Germans retire on luxurious 43% replacement

That’s what you can look forward to if you only drag your sorry ass to work until you reach 67 years of age. But only if you are German. Then you reap the big, cushy rewards of having paid into Germany’s pension system.

Splurge on an opulent gross replacement rate of 43% on your total investment. In any private investment you would probably think about killing you fund manager. At least abduct and torture him, or how about robbing a bank?

Germany: Replacement rates for low-earners are the lowest within the OECD at 43.0%…

The gray FAZ calls the pension scheme „robust„. That’s worth a Witch’s Tit.

Germany’s bad bank solution: accounting trick

That’s what Wolfgang Münchau calls it in the FT. It puts the toxic assets into  a „deep freezer“ to buy time as German banker put it. 

The Geithner/Summers plan in the US has two fundamental planks – a strategy to ring-fence structured finance products for which there is no market, and a strategy to recapitalise the banking system. Both seem to be based on unrealistically optimistic assumptions about the economic recovery. And both have been criticised sharply, mainly for that reason.

The German scheme is constructed very differently. It is a ring-fencing plan only and it is voluntary. Under the draft legislation put forward by the German government last week, a bank can apply to set up its own bad bank. A bad bank is not really a bank at all. It is a special purpose vehicle, similar to those off-balance sheet vehicles that triggered this crisis in the first place. The proposed SPV will have a shelf life of up to 20 years. It buys the structured securities from the bank at 90 per cent of book value – the price at which the securities are currently valued on the balance sheet. In return, the SPV issues new debt securities to the bank, guaranteed by the government. So if a bank shifts structured securities with a notional value of €10bn ($13.5bn, £8.9bn) to the SPV, it gets €9bn in good securities back. The state is the guarantor. The idea is to give the banks an incentive to lend again.

Will it work?

The answer is: not in the way that has been proposed. First of all, the plan is a giant accounting trick. Under fair-value accounting, it could not possibly work because the bank would have to make a provision for future losses of the SPV. This would, of course, defeat the very purpose of the plan. It is constructed in the same spirit as some of the more eccentric debt securities.

The fundamental problem is that the strategy might actually deter recapitalisation, which surely should be a priority. Under the plan the bank, not the government, is fully responsible for the SPV’s losses. So if the SPV sells the securities at a loss, the bank will have to pay for the loss out of earnings. So the bank will have to divert an uncertain proportion of its future earnings to pay off the SPV’s losses, and all this for up to 20 years. Which private investor in their right mind would provide new equity capital to a bank under such conditions?

A spokesman for the federation of Germany’s private banks made a good analogy when he compared the scheme to a deep freezer. The banks are trying to buy time. When the crisis is over, they hope that the structured securities can be sold at reasonable prices. Until that happens nothing is resolved.

Why did the government opt for such an obviously daft plan? The answer is because it costs next to nothing. There is only a cost to the government if the SPV goes bankrupt, which is not going to happen soon, if at all. The SPV even pays a fee to the government to cover the expense of issuing the guarantee. So the scheme tries to be the equivalent of a free lunch.

But it is only cost-free in a narrow accounting sense. The economic costs are huge. Last week the German government was told that the tax shortfall would be €300bn over three years – two-thirds of that due to the crisis. If you split the loss evenly over the three years, the pure tax effect of the crisis makes up some 3 per cent of gross domestic product for three years running. Not bailing out the banks will almost certainly end up being more costly than bailing out the banks. But a bail-out would be unpopular, and the government does not want to touch this issue until the federal elections in September. Until then, we have an insufficient ring-fencing plan only.

I am not sure. Peer Steinbrück, Germany’s finance minister, last week gave a characteristically belligerent comment about the US stress tests – effectively accusing the US authorities of fixing the results. His position is that recapitalisation is primarily a problem for the banks, not the government. If the state were to recapitalise the banks, his scheme might just work, but without it, it cannot. No sane private investors are going to pour money into a structure whose obvious purpose is to deceive them.

The German political classes have yet to comprehend that recapitalisation is necessary, and that it will end up costing the taxpayer a lot of money. The plan as it stands now offers no resolution, only procrastination. While US banks have already written off a fair proportion of the bad debts, the Europeans are adopting schemes that allow the banks to postpone resolution.

The more I think about it, the more I am reminded of Japan. But this might be unfair to the Japanese. They solved the problem eventually. If we freeze our toxic securities for 20 years, a Japanese-style lost decade will soon come to be regarded as the optimistic scenario.

Germany needs a new business model

The ability to rely on your neighbors and friends in times of need can be reassuring indeed. However, it can not be a way of getting on in life.

Or, as PAUL KRUGMAN, who won last year’s Nobel prize in economics for his work on trade, wrote in 1993: “What a country really gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves; the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.”

