Bankers splinter on remedy for European debt

As predicted under the FDR Framework, without the appropriate disclosure, bankers splinter on what the appropriate remedy for the European debt crisis is.

A Bloomberg article reports,

Wall Street leaders, urging coordinated action from world governments to solve the European sovereign-debt crisis, struggled themselves during four days of meetings in Washington to agree on what’s needed to end it. 

The chiefs of firms including JPMorgan Chase & Co., Goldman Sachs Group Inc., Deutsche Bank AG and Societe Generale SA met for three hours at the National Archives on Sept. 23. They differed on which government and private solutions may restore confidence in European debt and banks, and on some elements of regulation, said two participants who spoke on condition of anonymity because the meeting wasn’t public.

Since all the solutions that have been tried since the solvency crisis began on August 9, 2007, have failed - we would not be worrying about solvency now if they had worked - it is not surprising the bankers were skeptical that variations of these solutions would work now.

As Winston Churchill said of the US, they always find the right solution, they just have to try everything else first.

In the case of restoring confidence, the only idea that has not been tried is the roadmap based on the FDR Framework which requires disclosure of all the useful, relevant information in an appropriate, timely manner.

Bankers are unlikely to voluntarily choose the roadmap, because it eliminates their ability to profit from opacity or take proprietary trading positions.

... Bank-stock indexes in Europe and the U.S. have dropped more than 30 percent this year and borrowing costs for European lenders have climbed amid concern that Greece and other European countries may default. The level of disagreement between bankers and government officials who gathered for the annual IMF meeting was matched only by their shared sense that the stakes have rarely been higher.... 

Discussion of European governments’ options, including how to use their 440 billion-euro ($596 billion) rescue fund, dominated the policy meetings. Most European parliaments, including Germany’s, still haven’t voted on a July 21 plan to endow the fund with more powers, including the ability to buy bonds and inject money into banks.

U.S. Treasury Secretary Timothy F. Geithner urged governments to unite with the European Central Bank to increase the firepower of the fund, known as the European Financial Stability Facility. 

Having experience with leveraging up TARP in the US, think PPIP, Geithner is exporting the Geithner Plan to Europe.

For better or worse, Europe does not seem eager to embrace the Geithner Plan given that it did not work in the US.  For example, PPIP was suppose to restore a normal market for private label RMBS.  Clearly, it did not do this as the Fed could not sell a trivial amount of RMBS paper without causing the price on RMBS paper to decline by 20%.

The Institute of International Finance, an organization of more than 400 financial companies worldwide, holds its annual meetings in parallel with the IMF’s. In normal times, the private-sector bankers use the weekend to mingle with one another, and with government ministers and central bankers, trying to win business and get policy insight.,,, 

A classic opportunity for lobbying.

Yet in private discussions, bankers said the environment was exceptional. A senior European banker said he sees policy makers’ decisions as being as momentous as those in the 1930s. A senior U.S. bank executive said he’s more worried than he was at any point during the financial crisis of 2008 and 2009.

It is not surprising the level of concern as the limits of fiscal and monetary policy are quickly being reached as this marks the end of pushing addressing the solvency crisis into the future.

To address solvency in the 1930s, policy makers adopted disclosure. Will policy makers repeat a successful strategy now?

... Schaeuble, the German finance minister, addressed the same room hours later with a contrasting message: “We won’t come to grips with economies deleveraging by having governments and central banks throwing -- literally -- even more money at the problem,” he said. 

Regular readers know this is true.  What is needed is disclosure so that market participants know if the money that is being literally thrown everywhere is in fact addressing the solvency crisis.