I have decided to combine these two articles (yes, the one about the citizen spy program is a couple weeks old) but they pretty much almost go hand in hand if you think about it as the tail wagging the dog. Okay, so, the government or Wall St. or London have no idea who or which banks are holding Europe's 'Troubled Loans'. But..... they do know the exact second you swiped your credit card at the mall the other day, and know the exact transaction, price, place of purchase, how much that item coast, and where in the world it was manufactured. They could also tell you how many of that product they sold that month and that year, to exactly how many people it was sold, through what period of time. Also, they can tell you who sent you an E-mail, where it came from, what the entire E-mail (attached files and all) said and were about, as well as when you received it, exactly the second that person sent it to you, that persons E-mail account information, their credit card number, their bank account information, your credit card number, your E-mail account information, your bank account information, the exact amount of money it is you have on you. BUT yet, they can not figure out or find out who and where it is that Europe's 'Troubled Loans' are......

Debtors’ Prism: Who Has Europe’s Loans?

http://www.nytimes.com/2010/06/06/business/global/06toxic.html?page...

IT’S a $2.6 trillion mystery.

That’s the amount that foreign banks and other financial companies have lent to public and private institutions in Greece, Spain and Portugal,
three countries so mired in economic troubles that analysts and
investors assume that a significant portion of that mountain of debt
may never be repaid.

The problem is, alas, that no one — not investors, not regulators, not even bankers themselves — knows exactly which banks are sitting on the
biggest stockpiles of rotting loans within that pile. And doubt, as it
always does during economic crises, has made Europe’s already
vulnerable financial system occasionally appear to seize up. Early last
month, in an indication of just how dangerous the situation had become,
European banks — which appear to hold more than half of that $2.6
trillion in debt — nearly stopped lending money to one another.

Now, with government resources strained and confidence in European economies eroding, some analysts say the Continent’s banks have to come
clean with a transparent and rigorous accounting of their woes. Until
then, they say, nobody will be able to wrestle effectively with
Europe’s mounting problems.

“The marketplace knows very little about where the real risks are parked,” says Nicolas Véron, an economist at Bruegel, a research organization in Brussels. “That is exactly the
problem. As long as there is no semblance of clarity, trust will not
return to the banking system.”

Limited disclosure and possibly spotty accounting have been long-voiced concerns of analysts who follow European banks. Though most large
publicly listed banks have offered information about their exposure — Deutsche Bank
in Frankfurt says it holds 500 million euros in Greek government bonds
and no Spanish or Portuguese sovereign debt — there has been little
disclosure from the hundreds of smaller mortgage lenders, state-owned
banks and thrift institutions that dominate banking in countries like
Germany and Spain.

Depfa, a German bank that is now based in Dublin, is one of the few second-tier European banking institutions that have offered detailed
disclosures about their financial wherewithal, and its stark troubles
may be emblematic of those still hidden on other banks’ books.

Despite boasting as recently as two years ago of its “very conservative lending practices,” Depfa, which caters primarily to governments, has
flirted with disaster. It narrowly avoided collapsing in late 2008
until the German government bailed it out, and today its books are
still laden with risk.

DEPFA and its parent, Hypo Real Estate Holding, a property lender outside Munich, have 80.4 billion euros in
public-sector debt from Greece, Spain, Portugal, Ireland and Italy. The
amount was first disclosed in March but did not draw much attention
outside Germany until last month, when investors decided to finally try
to tally how much cross-border lending had gone on in Europe.

Before Greece’s problems spilled into the open this year, investors paid little heed to how much lending European banks had done outside
their own countries — so it came as a surprise how vulnerable they were
to economies as weak as those of Greece and Portugal.

“Everybody knew there was a lot of debt out there,” said Nick Matthews, senior European economist at Royal Bank of Scotland and one of the authors of the report that tallied up Greek, Spanish and
Portuguese debt. “But I think the extent of the exposure was a lot
higher than most people had originally thought.”

Concern has quickly spread beyond just the sovereign bonds issued by the three countries as well as by Italy and Ireland, which are also
seriously indebted. Private-sector debt in the troubled countries is
also becoming an issue, because when governments pay more for
financing, so do their domestic companies. Recession, along with higher
interest payments, could lead to a surge in corporate defaults, the European Central Bank warned in a report on May 31.

Hypo Real Estate has hundreds of millions in shaky real estate loans on its books, as well as toxic assets linked to the subprime crisis in the
United States. In the first quarter, it set aside an additional 260
million euros to cover potential loan losses, bringing the total to 3.9
billion euros. But that amount is a drop in the bucket, a mere 1.6
percent of Hypo’s total loan portfolio. Hypo has not yet set aside
anything for money lent to governments in Greece and other troubled
countries, arguing that the European Union rescue plan makes defaults unlikely.

The European Central Bank estimates that the Continent’s largest banks will book 123 billion euros ($150 billion) for bad loans this year, and
an additional 105 billion euros next year, though the sums will be
partly offset by gains in other holdings.

