Germany's private banks need to prepare for further fallout from the euro zone's sovereign debt crisis, the head of Germany's BdB banking association said on Sunday.Did you catch that? Schmitz is pleading for passage of the EFSF to dump losses made by stupid risk-seeking banks on the backs of overburdened taxpayers. The "private investors" he wants to bail out are the banks and the bondholders.
"I don't think that banks will get around further charges regarding Greece," BdB President Andreas Schmitz told Reuters in an interview in Washington, adding that the effects of the Greek crisis were manageable if it could be contained.
Earlier this month, Free Democratic Party leader (FDP) Philipp Roesler, Germany's economy minister, said an "orderly bankruptcy" of Greece should not be a taboo, in remarks that were criticized by Chancellor Angela Merkel and German Finance Minister Wolfgang Schaeuble.
Schmitz said that this kind of dissent only added to investors' concerns and that it was crucial that the German parliament approves the granting of new powers to the existing euro zone rescue mechanism, the European Financial Stability Facility (EFSF) in a key vote on September 29.
Merkel already faces a potential revolt on the EFSF vote from some members of parliament in her ruling coalition who are increasingly skeptical about more aid for Greece.
But Schmitz, who is also the head of Duesseldorf-based private bank HSBC Trinkaus, also warned against increasing the burden on private banks in handling Greece's rescue package.
Private sector creditors agreed in July to take a 21 percent loss on Greek bonds maturing before 2020, but the loss is more likely to be 25 percent or more, Deutsche Bank said on Friday.
Recovery will be delayed and moral-hazard policies rewarded once again unless banks and bondholders pay for the stupid risks they took.
As I have noted before, banks are not lending anyway, so there is no risk of having responsible parties take responsibility for their actions. Indeed, the way to increase lending is to require bondholders (not taxpayers) to bring banks up to required capital levels. Thus, private investors should pay 100% of the price for their poor decisions.
Mike "Mish" Shedlock
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