The Standard Chartered Bank plc saga, part I

I will not be alone in saying that the Standard Chartered Bank’s compliance problems with the New York State banking regulator (Department of Financial Services - DFS) caught me by surprise. 

I have been following this bank for several years, as it seemed to provide straight forward banking services internationally and made a good return in so doing.  Management seemed quite competent.  Finally, the fact that it had acquired what remained of American Express Bank Ltd. where I spent the first 16 years of my professional career added to my interest.  Actually, I was looking for a good entry point to invest in its stock.

However, the misdeeds that it allegedly committed and apparently did not contest as well as what has transpired so far about its senior management’s conduct have led me to suspend any investment attempt.

Essentially, the bank was accused of willingly defying US regulations forbidding banks to channel money of sanctioned countries such as Iran through the US.  The DFS accused it of laundering more than $250 billion over several years through its US banking operations, of falsifying internal records to prevent regulators from tracing the identity of its Iranian clients and of filing untrue reports.  That a major bank decide, in a very big way, to defy the laws of its host country is simply baffling.

The reaction of senior and top management in this whole affair further raised alarm bells in my mind.  There was of course the now infamous email exchange between the Head of US operations and his superior in which the former clearly outlined the dangers of the bank’s course of action and the latter replied “who these f*** Americans think they are to tell us what to do”.  There was also the truculent initial response to the DFS action stating that only $14 million of transfers had been mishandled and that the bank was contemplating countersuing for damage to its reputation!  This from a bank that had been under Federal oversight from 2004 to 2007 for money laundering.  Then, in short order, the bank agreed to settle with the DFS, paying $340 million and accepting renewed oversight.  As Butch Cassidy asked the Sundance Kid in the eponymous movie, “Who are these guys”? 

What is worrying in this case is that this is not an instance where a low level trader decides to go rogue.  It is likely that the decision to continue doing business with Iran was vetted by the very top management; the Board of Directors was probably at least aware of the decision/policy, and if it was not, then more serious questions must be asked.  What management decides to choose Iran over the US?  What kind of senior manager blurts out the f*** word when referring to the Congress of a host country?  So far, I find no reassuring answers.  Either we are dealing with a culture or a strategic problem. 

The cultural hypothesis is that the top echelons of the bank include throwbacks to the Indian days of the British Empire, except that New York is not a remote outpost in the bush.  When a senior manager not only refuses to listen to his country manager’s cogent alert and advice but also responds with unrestrained fury, when the corporation lets it be known of its intent to counter sue its regulator for damage to its reputation, under the circumstances, I, for one, wonder about the culture of the place.

The strategic hypothesis is that the bank’s main focus is emerging markets, many of which, by definition, are less closely regulated than developed ones, often condone business practices which would be frown upon elsewhere, and in some cases are governed by regimes which are not models of good behavior.  New York is important to the bank for providing access to the US dollar system, but the Americas-Europe-UK segment accounted for only 10% of Standard’s operating income in 2011.  In that sense, and in my view, the bank probably has a higher risk profile than generally acknowledged.

Bottom line, the US regulatory and judicial process is not over by a long shot as the Federal Reserve, Treasury and the Justice Department are still to conclude their own enforcement actions.  I am among those who applaud the DFS decision to go public and break the apparently stalled multi-party negotiations.  I found the allegations against the bank shocking (called me an old-fashioned banker). 

Finally, having myself spent most of my banking and investing careers in emerging markets, I have come to the conclusion that the Standard Chartered business model is riskier than previously thought, and more importantly, that such higher risk profile is unlikely to be easily reduced. 

At some point under the right circumstances and at the right price, the bank may become an interesting investment or trading idea.  

Swimming interlude: Perfidious Albion

As far as I can remember, we the French have had a trust issue with the Brits.  Perhaps centuries of national conflicts, armed or diplomatic, explain that.  This gap extends to the sports arena.  I remember in particular a famous Irish rugby referee in the 60s who was renowned for applying the advantage rule so as to improve the flow of the game, except that to us French it seemed to flow only one way, against us.  But now, as an American citizen, I have the feeling that perfid Albion may reach over the Atlantic Ocean.

I am talking about the debate as to whether Michael Phelps is the greatest Olympian ever.  Please note that the term of reference is Olympian, not athlete.  It is very difficult to compare athletic achievements across the ages and across disciplines.  But it seems to me that Phelps may well be the One, and if he is not, is as likely to be as anyone else.