Analysts at the Royal Bank of Scotland estimate that of the 2.2 trillion euros that European banks and other
institutions outside Greece, Spain and Portugal may have lent to those
countries, about 567 billion euros is government debt, about 534
billion euros are loans to nonbanking companies in the private sector,
and about 1 trillion euros are loans to other banks. While the crisis
originated in Greece, much more was borrowed by Spain and its private
sector — 1.5 trillion euros, compared with Greece’s 338 billion.

Beyond such sweeping estimates, however, little other detailed information is publicly known about those loans, which are equivalent
to 22 percent of European G.D.P. And the inscrutability of the problem,
as serious as it is, is spawning spoofs, at least outside the euro
zone. A pair of popular Australian comedians, John Clarke and Bryan
Dawe, who have created a series of sketches about various aspects of
the financial crisis, recently turned their attention to the bad-debt problem in Europe. After grilling Mr. Clarke about the debt crisis in a mock quiz show,
Mr. Dawe tells Mr. Clarke that his prize is that he has lost a million
dollars. “Well done,” says Mr. Dawe. “That’s an extraordinary
performance.”

On a more serious front, Timothy F. Geithner, the United States Treasury secretary, visited Europe at the end of May and called on European
leaders to review their banks’ portfolios, as American regulators did
last year, to separate healthy banks from those that need intensive
care.

Others say that if such reviews do not occur, the banking sector in Europe could be crippled and the broader economy — dependent on loans
for business expansions and job growth — could stall. And if that
happens, says Edward Yardeni,
president of Yardeni Research, the Continent’s banks could find
themselves sinking even further because “European governments won’t be
in a position to help them again.”

LENDING practices at Depfa may have seemed conservative before its 2008 meltdown, but its business model had always been based on a precarious
assumption: borrowing at short-term rates to finance long-term lending,
often for huge infrastructure projects.

From its base in Dublin, where it moved from Germany in 2002 for tax reasons, Depfa helped raise money for the Millau Viaduct, the huge
bridge in France; for refinancing the Eurotunnel between France and
Britain; and for an expansion of the Capital Beltway in suburban
Virginia. Depfa was also a big player in the United States in other
ways, like lending to the Metropolitan Transportation Authority in New York and to schools in Wisconsin.

Before the current crisis, Depfa was proud of its engagement in Mediterranean Europe. In its 2007 annual report, the company boasted of helping to raise 200 million euros for
Portugal’s public water supplier and 100 million euros for public
transit in the city of Porto. In Spain, it helped cities such as Jerez
refinance their debt and helped raise money for public television
stations in Valencia and Catalonia as well as raise 90 million euros
for a toll road in Galicia. And in Greece, Depfa raised 265 million
euros for the government-owned railway and in 2007 told shareholders of
a newly won mandate: providing credit advice to the city of Athens.

Depfa said it performed a rigorous analysis of the creditworthiness of its customers, including a 22-grade internal rating system in addition
to outside ratings. More than a third of its buyers earned the top AAA
rating, the bank said in 2008, while more than 90 percent were A or
better.

The public infrastructure projects in which Depfa specialized were considered low-risk, and typically generated low interest payments. Yet
because long-term interest rates were typically higher than short-term
rates, Depfa could collect the difference, however modest, in profit.

To outsiders, Depfa still looked like a growth story even after the subprime crisis began in the United States. Hypo Real Estate, which
focused on real estate lending, acquired Depfa in 2007. After the
acquisition, Depfa kept its name and its base in Dublin.

But when the United States economy reached the precipice in September 2008, banks suddenly refused to make short-term loans to one another,
blowing a hole in Depfa’s financing and leaving it with a loss for the
year of 5.5 billion euros and dependent on the German government for a
bailout.

As Hypo’s 2008 annual report said of Depfa: “The business model has proved not to be robust in a crisis.”

Even with Depfa’s myriad travails, most investors weren’t aware of the extent of its cross-border problems until it disclosed them this year.

The question now hanging over Europe is how many other banks have problems similar to Depfa’s, but haven’t disclosed them.

On May 7, the cost of insuring against credit losses on European banks reached levels higher than in the aftermath of the Lehman Brothers collapse in the United States. Officials at the European Central Bank
warned that risk premiums were soaring to levels that threatened their
ability to carry out their fundamental role of controlling interest
rates.

Three days later, European Union governments joined with the International Monetary Fund to offer nearly $1 trillion in loan guarantees to Europe’s banks. At
the same time, the European Central Bank began buying government bonds
for the first time ever to prevent a sell-off of Greek, Spanish and
other sovereign debt.

The measures, widely regarded as a de facto bank rescue, restored some calm to the markets, but critics said that the aid merely bought time
without reducing overall debt load. Europe’s major stock indexes and
the euro have continued to fall as investors remain dubious about the
ability of Greece and perhaps other countries to repay their debts.

Even so, figuring out which banks may be most exposed to those countries largely remains a guessing game.

