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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.

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With Greece and Ireland in economic shreds, while Portugal, Spain, and perhaps even Italy head south, only one nation can save Europe from financial Armageddon: a highly reluctant Germany. The ironies—like the fact that bankers from Düsseldorf were the ultimate patsies in Wall Street’s con game—pile up quickly as Michael Lewis investigates German attitudes toward money, excrement, and the country’s Nazi past, all of which help explain its peculiar new status...

...Jörg Asmussen offers the first hint of an answer—in his personal behavior. He is a type familiar in Germany but absolutely freakish in Greece—or for that matter the United States: a keenly intelligent, highly ambitious civil servant who has no other desire but to serve his country. His sparkling curriculum vitae is missing a line that would be found on the résumés of men in his position most anywhere else in the world—the line where he leaves government service for Goldman Sachs to cash out. When I asked another prominent German civil servant why he hadn’t taken time out of public service to make his fortune working for some bank, the way every American civil servant who is anywhere near finance seems to want to do, his expression changed to alarm. “But I could never do this,” he said. “It would be illoyal!”...

...This is what makes the German case so peculiar. If they had been merely the only big, developed nation with decent financial morals, they would present one sort of picture, of simple rectitude. But they had done something far more peculiar: during the boom German bankers had gone out of their way to get dirty. They lent money to American subprime borrowers, to Irish real-estate barons, to Icelandic banking tycoons to do things that no German would ever do. The German losses are still being toted up, but at last count they stand at $21 billion in the Icelandic banks, $100 billion in Irish banks, $60 billion in various U.S. subprime-backed bonds, and some yet-to-be-determined amount in Greek bonds. The only financial disaster in the last decade German bankers appear to have missed was investing with Bernie Madoff. (Perhaps the only advantage to the German financial system of having no Jews.) In their own country, however, these seemingly crazed bankers behaved with restraint. The German people did not allow them to behave otherwise. It was another case of clean on the outside, dirty on the inside. The German banks that wanted to get a little dirty needed to go abroad to do it.

About this the deputy finance minister has not that much to say. He continues to wonder how a real-estate crisis in Florida could end with all these losses in Germany.

...They were paid to put their firms in jeopardy, and so it is hard to know whether they did it intentionally or not. The German bond traders, on the other hand, had been paid roughly $100,000 a year, with, at most, another $50,000 bonus. In general, German bankers were paid peanuts to run the risk that sank their banks—which suggests they really didn’t know what they were doing. But—and here is the strange thing—unlike their American counterparts, they are being treated by the German public as crooks. The former C.E.O. of IKB, Stefan Ortseifen, received a 10-month suspended sentence and has been asked by the bank to return his salary: eight hundred and five thousand euros.

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if a wave of bankruptcies sweeps through Europe, the situation looks different; many banks would get into trouble -- and not just in Europe.

Tickerguy wrote..

We intentionally loaned Greece money knowing they could not pay. We did so even though we knew Goldman and others had helped Greece lie about deficits and thus their fiscal condition.

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Proverbs 23:5
...for riches certainly make themselves wings; they fly away...

http://classic.biblegateway.com/passage/....

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Analysis: Banks prepare for Greek default, want EU help
By Philipp Halstrick and Stella Dawson

WASHINGTON | Sun Sep 25, 2011 11:12pm EDT

(Reuters) - Bankers are bracing for a Greek default, and their best hope is that Europe can erect firewalls around the banking system strong enough and soon enough to prevent it from spreading to other euro-zone countries.

So gloomy were bankers from major financial institutions, attending a conference on the sidelines of the International Monetary Fund/World Bank sessions, that they compared the risks of financial market contagion to the collapse of Lehman Brothers.

"The direct financial exposure in the European banking system is extremely manageable. What's the indirect impact? You're going to have one massive demand shock," said Vikram Pandit, Citigroup's chief executive officer.

"The fact is we should all expect some sort of a GDP impact if you have a demand shock that's going to be that significant and that's going to have an impact on business."

The biggest fear is that Greece defaulting on its 340 billion euros in government debt would trigger widespread selling of euro-zone debt causing a much broader financial crisis.

"It is very pessimistic," said another senior commercial banker at an international financial institution. "It (Greek default) is what we have to prepare for. I don't think it is the most likely scenario, but we have to be prepared."

Andreas Schmitz, president of the Germany's BdB banking Association, said an isolated Greek insolvency would be manageable, even though they would have to take writedowns larger than the current 21 percent they have made provisions for.