I was therefore surprised by the reaction of two famous British athletes who perhaps thought they should be considered as candidates for the title.  Sebastian Coe, one of the great middle distance runners of the 1980s with two Olympic gold medals in the 1500m and two silver in the 800m, declared that, in his view, Phelps probably was not the greatest.  He mentioned sprinter Jesse Owens, rower Steve Redgrave, decathlete Daley Thompson and gymnast Nadia Comaneci as candidates for such title, and, tongue in cheek (?) stopped short of perhaps nominating himself.  Lord Coe is the Chairman of the London Olympics Organizing Committee.  There is no question that each one his nominees had extraordinary Olympic achievements, but why they should be considered and Phelps shouldn’t is a mystery to me.

Steve Redgrave realized the "massive" feat of winning a gold medal in rowing in five consecutive Olympics.  This has to rank right up there among the greatest Olympic achievements.  As one who did varsity crew in college and rowed for the Bataillon de Joinville, I have particular respect for the fact that three of these gold medals were won in coxless pair, the most technically challenging boat of all. But when Sir Steve muses, with typical British slyness (Frenchly speaking) that Phelps’ feat would have been more impressive if he achieved it over six or seven Games, one is not sure how to react.  Yes, rowing is brutal.  Having done both sports, there is no doubt in my mind that a 2000m rowing race is more draining than even a 400m medley or a 1500m free swim.  You can’t therefore row multiple events. 

But training to swim middle distances, not to mention different strokes, is far harder mentally, and perhaps physically, than training in crew.  While Olympic level rowers can take some time off and remain competitive, swimmers can’t, witness Phelps’ difficulties in 2010 and 2012.  This is why no swimmer can remain at the top over a twenty year period.  Physiologically, it is also impossible for a 40 year old middle distance swimmer to beat 20 year olds, unlike in rowing.  Witness Janet Evans’ attempt to qualify in the 400m and 800m free this year.  Dara Torres’ swimming career did span 24 years and at 41 she came within 1/100 of a second of winning gold, an extraordinary feat.  But that was in the 50m free.  Dawn Fraser, the all-time great Australian sprinter, could have won gold in four consecutive Olympics had the Australian Swimming Union not banned her for 10 years for pulling  a prank at the 1964 Games.  Even then, I doubt she could done it again in ’72.

As Lord Coe noted, who is the greatest will be debated in pubs for a long time.  As this argument is starting, it is striking, although perhaps not so surprising, that great athletes, such as Sebastian Coe and Steve Redgrave, have big egos; after all, you have to believe in yourself to succeed.  I think that Michael Phelps has a very good chance to be the best Olympian (so far), as he combines durability with domination, eclectism with the sheer number of medals won (mostly gold).  But he also has a quality which is necessary in order to be considered an all time great Olympian, and that is class.

Swimming interlude

As you may have realized from several past notes, swimming is my second passion.  As you may also imagine, my loyalties were somewhat divided yesterday night when the time came for the 4x100 freestyle men final.

Because of the d*** time delay which NBC and its advertisers impose on TV viewers, I tried to follow the race online, but even there, the sites that provided “live timing” were also experiencing delays and other quirks.  So when my iPad’s screen finally showed the results, I was both stunned and elated.

Once again, life shows that forecasts and predictions are just that, extrapolations of the past which are as likely to pan out as to fail.  As in economics, sport experts find it very difficult to model human factors, either at the individual or group level.

Australia was the overwhelming favorite, the US was expected to be a worthy second with no hope of winning, and the French didn’t register on anybody’s radar (I believe the British bookmakers put the odds of a French victory at 7:1).  Contrarians anywhere?

After having styled themselves as the Weapons of Mass Destruction who would not just beat but annihilate the rest of the field, the Australians felt the overwhelming pressure to deliver and they faltered.  Indeed, faltered is perhaps too tame a word; they collapsed, finishing fourth behind Russia.

The US team had a very good race; indeed, it performed better than most expected.  Nathan Adrian touched first with a very fast and personal best of 47.89.  Michael Phelps kept the lead with a 47.15 split, probably a personal best and unexpected after his disappointing 400 IM performance.  Cullen Jones retained the lead in a solid 47.70.  Ryan Lochte fought very hard in 47.74, a good time for him.  This was the best line-up the US could offer.  Matt Greevers is intrinsically faster than Lochte but he had just finished swimming his 100 backstroke semi-final; under the circumstances, he might have matched Lochte’s time, but that would not have been enough to win.