Regulators in each country know what assets their domestic banks hold, but have been reluctant to share that information across borders. Lucas
D. Papademos, vice president of the European Central Bank, which gets
an indication of banks’ health based on which ones draw heavily on its
emergency credit lines, said at a news conference Monday that a small
number of banks were “overreliant” on that funding.

But Mr. Papademos, who retired last Tuesday at the end of his term, wouldn’t be more specific. He said European banks would undertake a
vigorous round of stress tests by July.

It’s obvious that Greek and Spanish banks hold large amounts of their own government’s bonds. Spanish banks hold 120 billion euros in
sovereign debt, according to the Spanish central bank. But a central
bank spokesman said that those holdings were not a problem because,
thanks to the European Union’s rescue plan, the prices of Spanish bonds
have recovered.

Guessing also falls heavily on public and quasipublic institutions like the German Landesbanks, which are owned by German states sometimes in
conjunction with local savings banks. Five of Germany’s nine
Landesbanks required federal or state government support after they
loaded up on assets that later turned radioactive, ranging from
subprime loans in the United States to investments in Icelandic banks
that failed.

According to the Royal Bank of Scotland study, banks in France have the largest exposure to debt from Greece, Spain and Portugal, with 229
billion euros; German banks are second, with 226 billion euros. British
and Dutch banks are next, at about 100 billion euros each, with
American banks at 54 billion euros and Italian banks at 31 billion
euros.

“Banks continue to not trust each other,” says Jörg Rocholl, a professor at the European School of Management and Technology in
Berlin. “They know other banks are sick, but they don’t know which
ones.”

DEPFA and Hypo Real Estate, meanwhile, face continued setbacks as they try to steer back to health. Hypo reported a pretax loss for the group
of 324 million euros in the first quarter, down from 406 million euros
a year earlier.

At the end of May, the German government raised its guarantees for Hypo to 103.5 billion euros from 93.4 billion. Some analysts say they think
the bank may need more aid in the future.

“I don’t think it’s over yet,” says Robert Mazzuoli, an analyst at Landesbank Baden-Württemberg in Stuttgart.

Senate Democrats Pass Bill Allowing Govt to Collect Addresses, ATM Records of Bank
Customers

http://www.cnsnews.com/news/article/66439

Senate Democrats united to pass a financial regulatory bill that allows the government to collect data on any person operating in financial markets at any level, including the collection of personal transaction
records from local banks that list customers’ addresses and ATM
receipts.
 
The Senate voted 59-39 on Thursday to pass the bill,
the chief aim of which is to more-heavily regulate the financial
industry. The bill now goes to a conference committee in the House of
Representatives, where differences between the House and Senate
versions will be ironed out.
 
The bill, if it becomes law, would create the Bureau of Consumer Financial Protection
and empower it to “gather information and activities of persons
operating in consumer financial markets,” including the names and
addresses of account holders, ATM and other transaction records, and
the amount of money kept in each customer’s account.
 
The new bureaucracy is then allowed to “use the data on branches and
[individual and personal] deposit accounts … for any purpose” and may
keep all records on file for at least three years and these can be made
publicly available upon request.
 
Senator Richard Shelby (R-Ala.) said that Democrats who claim this new
bureaucracy will protect consumers are misleading the public.
 
“[T]he American people are being misled,” Shelby said on the Senate
floor on Thursday night. “The authors of this bill are telling them
that this legislation has been drafted to address the recent financial
crisis and that it will ‘tame’ Wall Street.  I am afraid that they are
going to be disappointed.”
 
Shelby slammed the new consumer bureaucracy, saying that it was meant
not to protect consumers but to “manage” them by monitoring their
behavior.
 
“Mr. President, make no mistake, behind the veil of anti-Wall Street
rhetoric is an unrelenting desire to manage every facet of commerce
under the guise of consumer protection. 
 
“They may be interested in protecting consumers, but they are more interested in managing them,” Shelby said.
 
Shelby also criticized the idea that Americans need government to watch
over their every financial move, saying that it was better to allow
people the freedom to make their own choices and fail than to never
allow them the freedom to choose at all.
 
“Mr. President, I have faith in the American people and their ability
to make good choices,” said Shelby.  “Granted, we do not always choose
well.  But I believe that a poor choice freely made is far superior to
a good choice made for me.”

“I am afraid that the architects of this bill do not share this sentiment,” he said. “Nor do they share my faith in the American
people.”
 
Shelby further said that the ability of the Federal Reserve to collect
such detailed information about the most basic of financial
transactions was the beginning of an effort by government to regulate
every financial action of every American citizen.
 
“This new consumer bureaucracy is intended by its architects in the
Treasury to begin the process of financial regulation with the intent
of changing the behaviors of the American people,” said the senator.
 
Shelby appears to be correct. The bill allows the bureau to collect any and all information on any person operating in the financial markets.
 
As it reads: “[T]he Bureau shall have the authority to gather
information from time to time regarding the organization, business
conduct, markets, and activities of persons operating in consumer
financial services markets.”