Global Economic News
British Royals and the Spanish Mortgage Bubble
Jan. 29 (EIRNS)"Spanish banks are issuing mortgage securities and asset-backed bonds on a massive scale to park at the European Central Bank, using them as collateral to raise money at favourable rates from the official credit window in Frankfurt," Ambrose Evans Pritchard wrote in today's London Daly Telegraph. Pritchard says that data put out by Moody's rating agency appears "to confirm suspicion that the EU [European Union] authorities have carried out a covert rescue of the Spanish mortgage banking system." This amounts to a "de facto closure of the capital markets ... to avoid the sort of mishap suffered by Northern Rock in Britain and Countrywide in the U.S."
What's really afoot? "They're bailing out the British royal family," said Lyndon LaRouche. He pointed to Banco Santander Central Hispanothe largest bank in Spainand the Royal Bank of Scotland (RBS), which essentially owns Santander, as the forces behind the Spanish mortgage bubble. But British agent Pritchard would never say thatthat would be encroaching on the royal family. "That is not something he would do," said LaRouche, "but, all the banks affected by this are connected, either directly, or indirectly, to the Santander operation." The important fact is that the financial system is gone, collapsed, finished, said LaRouche, and it is impossible at this point to tell who owns anything, since all securities are being hedged and leveraged many times over.
German Machine-Builders Oppose ECB's Weak Dollar Policy
Jan. 30 (EIRNS)While there is a propaganda campaign in the German media alleging that a weak dollar benefits the German economy, because it makes imports cheaper, EIR has learned from sources in the machine-building sector that the industry does not see any benefit at all, rather the contrary.
For example the argument about imports becoming cheaper, is refuted: One or the other components coming from the dollar zone for German machines may become cheaper, but that is a negligible effect for German industry. Most of the end price of the machine is determined by the value added factor, which comes into play inside Germany, and that does have its high price.
The high quality and precision of German machines compensates for the high price in the long run, because of reliability. At the moment, the order books are filled for machine-builders, therefore they do not have to run around looking for clients and offer lower prices. But a weak dollar makes the euro more expensive. And there is another factor, namely that most of the world is dependent on the dollar, so that any U.S. crisis instantly infects the globe, and that hits exporting nations like Germany, because export markets are undermined by shocks that importing countries undergo.
Briefed on Lyndon LaRouche's two-tier interest rates proposal, a senior source at the VDMA, the German machine-builders' association, said that the idea of building a defense of the dollar is deserves careful and unbiased attention, also outside the U.S.A., but that it might turn out to be rather complicated to handle two different rates.
Italian Banker on LaRouche Proposal For Two-Tiered Credit
Feb. 1 (EIRNS)An Italian banking source commented to EIR on Lyndon LaRouche's proposal for a two-tiered credit system, by bringing up the example of China. A two-tiered system is what China has had all along, the source said. China has based its development on what he called "double circulation." It even has a two-tiered currency system. The source also stated that the City of London is profiting from the collapse of the dollar, but the Eurozone is not. The British are welcoming capital flows from Arab and Asian sovereign wealth funds, but France and Germany have blocked them.
How the ECB Became a Neapolitan Garbage Dump
Jan. 31 (EIRNS)A report out Jan. 31 states that Eu30 billion of securitized junk has been packaged by Rabobank, the Anglo-Dutch megabank, for the contingency of using it as collateral for borrowing from the European Central Bank (ECB) through its repo (lend and repurchase) operations. "The ECB has become a Neapolitan garbage dump," commented a banking source to EIR News Service today, referring to the trash pick-up crisis in Naples.
According to today's Financial Times, Rabobank, the only bank still holding a AAA rating from Standard & Poor's, has packaged mortgage loans in order to keep them on its balance sheet as bonds, ready to have as collateral to offer the ECB, in case of a liquidity crisis.
This is similar to what Spanish banks in particular have done since last December: issuing securities for which there is no market, except at the ECB repo facility. It has been reported that in December alone, Spanish banks borrowed Eu63 billion through this facility.
In doing this, the ECB is de facto bending its statute, which allows it to lend money directly to banks only in extraordinary cases, and only against prime collateral. Acting in this way, the ECB has bailed out major sections of the European banking system since December, offering temporary cash life-support to a corpse.
Japanese Banks Pop with Dollar Bubble
Feb. 1 (EIRNS)Japan's six largest banking groups reported quarterly losses, attributed to the U.S. hyperinflationary mortgage bubble, of 529 billion yen at the end of the December, a 4.6-fold jump from 115 billion yen at the end of September. Other mid-sized banks also reported losses, along with manufacturer Canon, in all products. December is the end of the third quarter in Japan; the investment year ends in April.