The French, no longer under the microscope, swam very well too, and as the US in 2008, won thanks to an exceptional anchor who simply defeated models and extrapolations.  Amaury Leveaux, the team’s “mental stabilizer”, was a close third in 48.13 in the first leg.  Fabien Gilot, another survivor from the 2008 relay, advanced his team to second place in a strong 47.67.  Perhaps the first surprise performance was Clement Lefert, a 200 free specialist, who clocked a 47.39, surely a personal best when adjusted for the relay start.  Despite swimming the heats and semi-finals of the 200 free earlier in the day, Yannick Agnel blew the field with a blistering 46.74, exactly one second faster than Lochte.

Paraphrasing Yogi Berra, 95% of swimming is half mental.  The 4x100 relay, once again, proved it.  For France, after losing a “sure” gold medal in 2008, winning the gold at the world short course in Dubai and the silver at the European long course championships in Budapest, this London victory was sweet.

What about the losers?  Before we write off the Australian Missile, James Magnusson, let us not forget that Alain Bernard, after losing the anchor fight to Jason Lezak in 2008, came back to win the 100 free gold medal.  The mental pressures of a relay are different from those of an individual race.  Not all individual swimmers are good at relays and vice versa.

For the Americans, I think that it may be a good time to reflect on two issues.  First, it is generally accepted that relays give a good picture of an overall program.  In this regard, it is uncomfortable to think that Ryan Lochte, an extraordinary swimmer but not a sprinter, was the best available choice to complete the US relay.  It is also worth studying why France, not a traditional swimming world power, has come to be competitive with the US in sprint.  It started its ascent when a number of French swimmers came to study and swim at Auburn, but it has accelerated since then with less input from the top US swimming meccas.

Second, there is excessive pressure on the top US swimmers to sign up for as many events as they can.  As the rest of the world catches up and 200m events now incorporate semifinals, this can trigger adverse chain reactions: excessive physical stress, insufficient recovery intervals, disappointing results, self doubt, etc.  This hasn’t happened yet in these London Games, but it did in the past and could again in coming days.

Nelson at Trafalgar

On October 21^st, 1805, HMS Victory, Admiral Nelson’s flagship, sent out to its fleet the most famous naval message in history: “England expects that everyman will do its duty”.  Unfortunately for us French they did, and we lost the battle of Trafalgar.

The British navy was better trained and, at that time, enjoyed better command.  Nelson’s fleet was also under unified command while its adversary was a mix of French and Spanish task forces.  Nevertheless, the French and Spanish ships had huge firepower, and the British knew that they had to go all out to win.

Suppose however, that Nelson’s message had been different, such as:

-          “I know some of you men haven’t slept well these last few days.  Those who want to take the day off are excused from combat”, or

-          “Officers, because you receive a higher pay, I expect you to fight real hard.  As for you men, you can duck any time you feel like it”, or

-          “I have decided that one man on each battery will act as an observer in order to spot areas warranting future improvement”, or

-          “I have a plan to win this one without suffering any casualty”.

With less than an all out effort from all of his crews, Nelson could very well have lost the battle, and for sure British casualties would have been far higher.  Instead, he won everlasting fame, yet his example seems to have been lost of most future politicians.

Consider the cases of France and the US, where enormous adjustments must be made to correct structural economic and financial imbalances that threaten the future of these countries;  one would think that their political leaders would call for an all out effort, where every man and woman would be expected to contribute to national revival.  Not really.

What we have seen instead is a reluctance to acknowledge the gravity of the challenge and the inevitability of sacrifices and hardship in order to prevail.  We have also seen an effort to divide society, between rich and poor, young and old, entrepreneurs and salaried workers. 

 There is no question that the rich will need to pay more taxes, but there is also no question that almost half of the active population can’t continue paying no income taxes.  As Prime Minister Monti declared early in his mandate, the burden needs to be fairly shared among all.  Politicians should stress solidarity and fairness, not privilege or clientelism.  It is human nature that if Peter is asked to make an effort from which Paul is exempted, Peter will look for every way to wiggle out. 

We are at a time of crisis; the economies of most of the world are unstable, growth is negative to anemic, debts are ballooning while money is printed with abandon; trust in politicians, and therefore implicitly in democracy, is at an all time low; in the eyes of many, capitalism has failed to provide progress and stability for all (even when its critics have had a hand in its excesses).  Put it another way, we are in a state of unstable equilibrium the consequences of which could be very dire.  As at Trafalgar, it is time for a call, expressed succinctly and clearly, for each one of us to take our fair share of pain and to do our best to pull the country through.

