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Angela Merkel is faced with the problem of getting German public opinion to support the bailout of Greece, Ireland, and then Portugal and next Spain. At the same time she wants to be seen as committed to the euro and the European Union. She is pushing for bondholders to bear a part of the costs of the bailout as part of their responsiblity for decisions they made, so that the German government and taxpayer is not left with the burden. This is not working out well and she is losing public support.

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Siss central will help recapitalize UBS with investment of $5.3 billion for a 9% stake in UBS. Credit Suisse told the central bank that it would raise its funds privtely. It is raising $9 billion privately with help of Quatar Investment Authority. This takes Tier One Capital Ratio to 13.7% for Credit Suisse and to 11.5% for UBS. The governments investment in UBS takes the form of a bond that pays 12.5% coupon and is convertible into a roughly 9% nonvoting stake in the bank. Under the Swiss bailout plan UBS will transfer securities backed mostly by US and European residential mortgages into a special fund, which will borrow as much as $54 billion from the Swiss central bank to finance the holdings. The other $6 billion will come from an equity injection by UBS. The fund will attempt to seel the assets over 8 t 12 years, with the government getting the first $1 billion of any profit and splitting the rest with UBS. In the case of a loss the governemnt would get added stake in the bank. The government intervention will meaqn a reduction in risk taking by the leading Swiss banks. The reason for the governments immediate actionto take the toxic assets off of UBS books was that other banks and institutions wer recently shying away from UBS affecting Switzerland's ability to keep its leading position as a banker for wealth management worldwide. The head of the Siss Federal Finance Administration said that the $60 billion asset purchasing agreement would not lead to losses for the government as the toxic assets had already been aggressively been written down on UBS books. ...

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Experts say there may not be much difference whether a voluntary deal is reached between Greece and the Institute of International Finance or a deal is forced on private bondholders by Greece for the 93% of Greek bonds that are based on Greek laws. Most of the large banks that hold Greek bonds will be subject to persuasion by European authorites (EU, ECB) to accept the deal offered by Greece that brings debt down to 120% of GDP by 2020. The remaining holdouts are the hedge funds that will want to opt out of a voluntary arrangement anyway, because a forced deal by Greece would allow them to collect payments on their credit default swaps. Adam Lerrick, an expert on sovereign debt restructurings, says the hedge funds and other private bondholders are framing the discussion into one of a voluntary agreement that is orderly and an involuntary agreement that is disorderly, as a tactic to scare the European authorites (the EU, ECB) and Greece. He says not only can forced restructurings be orderly, but in this case the improved prospects for Greece with serious debt reduction would lead to a ratings upgrade for Greece. Some hedge funds have said they will sue if forced into the deal. Michael Waibel, at the Lauerpacht Centre for International Law at Cambridge University, says the case would first go to Greek courts where it would be received without much sympathy, and then to the European Court of Human Rights. Only the small number of bonds under Swiss and English law with pari passu clauses insisting on equal treatment of bondholders have any prospects, and even then legal enforcement of any awards is uncertain as shown in the case of Argentina. The 93% of bonds under Greek law have no such clauses and this gives Greece the option for special treatment of bonds held by the ECB....

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The Obama administration's foreclosure prevention programs were designed for subprime lending situations. They were not designed for the high unemployment experienced in the U.S. A Treasury Department effort allows jobless people to postpone mortgage payments for 3 months, the average length of unemployment however is 9 months. Only 7,397 participants are in this program. As part of the bailouts Treasury had $46 billion to spend to prevent foreclosures, as of May 2011 Treasury has spent only $1.85 billion. Because housing provide so much of the underpinnings for the U.S. economy, it is essential to put housing back on a stable footing for an economic recovery. The lack of a sensible plan in this area is simply incomprehensible. Morris Davis, a former Federal Economist, has estimated that a million more homeowners went into foreclosure because of a lack of help for the unemployed. Davis is an associate real estate professor at the University of Wisconsin. He says its simply outrageous that the Obama administration has done so little. President Obama recently took credit for a recovery and jobs saved in the auto industry in Detroit. The failure to come up with a workable plan and to do so little in the larger area of housing and unemployment, is likely to overshadow everything else. This is especially so with the Fed approaching its limits after QE II, and with the administration and the Congress in a stalemate over further stimulus and the deficit....

