future in line with its long term national interest, which is a credible assumption, it seems it makes more sense to start considering Eurozone without Germany (and possibly the Netherlands, Luxemburg, Austria and Finland) rather than Eurozone without Greece. Of course before this happens and Germany walks away with pride of the financial bull untarnished, it will have to show all their good will of trying to do impossible: credibly save the Euro. Hence such an impassioned Angela Merkel's speech in Bundenstag today. And what is the alternative: becoming a dairy cow of the rest of Europe and the entire financial industry? Not really an appealing one.

PS. If some in the mainstream media wonder about the logic and rationale of the risk scenario above (as they are likely to) they are actually quite trivial: whenever you see a failing business or enterprise you actually see the strongest leaving first. Unlike the weakest they have options.

PS2. The recent events seem to make a hypothesis of Germany leaving euro even more credible. The Eurozone masters are going to China to ask for help with euro bailout. Until recently Germany was the largest world exporter and only a couple of years ago lost the pole position to China. If China invests in euro bailout it will start wielding considerable influence over the single currency and is also quite likely to gain better export terms to the EU. This would become a mechanism that is likely to weaken the German position as an exporter on the international markets. It is rather inconceivable that Germany do not realise that. The alternative is to leave euro (with China interest in it) and manage own affairs separately (or possibly with other strong nations: the Netherlands, Luxemburg, Finland or Austria).


  1. Sorry, I think you have it completely wrong here. It is not in Germany's interests to leave the Eurozone and there would be huge criticism if they did so - they are at the heart of the Eurozone and the majority of their electorate support it. I think that you are expecting Germany to act as you would do - however, this is not how the German people behave.

    Secondly, I think that the scenario of Germany staying within the Eurozone and paying all the PIIGS debts is again another unrealistic situation. They can simply choose to say no and force these countries to sort out their own financial woes. This is a harsh reality but one that is much for likely than the first scenario. Mrs Merkel certainly does not want to be the dairy cow for the PIIGS, and Greece will be the first and last country they will personally bail out.

  2. Dear Ivan

    On the first point I think your analysis is emotional rather than rational. I assumed that Merkel (the only properly educated decision maker in Europe) thinks rationally. But I may be wrong.

    On the second point: Germany can stay in Eurozone and at some point say no to bailouts. Technically this is correct but practically this is likely to trigger at some point defaults. That's it. Have you done the analysis what this means in financial terms triggering a quadrillion dollars derivatives (e.g. CDS) market events?

    I am not saying that you are wrong, but if you were right we end up in a global financial meltdown. We might anyway, but do you think Germany wants to be a part of it?



  3. The derivatives market is the elephant in the room. At a guess, I'd say Germany's banks are as implicated as anyone else's. Does this have any bearing on whether Germany stays in the Euro or not?

  4. Hi schweik

    indeed, these are the considerations. But do remember that Germans are excellent in meticulous planning and precise execution and are the strongest and the biggest, by far, economy and have many options. Wait and see is really my plan. One way or another we are heading for something spectacular.

    Best wishes