Private consumption in Germany, alas, looks about as arousing as a wilted dick.

Small wonder with high taxes and the idiotic raise of the VAT rate.

Germany’s needs to get away from its addiction to exports. It will have to wean itself away from the whole car idiocy as it stands no chance to compete in the biggest growing segment, small, dirt-cheap cars, against China and India.

Oh, that will hurt the German pride big time – engineers of the finest cars with 24 airbags, ERS, AVS, QVS and what not – and it will hurt even more in an election year. And not to get started about the German love affair with a balanced budget.

Ach ja, Renten werden nicht gekürzt.

Wenn man es nicht besser wüsste, könnte man meinen, eine Wahl fände in 2009 statt.

Also trotz massenhafter Staatsverschuldung, steigender Arbeitslosigkeit – nein, nicht die Statistik, sondern die echt Arbeitslosen – wird die Rente nicht gekürzt. Zur restlichen Einschätzung hier.

Min. fü Arbe un Sozial.. Olaf Scholz, immer für eine Dämlichkeit gut – wie z.B. sein Vorschlag, den Hauptschulabschluss, also das Examen zur Bestätigung der erfolgreichen non-invasiven Lobotomie, als Grundrecht zu verankern oder, noch weitsichtiger, als in der internationalen Presse schon im Herbst 2007 von einer Verlangsamung der deutschen Exportindustrie gesprochen wurde, keine Gefahr für Arbeitsplätze sah – sieht „nothing to worry“. Olaf darf nicht husten.

German GDP -6%; 2010 positive again. Really?

So say German papers (it’s election year, mind you). Pensions will rise …

Excerpt W. Buiter:

Disguising the new damage done to the banks’ loan book by the contraction of the real economy will become harder as time passes.  By the end of the year, I expect that the combination of the stress tests and the reluctant revelation of new bad loans may bring us to the point that even the authorities can no longer shrink from restructuring the insolvent components of the banking system by forcing the unsecured creditors to swap their debt and other claims for equity.  Only then can the banking system as a whole begin to function normally again – one hopes under very different rules of the regulatory game.

The inventory cycle

The inventory cycle is short and sharp.  Statistically, inventory accumulation and decumulation often account for more than 100 percent of the business cycle.  This is unlikely to be the case in the current cycle.  Final demand (private consumption, private fixed investment, exports and government spending on goods and services) is contributing to the downturn and will have to turn around to achieve a sustained recovery.

and here’s old Europe

The rest of Western Europe is dead in the water.  The ECB is paralysed, partly by fear of the zero lower bound on interest rates among some of its Governing Council, partly because of the absence of a ‘fiscal Europe’, capable of recapitalising the ECB/Eurosystem should it suffer a serious capital loss as a result of private sector credit exposure incurred as a result of its monetary, liquidity enhancing and credit enhancing operations.  Countries that have fiscal credibility and could do more as regards Keynesian fiscal stimuli, like Germany and France, refuse to do so.  The recession in Western Europe started about a year after that in the US.  It will last at least as much longer.  The banking system of Western Europe (ex-UK) has been even more reluctant than that of the US and the UK in owning up to the disastrous state of its balance sheet.  At least €500bn additional capital will be required to keep the continental West-European banking system on its feet.  More will be required if it is to actually start lending in earnest again.

and this about the modern Borat countries

Eastern Europe (including the CIS) is the most dramatic victim of the made-in-Wall-Street/City-of-London/Zurich crisis.  Virtually all countries in the region were heavily dependent on external financing and on foreign trade.  Some, especially in the CIS, are major commodity exporters.  Western banks are often the parent banks of the local branches and subsidiaries.  As the barbarians threatened Rome, headquarters withdrew the Legions from the provinces.  Parent banks are ruthlessly cutting the access to funds of their subsidiaries and branches in CEE.  No help will come anytime soon, with the members of the old EU barely capable of keeping their own trousers up.

full post here: Green shoots: grounds for cautious pessimism

Nicht Lidl, deutsche Justiz ist ein Skandal

Deutsche Presse zieht das Sommerloch auf den April vor und berichtet – gähn – über einen neuen alten Daten/Überwachungsskandal Lidl-Telekom-DB-XYZ

Bei Lidl hätte schon der Blick auf das Logo die Sache klar erscheinen lassen können: das gekippte oder hängende ‘i’.

Aber wird es nicht irgendwann langweilig über diese ewig gleichen Dinge zu berichten? Wenn man die deutsche Presse ist, Nein.

Der deutschen Presse – und das gute ist doch nun, dass die Blätter alle irgendwann bankrott sein werden – kommt nicht auf den Gedanken, die Hintergründe für diese Dauerbrenner zu finden und wenn gefunden, spricht sie sie pflichtbewusst nicht an.

