NEWS,20.08.2012

ECB: Greek exit viable but undesirable

A Greek exit from the eurozone would be manageable, European Central Bank (ECB) policymaker Joerg Asmussen was quoted on Monday as saying, although he would prefer it if the crisis-stricken country remained within the single currency bloc. He also said that the Bundesbank, whose chief ECB President Mario Draghi singled out earlier this month for expressing reservations over the bank's new bond-buying plans, was not isolated in Europe.The comments on Greece from the ECB executive board member, Germany's deputy finance minister until he took the post at the end of last year, sum up a growing debate in Berlin on the possibility of cutting Greece free. Most would prefer not to, but an increasing number of MPs and influential figures have come out of the woodwork saying the eurozone is strong enough to deal with the fallout. "Firstly, my clear preference is that Greece should remain in the currency union," Asmussen was quoted as saying in an advance copy of an interview due to appear in Germany's Frankfurter Rundschau on Monday. "Secondly, it is in Greece's hands to ensure that. Thirdly, a Greek exit would be manageable."But Asmussen also warned that a so-called Grexit would not be as orderly as some imagined: "It would be associated with a loss of growth and higher unemployment and it would be very expensive - in Greece, Europe as a whole and even in Germany."He also said it would be good if the eurozone's permanent bailout mechanism, the European Stability Mechanism (ESM), successor to the European Financial Stability Facility (EFSF), were up and running as soon as possible."The ESM is a better instrument for dealing with the crisis than the EFSF," he was quoted as saying.Germany's Constitutional Court has said it will deliver its ruling on whether the ESM and the fiscal pact are compatible with the German constitution on September 12. Germany cannot legally ratify the two treaties without the go-ahead from the court and the ESM cannot come into effect without German backing.On eurozone bonds, Asmussen said such common debt was only logical in a full fiscal union and added that they were not crisis management tools.Draghi indicated earlier this month that the euro zone's central bank may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but not before September and only if governments activated the euro zone's bailout funds to join the ECB in buying bonds.Whether the plan goes ahead at all, however, remains largely a question of whether leaders in Germany, whose own central bank opposes bond-buying, agrees over the course of a series of key meetings next month.Whereas Draghi said that Bundesbank chief Jens Weidmann had been the only ECB policymaker to register reservations against the bond-buying proposals at this month's meeting, Asmussen hinted that the division may not be as clear cut."No-one should try to give the impression that the Bundesbank or its president is isolated," said Asmussen, adding that he and Weidmann worked closely together and trusted each other.Noting that Draghi had not said the new bond-buying programme would be limited in terms of time and volume, the paper asked Asmussen if this meant it could be successful as it would be unlimited."You heard him correctly. But wait and see. We are working on further details of the new programme and we will discuss this at our next meeting," Asmussen replied.

The Unrepentant and Unreformed Bankers

These days, the business sections of newspapers read like rap sheets. GE Capital, JPMorgan Chase, UBS, Wells Fargo and Bank of America tied to a bid-rigging scheme to bilk cities and towns out of interest earnings. ING Direct, HSBC and Standard Chartered Bank facing charges of money laundering. Barclays caught manipulating a key interest rate, costing savers and investors dearly, with a raft of other big banks also under investigation. Not to speak of the unprecedented wrongdoing that precipitated the financial crisis of 2008.Evidence gathered by the Financial Crisis Inquiry Commission clearly demonstrated that the financial crisis was avoidable and due, in no small part, to recklessness and ethical breaches on Wall Street. Yet, it's clear that the unrepentant and the unreformed are still all too present within our banking system.A June survey of 500 senior financial services executives in the United States and Britain turned up stunning results. Some 24 percent said that they believed that financial services professionals may need to engage in illegal or unethical conduct to succeed, 26 percent said that they had observed or had firsthand knowledge of wrongdoing in the workplace, and 16 percent said they would engage in insider trading if they could get away with it.That too much of Wall Street remains unchanged is not surprising. Simply stated, the banks and their leaders have paid no real economic, legal or political price for their wrongdoing and thus have not felt compelled to change.On the economic front, the financial sector has rebounded nicely from its brush with death, thanks to an enormous taxpayer bailout. By 2010, compensation at publicly traded Wall Street firms had hit a record $135 billion.Last year, the profits of the nation's five biggest banks exceeded $51 billion, with their chief executives all enjoying pay increases. By 2011, the 10 biggest U.S. banks held 77 percent of the nation's banking assets.On the legal front, enforcement has been woefully inadequate. Federal criminal financial fraud prosecutions have fallen to a two-decade low. Violations are settled for pennies on the dollar  the mere cost of doing business, with no admission of wrongdoing and with the bill invariably picked up by insurers or shareholders. (When it's shareholders, that's not someone else far away, that's your 401(k), pension fund or mutual fund.) When Goldman Sachs was charged with failing to set policies to prevent insider trading, it was fined $22 million, an amount the bank collects in about seven hours of trading. Goldman's record $550 million penalty for securities fraud in 2010 amounted to less than 2 percent of that year's revenue.On the political front, after a brief stint in the penalty box, the big banks have resumed the political muscling that got them two decades of deregulation.To block reform, the financial industry has spent more than $317 million on lobbying in Washington over the past two years and more than $230 million in federal political contributions in the 2010 and 2012 election cycles.It's been to good effect. Two-thirds of the regulations called for in the financial reform law passed two years ago are still not in place. And the House Republicans, the banks' sturdiest allies, have slashed at the budgets of the Securities and Exchange Commission and the Commodities Futures Trading Commission to impede their ability to investigate wrongdoing.Clearly, the present order is unsustainable. We need to demand fundamental changes now, breaking up the big banks to snap their stranglehold on our markets and our democracy, ensuring that the newly minted financial reform laws are implemented, and wringing out rampant speculation.But true reform can only occur if we root out the corruption that has distorted our banking system and undermined the productive work of the many good people in the financial sector.The system of financial law enforcement is clearly broken. Think of it this way: If someone robbed a 7-Eleven of $1,000 but could settle a few days later for $25 and no admission of guilt, would they do it again?Only enforcement with real consequences will work. That means vigorous pursuit of criminal cases against individuals involved in wrongdoing, the surest method to deter malfeasance.It means enforcement agencies eschewing weak settlements in civil cases and seeking remedies with teeth such as civil penalties, restitution and executives forfeiting their jobs. And, it means tougher financial fraud laws. In that regard, the bipartisan proposal by Sens. Jack Reed, D-R.I., and Charles Grassley, R-Iowa, to increase fines for securities fraud is a place to start.To make any of this a reality, the U.S. Department of Justice and the federal regulators must have the will and the resources to do the job. President Obama has asked for additional funds for the Department of Justice, the SEC and the Commodities Futures Trading Commission. Giving these agencies the tools to detect and prosecute wrongdoing will more than pay for itself  the Commodities Futures Trading Commission's fine against Barclays for interest rate manipulation alone will pay for almost an entire year of that agency's budget.None of these changes will come easily, but this much is clear: We cannot allow Wall Street to continually flout our sense of right and wrong, to erode faith in our legal and political systems, and to put our financial system and economy in jeopardy.