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Gordon Brown, Britain's prime minister and the finance minister Alistair Darling have lifted their reputations with their decisive plan and execution of it to inject capital and take majority ownership of British banks RBS and HBOS/Lloyds. This comes after earlier missteps which led to a bank run on Northern Rock bank. Their plan is now held up as a model plan around the globe and is being followed in the US and in other countries. It could not have come at a better time, as in the US Fed chairman Bernanke and Treasury Secretary Paulson were having some missteps of their own with their plan to buy up troubled assets. That turned out to be difficult to carry out and may take months- very costly missteps leading to freezing up of global credit markets and criticism from most economists and experts. An account of how the plan was developed as daily events unfolded for Britain's banks.

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The shocks to the UK banking system resumed Monday with the announcement on January 19 that RBS faced losses of a huge magnitude, of 28 billion pounds for 2008 with fresh losses in 2009. RBS shares went down 66%, and at closing on on January 21, 2009, were at 12.5 pence. Lloyds Banking Group shares are at 45.1 pence, at 66 pence. Barclays which has avoided taking government money saw its shares drop 25% on January 16. The government is hoping that its plan to provide insurance that would limit bank's losses on bad loans and investments will work, but uncertainty on how the insurance will be priced is raising doubts about the plan's effectiveness to restore confidence. Especially when RBS is collapsing. The government owns 70% of RBS and 43% of Lloyds. The next step would be nationalization of the banks. According to WSJ nationalization would mean that taxpayers have new liabilities of about $3 trillion or $4 trillion, an amount far exceeding the UK's entire annual economic output.

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The yield on Italy's two year bonds reached 7.269% on November 9, 2011. Italy needs to rollover $300 billion in debt over the next 12 months. And liquidity is becoming a serious problem as investors become cautious about buying Italian bonds. Investors who were attracted to the higher yields on Italian bonds now see the market as too unstable to make purchases. Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, says that the Italian bond market, the third largest in the world, was quite liquid, with investors buying or selling 500 millon euros of Italian bonds at a clip. Now, he says, its hard to trade more than 50 million euros. The only hope is to get enough stability and confidence back into the market, as Italy is too large for any rescue effort by the ECB, IMF or the EFSF. With some stability Black Rock's Fundamental Fixed Income portfolio's chief investment officer, Rick Rieder, says Italian bonds are something he would buy.

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Philip Hampton, chairman of the Royal Bank of Scotland, tells a shareholder at the annual meeting in Edinburgh in June 2014- "compensation in the financial industry got out of line with the underlying performance of the business."

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Basel 2 and 3 allow banks and regulators considerable latitude to calculate risk-weighted assets. Investors aren't certain that the reported capital ratios fully reflect the risks on bank's balance sheets. The Irish banks passed the European stress tests but had to be bailed out. Greek, Portuguese and some Spanish banks also find themselves shut out of private sector funding markets.

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Based on 2009 financial results, 94 largest banks worldwide would be 577 billion euros or $769 billion short of risk free capital they would need to hold if the Basel III rules were applied to these banks. About half of this shortfall is in Europe. This was stated by members of the Basel Committee on Banking Supervision. The banks have till Jan 1, 2019 to comply with the new rules. Banking profits for these banks was 209 billion euros in 2009, suggesting that these banks could meet these requirements from retained profits.

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Even as huge losses continued at RBS bank bonuses remained high. After $15 billion in losses at RBS in 2013, banker bonuses were $960 million for the year. Banker bonuses declined from 679 million pounds in 2012 to 576 billion pounds in 2013. New CEO Ross McEwan, says "I need to keep people engaged." He announced another reorganization. He says RBS "is the least trusted company in the least trusted sector of the economy." This follows public criticism of RBS for not lending enough to small business and unfair treatment of customers. The new plan is for cost cuts to save 2.2 billion pounds by closing 16 corporate call centers and 11 offices in London. Sales and restructuring cuts are planned for 3.1 billion pounds in savings.

