Europe at odds as Sarkozy leads financial rescue

You can understand why Nicolas Sarkozy may be feeling frustrated. Since the start of the latest round of the credit crisis, France's hyperactive president has thrown himself into the fray with relish.

Crisis management is one of Sarko's talents, as we saw when he brokered the ceasefire in Georgia last August. He has leaped into the breach again with the credit crunch, but his European colleagues are in no rush to cede leadership to Super Sarko. 

Visitors to the Elysée palace report that Sarkozy is in confident, Napoleonic form, bursting to get to grips with the enemy and restore peace in the land. "I am not ignorant in the matter of finance," Sarkozy reminded bankers at a meeting on Tuesday after he had overseen the French end of the bail-out of the Dexia banking and insurance corporation. The one-time Finance Minister wagged his forefinger and told the financiers to get back to their traditional trade, according to le Figaro.

The President has seized the occasion of France's turn in the European presidency to try to forge a continent-wide, even global, solution to the upheaval. He believes that Europe must to pull together with a trans-national response, especially since 15 share the same currency.   

The trouble is that his fellow leaders do not see Sarko as their saviour. The two other bigs -- Gordon Brown of Britain and Angela Merkel of Germany -- have reluctantly agreed to turn up in Paris for a Sarko-chaired summit tomorrow (Saturday) along with Silvio Berlusconi of Italy, but only after they knocked down talk of a pan-European bail-out.

Sarkozy denied today that he had ever floated the idea, which was aired by Christine Lagarde, his Finance Minister, in an interview with a German newspaper. Lagarde, a business lawyer with no previous experience in finance or politics, has been a liability since she got her job last year, but it seems unlikely that she would have launched the idea all by herself. The Germans  mischievously, attached the tag of 300 billion euros (433 billion dollars) to Lagarde's kite and shot it down as unthinkable.  "I am not going to give blank cheques to the banks," said Merkel.

The European leaders are turning up for their session on Saturday with no common strategy, even though three of the four are in the euro single currency zone. "The idea is to hammer out an accord on the philosophy and the principles of what a response to the crisis could be," said a Sarkozy aide.

Germany and Britain are sticking to the idea that there can be no pooled bail-out fund and that each country is responsible for handling its own case.  But they agree on the need for some kind of coordination, especially after Ireland jumped the gun with a reckless pledge to back all bank deposits there.

Jan Peter Balkenende, the Dutch Prime Minister, suggested to Sarkozy in Paris yesterday that each country should set aside an agreed sum for capital injections in their own financial institutions. He proposed three percent of each country's Gross Domestic Product, which, he said would amount to 380 billion euros (524 billion dollars) across Europe.

The EU will no doubt come up with some co-ordination, but the experts are far from confident that this will be enough to restore calm. Some of the pessimists are even saying that the crisis could be the undoing of the single currency. Its critics have long predicted that without a European government to balance the supra-national European Central Bank, the nine-year-old currency would be vulnerable at times of trouble. "The Europeans are incapable of agreement on how to save their endangered banking system," said a pessimistic commentary in today's le Monde.  Even Jean-Claude Trichet, the French boss of the ECB has been sounding the alarm. The banking crisis is the worst economic upheaval that Europe has faced since World War Two, he said yesterday.   

Super Sarko can be very persuasive at times. I hope that he can whip up a bit of team spirit at his summit tomorrow. 

Comments

[Don]

It is presumptuous of Sarkozy to take this pan-European position. He clearly wants to be a modern day Napoleon and the rest of Europe sees him for what he is.

France recently pushed back ONCE MORE the date when it can come into compliance with EU rules with respect to the size of its deficit relative to its GDP (PIB).

http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080926%5cACQDJON200809260552DOWJONESDJONLINE000389.htm&&mypage=newsheadlines&title=France%20Abandons%20Plans%20To%20Balance%20Budget%20By%202012

France assumes the right to lead the world in financial matters. Sarkozy called for a world wide new Breton Woods meetings of the world's largest economies in his Toulon speech. The rest of the world will not follow. This attitude of France will only engender hostility and mockery.

[rocket]

CB

"But they agree on the need for some kind of coordination, especially after Ireland jumped the gun with a reckless pledge to back all bank deposits there."

Why is it reckless? Other countries only have to do the same and increase their deposit insurance to protect depositors. What's the point of working all of your life only to have your money evaporate because of foolish banking practices. Small healthy businesses can be wiped out because of the insurance cap on deposits.

ex 70K€ in France. Not really a lot.

[Romain]

I like the well balanced duet with buoyant Sarko and no nonsense Merkel. Problems such as Fortis, Dexia , Hypobank have been solved case by case, without mounting a paneuropean machinery.
There is no need to emulate a FED like plan in Euroland, what is required is to prepare to face the impending recession.

[dot king]

"What's the point of working all of your life only to have your money evaporate because of foolish banking practices."