Nowhere man (homo economicus)

Like all career generals, top economists prepare themselves for the day when their theories can be put to the test of reality (or is it the other way around?).  Certainly, the so-called Great Recession that has hit the US since 2008, then morphed into an existentialist crisis for Europe, and now challenges China’s investment driven growth is such a opportunity.  And indeed, we have seen a wide array of economists make the case for their deeply felt diagnoses and attending cures.  Yet they have little to show so far.

He’s a nowhere Man,

Sitting in his Nowhere Land
Making all his nowhere plans
For nobody.

Traditionalists have thundered against the wasteful ways of the consumer society and its propensity to spend itself to exhaustion, mostly with money borrowed from any willing lender, investor or speculator.  The cure is simple: let them fail, lance the boil and wait for nature to heal itself.  Unfortunately, and as we have seen when applied in some places, this triggers economic collapse, societal tensions and political instability.  But not recovery.

Doesn’t have a point of view,

Knows not where he’s going to,
Isn’t he a bit like you and me?

Others, who quote Keynes, have argued that the state should step up to make up for the reduced demand from the private sector and thus avoid an economic depression.  Some have also argued that such boost would also result in some degree of inflation which would help reduce the excessive indebtedness of both private and public borrowers.  We haven’t seen much inflation in the US where this approach was tried; on the contrary, prices have been stable but public debt has surged and little of that fiscal stimulus has found its way into worthy investment projects for a variety of reasons.

Nowhere Man, please listen,

You don’t know what you’re missing,
Nowhere man the world is at your command.

A variant of the Keynesian school of thought is epitomized by the Japanese economist Richard Koo who has made the persuasive argument that the current crisis of excessive private sector indebtedness doesn’t respond to traditional monetary policy as debtors focus on reducing their debt outstanding, even if interest rates are at rock-bottom.  In his view, the state had to crank up spending and go on as long as necessary;  in most wealthy countries, funding this fiscal effort should be doable as private sector savings would generally equal public sector borrowings.  While his reasoning is powerful, the example of Japan, which, by and large, has followed his prescription, is not: twenty years after its real estate bubble burst, Japan is still doing poorly while its public debt is soaring.

He’s as blind as he can be,

Just sees what he wants to see,
Nowhere Man can you see me at all?

Yet another group put its hopes on reforms, sometimes stated vaguely, or extravagantly.  By definition, reforms will change the way people work and live, will produce some winners and losers and can cast a pall of uncertainty that will last for several years, for reforms take years to be debated, agreed and implemented.  Successful reformers have been able to fine-tune the process so that change took place while stability was preserved and expectations were not let to run wild, with fear or overexcitement.  But reforms alone didn’t work. 

Doesn’t have a point of view,

Knows not where he’s going to,
Isn’t he a bit like you and me?

There is no lack of example of countries overcoming deep financial or economic crisis; there were no magical wands, excessive debts were not transmuted into savings, orthodox measures such as public spending cuts were combined with currency devaluation and strong foreign direct investments; and yes, there also were some policies that were “unorthodox” in their days such as privatizations, tax cuts and private pension reforms.  But what these countries also had was strong political leadership, capable and willing to carry out painful recoveries and to rally their nations behind the effort.

Nowhere Man, don’t worry,

Take your time, don’t hurry,
Leave it all ‘till somebody else
Lends you a hand.

Chile was engulfed in 1982 by the Latin American debt crisis despite having carried out wider economic reforms than the rest of the region.  Its downfall however was precipitated by an overvalued peso and excessive US dollar borrowings.  Because it was governed by the Pinochet-led military junta, Chile, unlike its neighbors, received no international financial help and was left to solve its problems on its own.  It did so by first nationalizing the banks (closing a few unviable ones), devaluing the peso, controlling public spending and restructuring its private and public debt in a way that was both fair and conducive to stabilizing and even raising foreign productive investments.  It has often been argued that having an authoritarian government helped Chile carry out unpopular policies.  This is true to some extent only; there were times in 1984 and 1985 when the position of the government was precarious; besides there have been many examples of authoritarian governments that were miserable economic failures. 