Korruption und Skandale sind kein Wunder, wenn man eine Rechtssprechung hat, bei der ein paar 10 oder eventuell mal ein paar 300 Tausend Euro Strafe ausgesprochen werden. Oder in Zumwinkel-Fällen die ausgekungelte Bewährungsstrafe.

In Dland läuft der mutmasslich weltgrösste Wirtschafts-Kriminelle, ex-Siemens CEO von Pierer, noch immer unbelästigt frei herum. Der Mann und die Firma war niemals korrupt, das war Wirtschaftskriminalismus.

Solange dt. Justiz mit Labber-Urteilen RE-agiert, brauchen sich deutsche Blätter um Zeilenfüller keine Sorgen zu machen. Eine Strafe von 100 Millionen Euro z.B. und, wow Baby, wäre die Sachen schnell am Abebben.

Und helfen würde es auch, wenn wie in den USA ein paar in Dland den Ebbers, Madoff, Skilling oder Skrushy machen würden für 20 plus Jahre. So, mein Junge, und nun schön nach vorne beugen für die tief-braune Gruppeninjektion. And then from A to M, if ya like.

War der Euro ein Fehler?

Paul Krugman hier auszugsweise. Beginnend mit dem bekannt guten Sozialsystem geht es dann zur Sache.

The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.

This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump.

But such “automatic stabilizers” are no substitute for positive action.

Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.

But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.

You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.

Europe, in other words, is turning out to be structurally weak in a time of crisis.

The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.

For much of the past decade Spain was Europe’s Florida, its economy buoyed by a huge speculative housing boom. As in Florida, boom has now turned to bust. Now Spain needs to find new sources of income and employment to replace the lost jobs in construction.

In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.

Does all this mean that Europe was wrong to let itself become so tightly integrated? Does it mean, in particular, that the creation of the euro was a mistake? Maybe.

But Europe can still prove the skeptics wrong, if its politicians start showing more leadership. Will they?

Drogenabhängiger D-Land

D-Lands Exportdrogensucht bringt dem Land die schlechtesten Wirtschaftszahlen seit 60 Jahren. Junkie-mässige Abhängigkeit von der Autoindustrie, im IT-Bereich mehr oder weniger eine Null (sorry SAP), staatsunterstützte Teilzeitarbeiter und trotz vorbildhafter Bundesmutter von der Leiden (fünf mal erfolgreich geworfen – Glückwunsch bitch) geringe Kindergeburtenzahl …und dazu eine Wahl mit jetzt schon feststehendem Resultat.

mehr Details hier

Deutschland, das exportabhängige Land …

… lernt, was es heisst sich einseitig auf einen Wirtschaftszweig zu stützen – neben seiner idiotischen Abhängigkeit von der Autoproduktion -, der sehr abhängig von externen Wirtschaftsfaktoren ist. Export-Minus von 4,4% allein im Jan. und über das Jahr 20%.

Ambrose Evans-Pritchards genüssliche Seitenhiebe

Es gibt nichts Besseres als britischen Journalismus (sorry, ihr deutschen Pinsel. Na, nicht wirklich) und Ambrose Evans-Pritchards jüngsten Artikel zu lesen macht wieder einmal Freude. Klar, wie üblich etwas überzogen, das weiss er auch und geniesst es.

Will Germany deliver on the Faustian bargain that created monetary union?

Berlin is at last having to deliver on the Faustian bargain made by Germany’s political class when it swapped the D-Mark for French acquiescence in reunification. It must either go the whole way towards EMU fiscal union and take responsibility for Italy’s public debt (111pc of GDP by next year), Austria’s loans to Eastern Europe (70pc of GDP), the adventures of Ireland’s ‘Canary Dwarf’ (€400bn or so in liabilities), and Spain’s housing collapse (1m unsold homes), or jeopardize its half-century investment in the political order of post-war Europe. Letting EMU fail at this stage would have far higher costs than never having launched the project in the first place.

The alleged bail-out options include „bilateral bonds“ where big brother countries agree to shoulder the credit risk for siblings, (who vouches for Italy and Spain?), or some form of EU bond.

Finance minister Peer Steinbruck – erstwhile Scrooge – has become the unlikely champion of open-ended help for all. „We have a number of countries in the eurozone that are clearly getting into trouble … Ireland is in a very difficult situation … The euro-region treaties don’t foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty,“ he said.

Lohnend auch die Kommentare zu lesen, z.B. zur idiotischen Exekution der Wiedervereinigung. So etwas wird sich ein deutscher Journalist niemals trauen zu schreiben. Der wär gleich aus der Tür.

Keep up the good work, Ambrose.