ROCKET

Quite so - and what about this "poudre aux yeux" of using the excesses of the Livret A to shore up the ailing monetary system?
On "C dans l'air" the other evening, one economist said it would be like using a fly-swat to kill an elephant.
Money will be taken from those who need it to repair the mistakes of the greedy and incompetent.

For non-France residents, the Livret A is France's most popular form of savings account, capped at €15,000, with an interest rate a little more advantageous than other types of accounts. The excesses go to provide public housing projects - so that's another sector of the needy who will go without what they need.
Someone "explained" the other evening on "C dans l'air" that it wasn't the "direct" excesses that would be used to save the monetary system, but the "indirect" excesses. Encore de la poudre aux yeux.
The interesting thing is that the French have been strongly encouraged to invest, to spend, but they've saved instead (contrary bunch!:)), so the Livret A has gained a lot of money over the past decade or so - much more than expected.
So obviously, why not cream off the "excesses" on the money generated by all these savings of ordinary people intended to provide housing for other ordinary people, and bail out these extraordinarily rich, incompetent and ultimately cynical fools?

[rocket]

CB

Is your computer on British time? My comment is at 05:46. I was sleeping then.

[christopher muir]

Hopefully, a united Europe will lead the way during this financial crisis. Obviously Sarkozy performs at his best during a moment like this and as mentioned by ROMAIN, Merkel is a good counter-weight. Sorry if I'm jumping the gun, but the Biden-Palin debating performances didn't fill me with much joy. I don't think that this is the time to have Six-Pack Joes (what's that in French?) and hockey moms trying to sort out the gigantic mess. France appears to be fortunate in not carrying the massive personal credit card debt which has swamped the US and Australia for a decade.

[susan durst, france]

Dot : You shouldn't believe everything you hear on "C dans l'Air" ! The idea was to use the excess on the Livret A to shore up the French building industry, not the monetary system. FYI the idea has now been scrapped.

Sure, it's easy to send up Super Sarko and make fun of his Napoleonic ambitions - a rather tired cliché, I feel. By pure chance, France holds the presidency of the EU during a major financial crisis which will affect the economies of all 27 members. Surely Sarkozy's pro-active attitude is preferable to just sitting back and doing nothing ? Surely it's preferable to have one of the Big 4 presiding Europe during the crisis than, say, Slovenia or Bulgaria ? Just as well it wasn't Ireland - according to today's Times, they were much too busy sorting out their own problems to worry about Europe !

[Daniel Strohl]

DON,

For the moment being and up to end of December 2008, Sarkozy is the primus inter pares of the European heads of state or Prime Ministers.

Do you expect him to stay in the warmth of his palast in Paris, lighting candles and praying the Lord for good news to happen without coordinated efforts and may be errors ?

For my part, I have some "hostility and mockery" against Europe and its politics up to now - the latest example which comes to mind is the European alternative to the American GPS (and the Russian GLONASS, which is being refurbished if I believe what I read somewhere).

The project has several years of delay - as far as I know, only one or may be two satellites out of a total of 30 are in orbit. The delay is not due to technical reasons - one may safely assume that European engineers are not significantly dumber than their American or Russian counterparts :) - but to bickering between European states (France included, of course :).

Should the same happen with the present crisis ...

Like CHARLES, "I hope that Sarkozy can whip up a bit of team spirit at his summit tomorrow".

[rocket]

Hi Dot

"Quite so - and what about this "poudre aux yeux" of using the excesses of the Livret A to shore up the ailing monetary system?"

I would hope that the gov't can create jobs so we can get out of the spiral of assistanat.

[azloon]

if you had never heard of NS, would you call the gendarmes if you saw someone resembling the character in the above photo loitering in your neighborhood?

scary.

[dot king]

"The idea was to use the excess on the Livret A to shore up the French building industry, not the monetary system."
Susan Durst, France

The Livret A is for generating funds for the public building industry - to provide public-owned housing - they wanted to redirect the excesses of these funds to save one of the banks - the BNP perhaps?

I don't say anything about what Sarko is doing or not doing, nor do I recommend doing nothing. Telling everyone "les caisses sont vides" then finding money to bail out banks, then talking of taking from public funds to bail out further banks, somehow doesn't have the ring of honesty about it.

And why should I not believe what economists from both (if not at all points along) sides of the political spectrum on "C dans l'air" tell me? Maybe you should listen to them more carefully before telling me what to believe and not believe.
Whom do you recommend I believe?

The problem is bigger than any of the people being asked to solve it - too bad, do I hear you say, if those who had nothing to do with the whole mess pay for it?

[V]

"Why is it reckless? Other countries only have to do the same and increase their deposit insurance to protect depositors"

It's reckless because there's hardly enough money to actually do this (and the money printing machine is never a solution).
If I understood well, the French deposit guarantee fund was worth about € 2 billion, far less than the guaranteed amount. And frankly I don't see where in France's empty cases PM Fillon would find the missing tens of billions.

