Tuesday, August 21, 2012

Felix Zulauf interview part 1: All important banks have to be nationalized immediately

The financial market expert Felix Zulauf expressed his opinion in an interview for Wirtschaftswoche Online that the only way to prevent the global banking system from collapsing is the nationalization. Greece will not be the only country that will have to give up because of the economic depression, says Zulauf.

Mr. Zulauf, which large European banks will soon run out of air?

Felix Zulauf: In principle, several banks in Europe are already bankrupt, probably even some in the U.S. But governments are not a big bank went bankrupt.

Why not?

The failure of a large bank would lead to another failures since the first bank has been purchased credits or derivatives of the others. It would therefore be a chain reaction and ultimately come to the collapse of the financial system itself. In order to prevent that from happening, over the next two to three years more banks will be nationalized, in the peripheral countries, but also beyond.

Large nationalization will be cheaper in three to four years?

That is right. During the crisis, then all important banks would have to be nationalized immediately - at low prices. Then you would have to suspend bonus payments and maintaining and the bank moves to a stronger capital bases. In its current form, many banks will not survive.

Why not?

You have too much debt, and not just the in banks alone. In recent decades, we have all built up debts in the public and private sectors, to the extent that the system can no longer function. We can not grow anymore because we have too much debt on our neck.

The U.S. bank JP Morgan has set from derivative transactions two billion dollars in the sand. Is it conceivable that this loss is distorting the banking system?

Two billion dollars is a no trouble for JP Morgan. The loss was put away relatively quickly. But it could also be ten times more. The problem is different: there are only five banks in America that have about 95 percent of outstanding U.S. derivatives on their books. JP Morgan is one of them. In Europe, the business is spread a little wider. Global moves of the derivatives market are somewhere 400-700 trillion. These are enormous sums. There is always the risk that a bank is not properly secured or has simply speculated. A total collapse would be prevented only by nationalization. I see no other way out.

The regulators require banks to hedge risky business in the future with more capital. Banks can implement higher capital requirements at all?

It has given them since quite a long time. The tougher capital requirements under the Basel III Agreement only take effect from 2019th

Some countries want to strengthen the legislation and push for an earlier implementation?

In principle, to rationalize the financial system, we need better capitalized banks. At present, however, weaken the capital rules the financial system and heavily damaging the economy. If maturing loans are no longer updated, because the banks' balance sheets must shrink due to lack of equity, economic activity is bound to decrease. The problem extends into the emerging markets. There would be affected, especially the countries in Central and Eastern Europe.

To be continued...

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