But Chile’s success in handling its crisis can be attributed to other important factors as well: unlike other countries, Chile cleaned up the financials of public companies before it privatized them; it insured that many ordinary Chileans could benefit from large privatizations thanks to its so called capitalism popular; from the beginning, it promoted free markets and private investments.  Finally, Chile offered a number of intangibles which are generally overlooked yet were of critical importance, such as a fair and predictable legal system, a very competent core administration where corruption was absent.  To this day, this remains one of the best turn-around stories.

He’s a nowhere Man,

Sitting in his Nowhere Land
Making all his nowhere plans
For nobody.

Brazil had been an intractable basket case for two decades, with endemic hyperinflation and spiraling public debt when F. H. Cardoso, then minister of Finance, launched the Plano Real in 1994.  The plan’s insight was to break the vicious cycle of expected inflation and general indexation without imposing price controls.  It did so by creating a money of reference (the Unidade Real de Valor- URV which was in effect indexed to the US dollar, not to domestic inflation) alongside the money of exchange (the cruzeiro), and setting it initially at a high level.  After confidence in the URV was won, the URV became the new money of exchange, the Real.  The strength of the Real was preserved by setting positive interest rates, by controlling public sector spending at times via financial negotiations with Brazilian states and by large scale privatizations.  FHC’s credibility helped him carry out his key policies, although former allies reproached him his free market initiatives which he nevertheless had the courage to see through.

Some elements are common to these turnaround examples: currency devaluation (delayed in the case of Brazil as the key problem was internal debt and lack of faith in the currency), public spending cuts, free market emphasis for greater efficiency and accountability, generally, policies that are consistent and understandable for the public, and leaders who are competent, honest and unafraid.

Homo economicus has a lot of ideas, and while there is always room for new policies, abolishing "no pain no gain" is not one of them.  In the end, he is only as good as the homo politicus to whom he reports and from whom he should get support.

Reply to George Soros' June 26 FT article

In his Financial Times article of June 26 (How to shift Germany out of its cant do mode, June 26), George Soros explained that avoiding a euro meltdown was just a matter for Spain and Italy to agree to structural reforms in return for which Germany would agree to a mutualisation of a “significant portion of their outstanding stock of debt”, such German agreement having been withheld so far mostly because of domestic politics.  This remains to be seen.

In Italy, Prime Minister Monti has been keen to push through reforms, yet has found great resistance from a variety of Italian vested interests.  In Spain, reining in the discretionary powers of provincial governments has proven difficult.  Although they were not mentioned by Mr. Soros, Greece has done very little to reform its bloated public sector while France has rejected the German economic model.

Structural reforms on the scale that is needed take years to be debated, approved and finally implemented.  And this is when populations are not dead set against them.  Therefore, a debt mutualisation today would have to rely on promises (couched in the form of laws which can be later amended) which will become reality, at best, over a much long time-frame.

There is a say that if you owe little, it is your problem, but if you owe a lot it becomes your creditor’s problem.  As a creditor, Germany is fast approaching this point of no return.  Given that hundreds of billions of debt are in the balance, it is very doubtful that the threat of fines or penalties would sway delinquent countries or compensate Germany for the financial burden it would assume.

A larger issue is whether such reforms would be successful in securing the place of the weaker countries alongside Germany in the eurozone over the long-term.  I would love to swim a relay with Lochte, Phelps and Adrian, but, however hard I train, our team wouldn’t make the Olympic cut.

Finally, it remains to be seen whether Europeans truly want a federal system, one where pensions will be determined in Brussels and be based on the German system, or where the size of national public sectors will be shrunk to converge with that of the best performing countries.

In my view, Germany will not accept an early mutualisation of European debts for the above reasons.  Nor will Austria, Finland and the Netherlands.  If push comes to shove, they may consider exiting the euro; yes, the strong deutsche mark would make German exports less competitive, but it would also make the repayment of euro-denominated debts a bargain.

Rather than forcing a decision that won’t be accepted and will resolve little, it might be better to focus on what can be preserved: a Europe of 27 countries where the weakest will be helped to the extent they help themselves.  One option suggested by the economist Richard Koo would be to ensure that a large portion of new sovereign debts be issued to domestic investors and remain in their hands; this may raise the financing cost but in return it would ensure greater financial stability.  It would also preserve greater strategic flexibility. 

Another would be to accelerate privatizations in Italy, Spain and Greece.  Vast resources could be freed in the process which would help reduce the size of sovereign debts.  Greece has over €300 billion in public assets which could be sold; it committed to sell €50 billion; so far it has sold a minute fraction of the latter number.  If a country declines to sell public assets, why should its euro partners guarantee its debts?  Why should the IMF and financial markets agree to a rescheduling, or even a restructuring? 