[Don]

Many (most?) of the bloggers on this site seem to think the U.S. financial crisis is a creation of the hated Bush and the Republicans, a failure of captitalism and that Sarah Palin would only make it worse if she was in power.

Watch this video of Democrats and Republicans IN THEIR OWN WORDS at a 2004 House Committee hearing
on Freddie Mac and Fannie Mae [two GOVERNMENT CREATED AND BACKED institutions which hold 70% of U.S.mortgages and went into bankruptcy] and draw your own conclusions.

http://www.youtube.com/watch?v=fa0agm7lIPQ

The fact that they had government backing allowed these institutions to buy up too risky mortages ("sub-prime mortgages") and therefore created an incentive for banks to create these things which they could then sell to Fannie Mae and Freddie Mac.

Without these two government organizations, there would have been no crisis. It is not a failure of free enterprise that caused the problem. It was the bad incentives coming from Freddie Mac and Fanny Mae that created the problem.

[Terry]

Looks like some Europeans here chortled a little too quickly last week.

This is a good time NOT to follow the US lead. Our Congress stupidly passed the bailout bill an hour ago. A needless and colossal waste of taxpayer money. More importantly, it sends the clear message to bankers to take whatever stupid risks they want, the government will bail them out in the end when they threaten to tank the market.

Some banks were using creative solutions to privately fix their problem. One was to forgive several missed payments and just add them back on the loan. The other was to not increase the adjustable rate mortgage. Of course, there is no reason to do that now that taxpayer money will bail them out.

This is only slightly less of a hoax than global warming.

[Blendi Progri]

If Sarko manages a pan European financial rescue package, then kudos to him.

I fully support whatever inciative he takes, as I do support the means he is entitled to use to achieve his aims; that could well be in the form of a twist, turn, threat, blackmail or a simple hug - whatever works.
I believe that I speak for all commom folks out there praying nightly in their freezing bedrooms, some do itloudly, others whispering and few do prayers-in-writing, but We All Say:
Sarko, please Fix it, and Soon!

[Daisy]

France is now in recession. Perhaps the French government isn't the best to lead the way on matters of economics and finance.

Why is France's answer to everything a conference or a summit? They love these talkfests and photo-ops. You'd think the French gov't has nothing better to spend money on that on massive security for world leaders.

[Francois D]

Susan Durst has said:
"Surely it's preferable to have one of the Big 4 presiding Europe during the crisis than, say, Slovenia or Bulgaria? Just as well it was not Ireland - according to today's Times, they were much too busy sorting out their own problems to worry about. "

I totally agree with you.

It should be recognized one day or another that rotating European presidency is a problem ...

There are pillars in Europe and these pilars are the founding countries plus UK (and I should add Spain..).

What is essential is that France and Germany did not tear. I hope that NS be enough intelligent to understand that. Although French, I am more confident in Germany, for its seriousness and its strength, than in other countries, including mine. Euro strength is due to Mark strenght; Dont dream: French Franc and Italian Lire would have already be devaluated whitout Euro and Germany power, since the beginning of this financial tsunami. Merkel is strong and reliable. She is well supported by the monetary orthodox Trichet (who hates NS).

CB has been kind with Irish. Their conduct is appalling. In the same Le Monde issue, an economic journalist used this comparison ... The Irish are like a fireman who would use neigbor water (UK) for protecting his own house without care to neigbour house. They have taken risk to massively attract UK money by an unilateral and global decision. As they said No, after having greatly benefited from Europe, which enabled them to catch up living standards.

Returning to Europe, imagine that Georgia be a day in Europe with the President that they have (and with Sarah, as US President...!) .That would be immediate war with Russia! . Same remark for Poland: the week following EU accession they bought a great lot of US military aircrafts, EU taxes being just useful to give money for catching up infrastructures and agriculture (Chirac publicly denounced that) . .

[Don]

[ C. MUIR: "Hopefully, a united Europe will lead the way during this financial crisis. Obviously Sarkozy performs at his best during a moment like this and as mentioned by ROMAIN, Merkel is a good counter-weight."]

There is no chance that NS or other Europeans "will lead the way" if they misdiagnose the problem! Surely, in principle, most people would agree that one has to understand the causes of the problem before having any chance at all of fixing it.

Europeans, including Sarkozy, are enjoying the problems that America is having now and feel very self rigthteous. For example,
NS said:“The idea that markets are always right was a mad idea".

[Source: Economist article:
http://www.economist.com/world/europe/displaystory.cfm?story_id=12342091]

He has COMPLETELY misdiagnosed the problem! It was not a failure of private firms (their "greed and stupidity" as often quoted.) at the HEART of the problem.

The Europeans think of themselves as much more sophisticated and intellectual than the Americans. But their diagnosis of the problem is simplistic which will lead them to the wrong "solutions".

