[Skybird]

The Neue Zürcher Zeitung - a SWISS paper:
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A zombie is gone, but a monster is born

The state should never again have to prop up an ailing bank, it was said 15 years ago after the financial crisis. Now the emergency has arrived - and yet Credit Suisse must not go under. On the contrary, its takeover will make UBS all the more "too big to fail".
dit Suisse has wrought.

"As Friedrich Dürrenmatt said in his "The Physicists," "A story is finished when it has taken its worst possible turn. Watching the implosion of Credit Suisse in recent days, months, even years, one is reminded of this dictum. "The accident is at first improbable, then becomes more and more probable as time goes on, until it becomes a reality," Dürrenmatt said of his play.

Just months ago, no one thought the failure of Credit Suisse was possible. An accident, however, it is not. In 2007, the Swiss bank had a stock market value of 100 billion francs; last Friday, 7 billion of that was still left - the same amount as the Vaud Cantonal Bank. Thus, a huge destruction of value has taken place, caused by managers who negligently underestimated risks and helpless board members who too often failed to control the bank.

Credit Suisse's hubris consisted in believing that it was on the safe side after the financial crisis because - unlike UBS - it had survived the crisis without state aid. CS believed that it had found a lucrative niche in investment banking in particular, but its risk management was completely inadequate, as the accumulation of billions in losses shows.

Credit Suisse gambled away its trust, no one was willing to stand by it, and only a few, sometimes lukewarm, expressions of solidarity came from the business community. Last week, therefore, the only thing left to do was to play the end game. The decisive factor was not the lack of communication by the government or the SNB. Rather, the SNB did what one would expect from a lender of last resort in such a crisis: it rushed to the bank's aid with a huge injection of liquidity. But the fire could no longer be extinguished.

"Capitalism without bankruptcy is like religion without sin. It doesn't work," said economist Allan Meltzer. In other words: If a company does not have a functioning business model, it must be able to go bankrupt. This is probably true of Credit Suisse, as the destruction of value and the outcry from customers and creditors show, even if it has recently taken on panic-like characteristics.

Instead of winding up the company, it is now being absorbed by UBS. After all, CS shareholders are bleeding and will receive less than half of Friday's share price. But one might ask on the one hand: Why are there still 3 billion francs to be distributed to them at all? Because the federal government is simultaneously granting UBS guarantees for possible losses of 9 billion francs and such for certain liquidity assistance.

On the other hand, the shareholders have to swallow the merger simply because it has to happen quickly. They are deprived of their usual right to have a say. This is an alarming encroachment on their property rights. And what kind of signal is that sending to the market when UBS shareholders may not even want the deal?

Switzerland has spent more than a decade since the financial crisis working out rules to ensure that a bailout with risks to taxpayers would not happen again ("too big to fail" rules). These plans would provide that Swiss business, with its systemically important components such as payments, can be carved out and continue to operate.

The Financial Market Authority would also have broad powers to restructure a bank under such circumstances. But at the press conference, it was said that these regulations would not be applicable at all to such a case, in which confidence would be lost. So has there been years of misguided planning? Is "too big to fail" as virulent as it was 15 years ago?
"Too big to fail" rules as a farce?

The fact that the SNB and the financial supervisory authority pushed for the takeover of Credit Suisse by UBS had to do, on the one hand, with the fear of a Monday stock market panic. On the other hand, there was international pressure from Washington and London.

Switzerland has now gotten rid of a zombie bank, but will wake up on Monday with a monster UBS. "Monster" because its new balance sheet total will be almost twice the size of Swiss economic output. The new UBS is thus all the more too big to be allowed to go under - "too big to fail" is thus back with full force.

The takeover of CS by UBS would probably not have been without alternative. One possibility besides the "too big to fail" regime: The state could have - and it is hard for a liberal to write this - made an offer for the bank itself right away, also at a fraction of the share price. It could then have privatized the bank or parts of it again as soon as possible, which would have prevented UBS from becoming a giant.

Would these variants have scared investors and the whole financial system so much more than what has now been agreed? Nobody knows. Just last week, bank supervisors and central banks were saying with conviction that the current turmoil was not comparable to 2008 because the banks were much more robust than they were then. This is now proving to be optimism of convenience, if the comments of those involved are to be believed.


What is certain is that the current resolutions have strong "collateral damage" that will linger. After all, if certain companies cannot go bankrupt, this undermines support for capitalism. The bailouts during the financial crisis had already worked in this direction. CS President Axel Lehmann is right: this March 19 is a historic and sad day. It is a black day for the financial center, for many CS employees and also for confidence in the market economy.
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Mistrust between banks is spreading, internationally the willingness to lend money to each other has significantly suffered.

Thats what served as a catalyst in 2008 to bring the crisis up to tempo.


Once again, the public is being unrestrainedly fooled through and through.