Wikileaks and the Ireland in the Alps

The so far harmless “Cablegate” revelations about banks haven’t endangered any states. The lack of “penetration” into the stumbling “bank systems” was already clear.

The first WikiLeaks bank related revelations, in the course of “Cablegate” were not about banks in the U.S., but rather concerned two Austrian institutions: RZB and Bank Austria. Seen journalistically as a “juicy story,” it is in terms of substance nothing extraordinary, particularly in comparison to what the people in the U.S. Embassy in Vienna collected in connection with suspected rogue states. Or what they gathered about devilish miscreants and “cabled” to Washington. This is just a sampling of the likely problematic but unavoidable business relations, such as they are, in some areas. But naturally, one must stay away from certain regions — like the Russia of the Oligarchs — leaving others to do business there. Such as U.S. Banks.

The question is how does one, as a bank, go about such business? And the Americans have found nothing glaring from the WikiLeaks documents that could be used against the two Austrian banks. The problem was the high transfer of bank data to the U.S., via the secret FMA in order to quash U.S. suspicion. More exciting than WikiLeaks was the unnoticed comment yesterday about the question posed by a prominent secretive central banker: Why must the former Skandalbank Hypo Alpe Adria 2009 be allowed to go broke, instead of receiving emergency state help? “Then,” the central banker thinks, “we could have had the sovereign crisis in Europe a year before.” Translated into everyday speak, the sentence sounds something like this: Then Austria would have been the first European country with a problem in 2009 and would have had to start the whole thing. An Ireland in the Alps, you might say. It can go that fast.

That it didn’t in fact go that far shows that the Austrian state of Carinthia guaranteed and took over almost 20 billion euros (ten-fold that of the state budget) from Hypo-Liabilities. The entire bank system would have been affected by the bank’s bankruptcy, and the state, had it just stood by, would have experienced a “Greek-like” budget deficit of beyond 10 percent. There was billions for the emergency bailout, which has hindered the budgetary meltdown scenarios — a well laid out plan.

When one now recalls the crooked-smiling Carinthian politicians (together with the unspeakable shyster men of the “success story” of Hypo-bank), and remembers that such types still run state governments, a sigh escapes. “Thank God, at least there isn’t more talk about the banks.” Except, the state would have saved a lot of money if the supervisors had had access earlier. Not only in Carinthia, but also somewhat in Ireland, where three system-relevant big banks could have brought the entire country into bankruptcy. Or in Germany, where the taxpayers must pay billions to pick up the pieces left by the actions of the German state bank.

In other words, a way must be found to allow the state governments to intervene more quickly, before the important banks (those that pose a threat because of their size) send the country into bankruptcy. Something which would allow the government to quickly “cut” out toxic assets and put the workable sections up for sale. After the crisis in the often-heard motto: One should save the customers, not the stockholder.

This requires comprehensive changes in conceptions of property rights, without which the entire continent would stagger from one state crisis to the next, because the banking systems would be well out of control. That stockholders and security bankers are discussing such changes is a ray of hope. Because merely increasing capital requirements is not enough to prevent a full blown big bang emergency.