Other measures to foster growth and employment include reforming labor laws.  Yes this takes time, but then all reforms do.  There is no shortcut.  Some will argue that markets won’t wait.  Perhaps.  But historynshows that markets tend to look ahead, and it is likely that a credible reform program will elicit a favorable reaction in the form of greater investor interest and creditor cooperation.

In the end, some more countries may have to reschedule or restructure their sovereign debts.  But contrary to what is often written, this does not signify the death knell of economies; only the absence of coherent policies and the capricious application of laws do.  One only has to look at the example of Chile in the 1980s when it received no international financial aid yet engineered the longest lasting economic recovery in Latin America.  Indeed, even though debt-to-equity terms were more onerous than in neighboring countries, investor interest was much higher.  Or take Brazil under the leadership of F. H. Cardoso, first as minister of finance and then as president.

Debt mutualisation, as Mr. Soros advocates, sounds great and stirs the right emotional cords of generosity, European solidarity and immediate relief.  In my opinion though, it is unrealistic and insufficient.

Contrary to what European politicians would want us to believe, this is not the first time that countries, large and small, have had to face debt and spending difficulties.  The ways out are well known and they work.  But they are not quick or painless.

“Allo, Don Enrique?”

Two weeks, Robert Zoellick, the outgoing president of the World Bank, advised European leaders to “break the glass” and get into emergency salvage mode.  A less violent option, but one that would likely be just as effective, would be to make a single phone call.

By that I mean calling former Tresaury Secretary Hank Paulson, granting him dual US and Spanish citizenship and offering him the job of Secretario de Hacienda of the Kingdom of Spain.

The latest saga of the Spanish banking sector bailout was in line with previous efforts: vague, not definitive and indefinite as to the timeline. 

The Spanish government hired two consultants to assess the banking sector’s capital needs.  Two scenarios were considered, a central one and a stressed one.  This move was precipitated by the very poor handling of the Bankia bailout so far. 

The results are in.  Under the base scenario, the banking system would need €16 to €25 billion; under the stressed one it would need €51- €62 billion.  This is to compare with the IMF estimate of at least €40 billion and the Eurozone members agreement to make available of up to €100 billion. Oh, one last point, Spanish sovereign debt was to be a non factor in this study, a pretty big fudge if there was one.

So, what then?  Well, not much really.  The two government officials presenting the results repeatedly referred to the consultants'  as an “exercise” and pointed out that under the central scenario there was no need for capital injection.   Put it another way, if the sun keeps shining, there is no need to buy an umbrella.  Later, and confusingly, Bankia announced that it would not need any public money even under the stressed scenario (presumably, non-Spanish governments' money is not public money).

There was also no immediate call for action.  The top three banks, BBVA, Santander and la Caixa, didn’t need more capital under either scenario according to one of the consultants.  The Spanish government stated that the problems were limited to the banks it had seized, that their auction would be postponed and that there likely would be no bank closing as this was deemed too expensive an option.  The recapitalization numbers were not broken up by bank.  Bank-specific audits would be released by September 30.  Then banks would submit their recapitalization plans, and those that could access the markets (in whose judgment?) would be given up to one year to comply.  In other words, the sector recapitalization could extend into late 2013 before it was completed!

If this feels like a trip to Alice in Wonderland, it is because it is.  It is also an accident waiting to happen.

Knowing what they know today, I am sure that Secretary Paulson (and the Fed) would handle the Lehman crisis differently.  But one weakness that Sec. Paulson doesn’t have is being wishy-washy.  In 2008, as panic gripped the US markets, he swiftly convinced the President and Congress to recapitalize our tops banks with government money.  He then proceeded to impose his decision on bank managements in one afternoon.

A few months later under the Obama Administration, credible stress tests were conducted on the top US banks, the individual results were made public and the banks wasted no time announcing voluntary recapitalizations.  Over the 2008-2009 period, several very large banks were closed and/or sold to financially solid competitors.

Having waited too long, Spain is now in a difficult position and needs outside help to shore up its banks.  However, having admitted to weakness, Spain should take prompt and forceful action.  Such decisiveness might even improve the terms of the bank bail out, making it more convincing and effective.  I don’t know how good Sec. Paulson’s Spanish is, but I think it is good enough.  Make the call!