Freddie Mac and Fannie Mae created a market for those "toxic" mortgages by buying up those mortgages from private banks. Freddie and Fannie were created by the U.S. government.

http://en.wikipedia.org/wiki/Freddie_mac

Without Freddie buying up those terrible loans, the private banks would have had no incentive to create those loans in the first place. The U.S. government was backing Freddie (and Fannie)[the U.S. government took over Freddie and Fannie a couple of weeks ago after they went bankrupt] and in so doing created a false market for those loans.

Why can't the "more sophisticated" Europeans see that??!!

Also, the Federal Reserve in the U.S. created too "cheap money" by lowering the interest rate to HISTORICAL lows for too long.

(http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html).

If the Fed Reserve had not done that a lot of these loans would not have been made in the first place because people would not have qualified for the loans.

As far as the "cheap money" for home ownership creating "social stability" (supposedly a function of government) it should be noted that the U.S. has had a higher home ownership rate than any other developed country since WW II including any country in Europe. They did not need to create these bad loans for that purpose.

In any case, it was a failure of government that caused the crisis, not what Mr. Sarkozy and other Europeans are blaming on the private sector [though the private sector did act stupidly, for sure, but they were not at the heart of the problem].

Sarkozy, as head of the EU, can have all the high profile meetings he likes, but they will not solve a problem if they don't understand its causes. And that Sarkozy quote above shows he doesn't have a clue.

[Ade]

I'm not interested in Sarkozy's grandstanding. His country has a appalling 1.5trillion euro public debt, chronic unemployment for the last 20 years, awful fiscal policies that destroy small and medium sized business and huge general porverty due to low wages.

This was all happening long before any convenient 'crise mondial' turned up for him and his compliant press to blame it on. As some economists (who don't get on TF1 or France2) have pointed out, if the banking crisis didn't exist, France would still be in serious economic trouble.

By the way I'm certainly NOT French bashing, i love the place, am married to a frenchie and have lived here for many years. I'm mad enough to run business here though and it's a bit depressing to think that maybe if the world gets out of the crap it's got into in the next 4 or 5 years, France will still b in the s**t.

Sarko is Chirac Mark2: Go around the world puffing your chest out, find a foreign scape-goat for your problems (Americans, Brussels, China etc.) and then do nothing. The domestic audience always falls 4 it.

[Rick]

DAISY that was so unkind: [w]hy is France's answer to everything a conference or a summit?’ The expenditure may be a little on the huge side. But this is after all a Latin country where politics is in the first instance gestural; and ‘gestural’ doesn’t come cheap…

Talking of which, Angela Merkel’s reluctance to come tripping along at his ‘rotating-Presidentship’s call is entirely understandable: whatever pan-European (partial!) solutions may eventually be forthcoming, one thing is more than certain…

The ‘package’ will mean that Germany and the other ‘balance-sheet-competent’ nations have to bail out or somehow stand surety for the more ‘gestural’ counterparts.

[Romain]

There was a nice cartoon in le Canard enchaîné : Dominique Strauss Khan (IMF Ceo) is asked his views on financial crisis -"Even if the plan is imperfect, immediate action is required".
Then DSK is asked his views on le Parti Socialiste crisis -" This is a far more complicated problem to solve".
Team spirit looks like "mission impossible" in EU, let's hope that crisis will reshuffle the cards within the next few years.

[susan durst, france]

Dot : no offence intended ! I'm well aware that the Livret A directs funds to the public building industry. However the plan you mentioned was to shore up building projects in the private sector (and the thousands of jobs entailed) which have been frozen due to lack of credit.

There's nothing wrong with "C dans l'Air" ! I only meant to suggest that these talkshows often distort facts in order to inject some controversy into the debate. Today's media is full of bias, hype and polemics, so I prefer to cross-check different sources in order to get some idea of the facts.

[dot king]

Susan, here's a link to an article in "Challenges" which describes what was discussed in detail on "C dans l'air".

http://www.lemonde.fr/economie/article/2008/10/01/crise-francois-fillon-pret-a-puiser-dans-le-livret-a-pour-financer-l-economie_1101547_3234.html#xtor=RSS-3234

No offence taken, but "C dans l'air" is a pretty even-handed discussion programmme.
I hate the injustice of making small savers pay for les gros incompétents - as that particular economist said "une tapette à mouches pour tuer un éléphant".
There are people out there with ridiculous amounts of money, where's their solidarité entre copains in times of trouble? :)

On last night's news, it was said that (in the present crisis and the way of handling it) every child born in the USA already owes the government $56,000 - is this constitutional?
I wonder if doing the same mathematics for France would cause a drop in the birth-rate?