"But if a wave of bankruptcies sweeps through Europe, the situation looks different; many banks would get into trouble -- and not just in Europe," he told Reuters.

Privately, bankers say they could face 60-80 percent bond losses on a Greek default. Faced with that, they said they would be willing to renegotiate a "better deal" than the 21 percent loss they have agreed to absorb as part of a July Greek bond swap deal, if it lowers the risk of Greek insolvency.

RING-FENCING

It is the broader contagion that vexes the IMF.

Strains in financial markets are growing and European banks are facing increasing difficulty in tapping short-term funding markets, euro-area bank credit default swap spreads have doubled to about 300 basis points, and European bank stocks plunged nearly 30 percent since early August.

The IMF estimates that these broader problems have increased European bank exposure by 300 billion euros ($405.5 billion), and urged banks to strengthen their capital buffers and European Union leaders to stand ready with extra help to prevent financial contagion.

Raising bank capital, however, is proving difficult.

U.S. and European banks have raised roughly $100 billion in extra equity capital this year, according to Institute of International Finance calculations.

But Peter Fisher, senior managing director at BlackRock, told the IIF meeting that the decline in bank stocks makes it "pretty challenging" to access private markets, a view bankers shared.

One banker said financial institutions will need state help or EU-wide help to ring fence them and strengthen their reserves.

The IIF, which represents major global banks, said that bank liquidity problems already are spreading worldwide. Poland is seeing sharp withdrawals of funding and Korea, putting downward pressure on their currencies, its economist Philip Suttle said.

To stabilize the situation and prevent a Lehman-style seize-up of financial markets, one senior international finance diplomat said European leaders need to unveil a bailout package of "shock and awe" proportions to cover both sovereign and bank debt.

Only a huge announcement would convince financial markets that European leaders will backstop markets, prevent solvent banks from collapsing and prevent contagion, he said.

European officials were discussing ways to strengthen their 440 billion euro European Financial Stability Fund, possibly leveraging it to the tune of 1-2 trillion euros.

Bankers at the meetings welcomed these discussions to ring-fence the financial system from a disorderly Greek default. Domenico Lombardi, a former IMF official now at the Brookings Institution, said it certainly is needed.

"I believe the strategy that European policymakers are trying to implement is to buy a little of extra time, a few more weeks or maybe a couple of months, in order to get the enhanced EFSF in place so that the European rescue fund with added operational capability ... could recapitalize the European financial institutions," he said.
http://www.reuters.com/article/2011/09/2....

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Second Greek Bailout May Be In Jeopardy

Posted on 26 September 2011 by Andy Dabilis

As the drumbeat of default expectation grows in Athens, Europe and the United States, German Finance Minister Minister Wolfgang Schaeuble, whose country is footing the biggest part of a failed $152 billion bailout for Greece, said it will take the shattered Greek economy a decade to recover.

He told the business magazine WirtschaftsWoche that it was “clear that Greece will not be able to return to capital markets in 2012, as we thought in 2010.” He said that, instead, “Greece will need a decade rather than a year to get fully competitiveness.”

He said a planned installment loan of $11 billion would probably go ahead in October, without which Greece will go broke and be unable to pay workers and pensioners.

He also said a promised second bailout of $157 billion agreed upon by European leaders in July was now in doubt as well because of growing beliefs Greece can’t make the repayments or keep its economy from crashing, despite deep pay cuts for public workers, big tax hikes and slashed pensions and the laying off and eventual firing of as many as 100,000 employees. He was speaking at a news briefing on the sidelines of the IMF annual meeting in Washington where Greek Finance Minister Evangelos Venizelos was to meet the agency’s head, Christine Lagarde. The IMF, European Union and European Central Bank, known as the Troika, are providing the rescue package of loans.
http://greece.greekreporter.com/2011/09/....

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LOS ANGELES (MarketWatch) -- Germany's Deputy Finance Minister Joerg Asmussen said Sunday that a decision on the next tranche of aid to Greece may take longer than previously expected, as European and International Monetary Fund officials study Athens' fiscal progress, according to reports. "The disbursement will not take place before the mission finishes and it will not take place if the mission is not convinced by the measures taken," Reuters quoted Asmussen as saying on the sidelines of a meeting in Washington. The euro /quotes/zigman/4867933/sampled EURUSD -0.90% moved sharply lower in Asian trading hours Monday, falling to $1.3418 from $1.3493 in late North American trade Friday.
http://www.marketwatch.com/story/german-....