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The first signs of a change in Germany's position to promoting growth in Greece came when German chancellor Angela Merkel told CNBC on May 15, 2012: "I have the will, the determination to keep Greece in the euro zone." She added that if Greece's leaders are looking for "stimulus to be pursued for growth in the euro zone, which we could pursue in the interest of Greece, we're open for this. Germany is open for this." The Social Democrats, SPD opposition leaders have long said that Merkel is able to change positions as the situation changes. Looking back she even disassociated herself from her mentor German chancellor Kohl when he was not willing to disclose the names of donors for illegal donations. This has given her the flexibility that another Christian Democratic party leader Schauble lacked in leading Germany. She has also seen poll numbers favoring the CDU dissipate quickly before the 2005 elections and is aware how quickly situations can change, as is happening now with the public in France, Netherlands, Spain, Portugal, Ireland, Greece, and eastern european EU countries growing weary of strict austerity policies pushed by the CDU. A faction of the CDU pushed for strict austerity policies at the recent CDU convention in Leipzig, Germany. Merkel told the CDU about charges that she had shifted on a number of core issues such as nuclear energy, social issues, minimum wage, and euro zone bailouts- "Our political compass has not changed. The context is changing. This is a time of epic change."...

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The $15 billion in losses at RBS in 2013 continues the bad news from RBS. It now goes through another restructuring. This time with new CEO Ross McEwan. RBS plans to reduce the seven business lines to three lines, and set medium term cost cutting target of 8 billion pounds. Headcount will go down by 20,000. Risk weighted assets will be cut by 50 billion pounds.

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Hugo Dixon says the deal made by eurozone leaders for Greece in July 2011 favors private creditors. The bondholder haircut was much smaller, eurozone governments and taxpayers will make up the difference. This he says is like a cat in the bag presented to the receiver as a pig as long as he does not look inside, called a "poke." Dixon says that if Greece cannot implement austerity measures under a new government and the deal has to be renegotiated bondholders may face a larger haircut than the 20% under the current arrangement. It would have been better he says to do this now but the ECB's threats may have led to the German and French governments treating private creditors with kids gloves.

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Simon Johnson reminds readers that in October 2008, Johnson, Peter Boone, and James Kwak, suggested that some European countries had given taxpayer-backed pledges to banks that had liabilities larger than their own gross domestic products. Their proposal included creation of a European Stability Fund with at least 2 trillion euros of credit lines guaranteed by all member nations, as well as Switzerland, Sweden, and the U.K., to buy time dealing with underlying insolvency in Ireland and other countries. Simon Johnson, is former chief economist of the IMF. He says the euro-zone only belatedly acted on this advice and the politicians never took responsibility for what they allowed to happen. The runaway financial globalization he says, was allowed to happen by US Treasury officials, but European banks were seriously involved in similar behaviour. These banks became too large relative to their economies, captured their regulators and acted recklessly. Europe's leaders haven't fully faced up to this and keep telling their voters that the problem is entirely because of US banks irresponsible behaviour. Ireland was the extreme example of this. And Johnson provides readers with the names of two books on the subject. David Lynch has "When the Luck of the Irish Ran Out," Fintan O'Toole has "Ship of Fools: How Stupidity and Corruption Killed the Celtic Tiger." Both laying out the intermingling of politicians, bankers and real-estate developers that resulted in the reckless growth and collapse of Ireland. In his own account in Atlantic magazine, May 2009, Johnson compared the US economc boom-bust-bailout cycle to what happened to Argentina, Russia and Indonesia. These were emerging middle class countries with crony capitalism, unsustainable debt and other problems. Johnson says, don't think these problems are limited to emerging markets. Its a global or general occurrence in which powerful people get together to build an economic model that brings growth based on debt. Under public pressure the German government keeps saying there must be burden sharing, that creditors must take losses also. Johnson says Angela Merkel and her colleagues have not thought through what signal this sends to the markets- which is to tell people to get out of Irish banks now. And the big German banks are telling the government they face big losses if Ireland or other European countries default. If the ECB can't pay, and the German taxpayer won't pay, Johnson asks, does the IMF have the resources to tackle Spain? If China offers to recapitalize the IMF with some of its $2.6 trillon in reserves, and becomes the largest shareholder, would the IMF headquarters be moved to Beijing as the Articles of Agreement require for the largest shareholder. ...