[Romain]

Dot,

Hum ! be careful when you use words like "tapette" and "elephants", one might gather that Jack Lang intends to assault socialist leaders. lol
This livret A issue is highly symbolic : the rate of social housing construction is way too slow, and funds remain unemployed. On the other end, savings are sacro-saint and French people have one of the highest rate of personal saving in the world, they don't want anyone to gamble with it, so it is hands orff politicians ! We've had our lesson after the huge subsription of Franco-Russian bonds collapsed in 1917. The German had their's during Weimar's Republic times.
French indivuals altogether keep huge amounts of physical gold since generations. All the contrary from our american friends.

[qwerty]

What I appreciate about C dans l'air is that Calvi invites non-mainstream commentators and experts who sort of "unclothe the emperor". They frequently have a different and more in-depth and pragmatic take on events than what"'s written in the paper or spoken by "langue de bois" politicians. Calvi can be annoying at times because he likes the sound of his own voice and for the sake of so-called simplifying things for the viewer, interrupts/delays/deviates his guests' interventions. His replacement is even worse - he bluntly interrupts them. Very frustrating when the invité is (and it's frequent) saying something that seems sound and interesting.

[christopher muir]

ADE - Thanks for your observations. From where I sit (Australia), I'm able to watch the PBS flagship TV programme "Newshour." It is never prone to hysteria or tabloid journalism. A few hours ago, I watched their usually relaxed economics' commentator revealing, through his edgy body language, grave concern about the US financial situation. He was quite incredulous about America becoming a socialist state. He simply can't believe that the once-sacred market has failed so miserably. I notice that you agree about the many failures. They affect the world, so let Sarko have a go. You never know, we might one day have to call on Ahmadenijad or Chavez. Now that would be really something!

[V]

To Don:

I'm sorry to disagree with you, but your analysis stops a bit too early.
Freddie and Fanny were certainly government-sponsored, not government-run, but more like private companies enjoying government guarantee, and in their run for profit, they launched in the derivatives business.
AIG made exactly the same mistake, for exactly the same reasons: its (initially) small investment-banking department, too eager to enjoy the huge profits of the derivatives market, brought down this insurance giant.

The low interest rates was an US government policy to stimulate growth and bring the dollar down, and indeed inflated the real estate bubble; but this was in the same spirit: daring, but risky policies americans so admire.

It was certainly not an excess of prudence, or regulations.
No earlier than 7 months ago, on March 11, Christopher Cox, chairman of the Securities and Exchange Commission, was boasting: “We have a good deal of comfort about the capital cushions at these firms at the moment.”

Comfort, right. And a good deal of it.
And while Europe was asking US for regulation of the hedge funds and derivatives market, the five big investment banks were lobbying for the opposite:

"decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. ... On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary."
http://www.nytimes.com/2008/10/03/business/03sec.html?em

In short, the problems stem from too much risk-taking, disregard of warnings, incompetence and a reckless run for profit. The government's part in it is obvious, but so is the part of those private buccaneers of the finance that are now to be saved with public money (solution found by a certain -- Henry M. Paulson Jr.).

[Daniel Strohl]

CHRISTOPHER,

No French equivalent of Six-Pack Joe popped-up readily in my mind. However, this amusing expression reminds me of one of the favourites of my boss 40 years ago : "front bas" (low forehead). Front bas could be seen as a hybrid between Six-Pack Joe and redneck :).

We have many of the sort here in France, but usually they don't drink much beer - with the exception may be of the Alsatians (I am one :) and the Nordistes :)

[John Gregory Flinn]

DOT KING - regarding livret A, I understand the interest earned is NOT assessable for French 'Impot Sûr Les Revenus', which is nice!

Political rivalries are at work: no-one wants to pave the way for a federal europe and I doubt if Sarkozy has that as an objective with his co-ordinating efforts.

Europe's financial problems are mostly imported from the US. It remains to be seen 'how much', and 'which' debt instruments. The depth of the risks from 'Credit Default Swaps' has yet to become known.

[rocket]

Hi Daniel

"No French equivalent of Six-Pack Joe popped-up readily in my mind."

I can only think of Marcel as an equivalent.

Like this French "pur sang" LOL

http://tinyurl.com/28n7lb

[Don]

Hello V -

You write: “Freddie and Fanny were certainly government-sponsored, not government-run, but more like private companies enjoying government guarantee, and in their run for profit, they launched in the derivatives business.”

On paper you are correct, but in reality, they were run by government.
Please see this video of a 2004 House Committee Hearing on Freddie Mac and Fannie Mae (FMFM) . It shows politicians refusing additional controls on FMFM.

http://www.youtube.com/watch?v=fa0agm7lIPQ

When more strict controls were proposed the House members blocked it as you can see and hear in the video. On paper FMFM was not government run; in reality, what they could and could not do was COMPLETELY controlled by the oversight House Committee on housing as the video shows. As far as I know, that is the reality. The video shows what really went on and does not depend on the interpretation or spin of a journalist or some other type of writer. You can see it for yourself.

The unlimited backing of FMFM by the U.S government allowed these institutions to take on too much risk.

In addition, it is worthwhile noting that one CANNOT change human nature (at least, no one has done so so far). But, one CAN change incentives through legislation and this was a government responsibility. We can condemn these people for taking on too much risk, but given the perverse incentives of unlimited govt. backing, one should have expected this behavior.

Also, the Federal Reserve set the federal funds rate at historically low levels for most of the past 6 – 7 years. and from this flowed all the other evils. Without this occurring, so many people getting loans that they were not qualified for could NOT have happened, and that is the heart of the matter. We can condemn the housing bubble but to me, that seems useless because human nature will react to perverse incentives and NONE of us will be able to change that. Condemning this will not change human nature. Only changing the incentives can do that. and too cheap money (low federal funds rate) CAN be controlled. If the federal funds rate had not been so low AIG and other companies could not have gotten into the trouble they did. In the first instance, it required all these bad loans and too cheap money was the underlying cause that made these bad loans possible. One has to go to the ultimate cause. Condemning human nature will not solve the problem in the long run. Changing incentives will. It would be nice if everyone acted like angels, but that will never happen. Government set up the basic rules of the game, and from that point on, it was predictable that it would get out of control at some point.

[Daniel Strohl]

ROCKET,

"Like this French "pur sang" LOL"

A good laugh can't do any harm ...

ROMAIN,

"French indivuals altogether keep huge amounts of physical
gold ..."

Alas, not me !

PS : A propos éléphants & so on :)

There was a hilarious "retransmission" of a théâtre de chansonniers (Deux Anes ?) this evening on "Paris Première". One of the guests was Huchon, le président de la région IDF. He has a good sense of humour - which is unfortunately not the case of all the éléphants :).

La tête de turc de service était Ségolène. Huchon vient d'écrire un livre (avec un titre curieux et bien trouvé, que j'ai bêtement déjà oublié) - bien sûr, l'un des chansonniers s'est fait un devoir d'en lire un extrait, un portrait au vitriol de Ségolène ...

Pour enfoncer le clou, une chansonnière s'était costumée en Ségolène partant à la pêche aux moules. Absolument hilarant - la salle a chanté avec elle "à la pêche aux moules, moules" - les moules étant remplacées par des "bourdes".

Si Ségolène est élue en 2012, Huchon va se retrouver embastillé en Poitou-Charente avant d'avoir compris ce qui lui arrive (quoique ... il a l'esprit rapide et du coffre as well :)

[azloon]

[Front bas could be seen as a hybrid between Six-Pack Joe and redneck :).

We have many of the sort here in France, but usually they don't drink much beer - with the exception may be of the Alsatians (I am one :)] DS

Daniel, i have you pegged as a 'Joe 12-pack.'

:)

[christopher muir]

DANIEL -

Thanks. I've just read a list of habits that qualify a person to be described as a genuine Six-Pack Joe. (LA Times.)

http://latimesblogs.latimes.com/sports_blog/2008/10/is-sarah-palin.html

[Romain]

Thanks to Christopher Muir for enlightening us on "Joe six packs".
I like the "Marcel" interpretation, the most straight forward equivalent in French would be "Blaireau" (no reference to Tony Blair), kind of know nothing- heavy drinker- football fan- junk food addict who has an opinion on everything and lets you know it.

[dot king]

"DOT KING - regarding livret A, I understand the interest earned is NOT assessable for French 'Impot Sûr Les Revenus', which is nice!"

John Gregory Flinn

Yes, it is "nice", but until now (or very recently) it has been restricted to only a couple of banks - certainly the Caisse d'Epargne and perhaps the BNP - not absolutely sure of my facts here, but it's not important to my point.

The account also has a ceiling of €15,000 and only one LA per person.
So, it's "nice" yes, mais sans plus. The tax on the interest on the maximum is not exactly a gift amounting to a golden parachute equivalent :)

I believe the government is considering allowing all banks to offer the Livret A.

Don --

Again, you are correct, you just don't push it far enough. The House Fin Serv Committee's attitude towards FMFM has in fact a very simple explanation. For the history:

In 2003, a 200-page report issued by Office of Federal Housing Enterprise Oversight indicated that Freddie Mac's records were manipulated to meet Wall Street earnings expectations.
"Manipulative management, a misguided board, close ties to Wall Street. The ongoing investigation into Freddie Mac looks like every other accounting scandal in recent years."
http://www.forbes.com/2003/12/11/cx_aw_1211freddie.html

In 2004 Fanny Mae was fined by the SEC for bookkeeping errors hiding losses - which brought down Raines, its CEO. The investigations continued for years:
http://www.iht.com/articles/2006/03/13/bloomberg/bxmae.php

Senate and House leaders voiced their intention to bring about the needed legislation, no reform bills materialized. A Senate reform bill introduced by Senator John Corzine (D-NJ) (S.1656) never made it out of committee.
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

In 2005, the Federal Housing Enterprise Regulatory Reform Act, sponsored by Senator Chuck Hagel(R-NE) & co-sponsored by Senators Elizabeth Dole (R-SC), John McCain (R-AZ) and John Sununu (R-NH)[1], would have increased government oversight of loans given by Fannie Mae and Freddie Mac. Like the 2003 bill, it too died in committee.
http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190
http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-7896:1

Gerald P. O'Driscoll, the former vice president of the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. They returned some of the profits to the politicians - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents."
http://www.nypost.com/seven/09092008/postopinion/opedcolumnists/fannie_freddie_bailout_baloney_128135.htm

On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.
http://www.msnbc.msn.com/id/12373488/from/RSS/

It's also interesting to have a look at their list of shareholders. On June 30, 2008 for instance, Citigroup, Barclays, Merrill Lynch, Axa, Capital Research, Capital World, Washington Mutual, Dodge & Cox and Fidelity owned together more than 2/3ds of Fannie Mae shares.
http://finance.yahoo.com/q/mh?s=FNM

In short, FMFM went the exact same path to destruction other big private companies did before : corruption, fake bookkeeping, risky investments, ties with both politicians and finance barons, to end in virtual bankruptcy.

V

[V]

Don --

Condemning "human nature" is a subject deserving some discussion. People can be educated not to take it as natural to speculate on everything and anything. Europeans likely would have been too chicky to take a mortage they knew they're unable to pay for, betting on the continued spike in real estate prices. Many americans did, and you may call this human nature, I prefer to say it's a matter of economic culture. US economy far outpasses any other because of this business spirit, and also finds itself now in the hole for exactly the same reason. Or this can be educated to not go against reason.

As to incentive, I agree with you. Cheap money was the policies of the US government, seeking a weak dollar against China and Europe's currencies, and a boost of the economy.
In the end it was all a combination of these policies, subprimes, repackaged derivatives, lack of regulation of the OTC and hedge fund markets, rating agencies' corruption. But from where we stand here in Europe, it all amounts to "THE american way" of doing business.

[Daniel Strohl]

CHRISTOPHER,

Thanks for the funny link. I have never read the LA Times. I start today ...

AZLOON,

I am really honoured by the distinction you granted to me :). I will try to deserve it ...

[rocket]

Kouchner should learn to speak english

http://www.reuters.com/article/worldNews/idUSTRE4941IO20081005

[azloon]

despite my comments on another string about the sad state of the u.s. these days, i couldn't help but notice the following quote from NS at his 'summit:"

“We want a capitalism of entrepreneurs,” Mr. Sarkozy said. “We don’t want speculators.” (from NY Times)

give me a break !@!

sarko dares to talk about encouraging entrepreneurs?? everyone knows that most french with a good idea, half a brain and a healthy sense of greed live in california.

just as the u.s. leads the world in innovation in many other areas, it's also apparent we are masters of financial shenanigans. a nation of big risk, bluster and occasional magnificent blunders.

sarko and most other european leaders want to assign blame for the current world financial crisis on the u.s. without wanting to assume any responsibility themselves, to look good, or less bad.

if i were french, dutch or german, i would want to ask my own country's bankers why they didn't perform 'due diligence' on u.s. mortgage products they purchased, or accepted as collateral. blaming it on the u.s. would seem like a cop-out to me.

btw, sarko, speculation is a perfectly legitimate activity which contributes to market liquidity benefitting all paticipants. i am sure claims such as this will be met with howls of derision for the next ten years or so while we recover from the latest inevitable meltdown.

[rocket]

Hi Romain

"I like the "Marcel" interpretation, the most straight forward equivalent in French would be "Blaireau"

Not sure I agree with you. Bernard Hinault was also known as the "blaireau" and he seemed anything but.

Maybe I'm wrong but here's a picture of a Marcel. (wearing the white "marcel" of course)

http://tinyurl.com/4sdptm

[azloon]

DSt, CMu

let's get this straight:

it's 'joe six-pack', not ''six-pack joe' -- and he's a 'rouge cou', not a 'cou rouge'.

[V]

A bit of recent history of the Fannie Mae and Freddie Mac.

In 2003, a 200-page report issued by Office of Federal Housing Enterprise Oversight indicated that Freddie Mac's records were manipulated to meet Wall Street earnings expectations.
"Manipulative management, a misguided board, close ties to Wall Street. The ongoing investigation into Freddie Mac looks like every other accounting scandal in recent years."
http://www.forbes.com/2003/12/11/cx_aw_1211freddie.html

In 2004 Fanny Mae was fined by the SEC for bookkeeping errors hiding losses - which brought down Raines, its CEO. The investigations continued for years:
http://www.iht.com/articles/2006/03/13/bloomberg/bxmae.php

Senate and House leaders voiced their intention to bring about the needed legislation, no reform bills materialized. A Senate reform bill introduced by Senator John Corzine (D-NJ) never made it out of committee.

In 2005, the Federal Housing Enterprise Regulatory Reform Act, sponsored by Senator Chuck Hagel(R-NE) & co-sponsored by Senators Elizabeth Dole (R-SC), John Sununu (R-NH), to increase government oversight of loans given by Fannie Mae and Freddie Mac. Like the 2003 bill, it too died in committee.
http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-7896:1

Gerald P. O'Driscoll, the former vice president of the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. They returned some of the profits to the politicians - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents."
http://www.nypost.com/seven/09092008/postopinion/opedcolumnists/fannie_freddie_bailout_baloney_128135.htm

On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.
http://www.msnbc.msn.com/id/12373488/from/RSS/

So this is why Congress was so cuddly with FMFM.

It's also interesting to have a look at their list of shareholders. On June 30, 2008 for instance, Citigroup, Barclays, Merrill Lynch, Axa, Capital Research, Capital World, Washington Mutual, Dodge & Cox and Fidelity owned together more than 2/3ds of Fannie Mae shares.
http://finance.yahoo.com/q/mh?s=FNM

No wonder they and other hedge fund investors pressed for reckless disregard of risk.

[V]

Speculation is a perfectly legit attitude ? :) Oh but then so must be usury, uhm.. stealing, robbing and so on. But then you already said on another thread that bank robbers are heros in America. Quite a shift of moral values, Sarah Palin might say.

[V]

A little recent history of FMFM.

In 2003, a 200-page report issued by Office of Federal Housing Enterprise Oversight indicated that Freddie Mac's records were manipulated to meet Wall Street earnings expectations.
"Manipulative management, a misguided board, close ties to Wall Street. The ongoing investigation into Freddie Mac looks like every other accounting scandal in recent years."
http://www.forbes.com/2003/12/11/cx_aw_1211freddie.html

In 2004 Fanny Mae was fined by the SEC for bookkeeping errors hiding losses - which brought down Raines, its CEO. The investigations continued for years:
http://www.iht.com/articles/2006/03/13/bloomberg/bxmae.php

Senate and House leaders voiced their intention to bring about the needed legislation, no reform bills materialized. A Senate reform bill introduced by Senator John Corzine never made it out of committee.
In 2005, the Federal Housing Enterprise Regulatory Reform Act, sponsored by Senator Chuck Hagel(R-NE) & co-sponsored by Senators Elizabeth Dole (R-SC) and John Sununu (R-NH) would have increased government oversight of loans given by Fannie Mae and Freddie Mac. Like the 2003 bill, it too died in committee.
http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190

Gerald P. O'Driscoll, the former vice president of the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. They returned some of the profits to the politicians - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents."
http://www.nypost.com/seven/09092008/postopinion/opedcolumnists/fannie_freddie_bailout_baloney_128135.htm

On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.
http://www.guardian.co.uk/commentisfree/2006/may/04/theotherlobbyingscandalin

No wonder Congress was so friendly to FMFM.

[V]

A little recent history of FMFM.

In 2003, a 200-page report issued by Office of Federal Housing Enterprise Oversight indicated that Freddie Mac's records were manipulated to meet Wall Street earnings expectations.
http://www.forbes.com/2003/12/11/cx_aw_1211freddie.html

In 2004 Fanny Mae was fined by the SEC for bookkeeping errors hiding losses - which brought down Raines, its CEO.

A Senate reform bill introduced by Senator John Corzine never made it out of committee. In 2005, the Federal Housing Enterprise Regulatory Reform Act, sponsored by Senator Chuck Hagel(R-NE) & co-sponsored by Senators Elizabeth Dole (R-SC) and John Sununu (R-NH) would have increased government oversight. Like the 2003 bill, it too died in committee.
http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190

Gerald P. O'Driscoll, the former vice president of the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. They returned some of the profits to the politicians - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents."
http://www.nypost.com/seven/09092008/postopinion/opedcolumnists/fannie_freddie_bailout_baloney_128135.htm

On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the House Financial Services Committee. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.
http://www.guardian.co.uk/commentisfree/2006/may/04/theotherlobbyingscandalin

No wonder Congress was so friendly to FMFM.

[JPH]

France and Sarko has the EU presidency for 6 months. Is it better to sit on a chair and to do nothing ? ( as usual).The do-nothing european mantra is not for Sarko. For once a presidency who try to do something.

[Ros]

DOT: The biggest "provider" (perhaps not the word) of the Livret A is and always has been La Poste (now proudly calling itself La Banque Postale) - in Paris, the post-offices (instead of doing their work properly) have become shops selling all sorts of papeterie -I bet they'll soon be selling Christmas cards too!

[richard.jones]

@Rocket,

Kouchner's English is pretty good. He learnt it from his Belgian wife Christine Okrent.