Who’s Most Afraid of Contagion from Italy’s Bank Meltdown?

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French and German banks.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Contagion is the reason Italy’s banking crisis is all of a sudden Europe’s biggest existential threat. Greece’s intractable problems are out of sight, out of mind; Brexit momentarily spooked investors and bankers; but Italy’s banking woes have the potential to wipe out investors and undo over 60 years of supranational state-building in Europe.

The last few days have seen growing calls for taxpayer-funded state intervention, a practice that was supposed to have been consigned to the annals of history by Europe’s enactment of new bail-in rules on Jan 1, 2016. The idea behind the new legislation was simple: never again would taxpayers be left exclusively holding the tab for European banks’ insolvency issues while bondholders were getting bailed out. But even before the new rules have been tried out, they are about to be broken, or at least bent beyond all recognition.

A loophole has already been found in the rules that would allow the Italian government and European authorities to raid European taxpayers in order to prop-up Italy’s third largest publicly traded bank, Monte Dei Paschi, while leaving bank bondholders and creditors whole, as Reuters reported a few days ago:

The rules, which have been in force since January, allow a state to directly acquire a stake in a bank that fails a stress test and cannot raise capital in the markets because of “a serious disturbance” in the domestic economy.

Oh, and no bank is officially allowed to pass or fail the European Central Bank’s 2016 stress tests, as we reported a few months ago, after a number of banks, including nine Italian banks, failed the test in 2014. Clearly, those at the top of the financial pecking order — banks and their bondholders — are protected once again from the disastrous consequences of another market meltdown, one that in many ways they precipitated.

The fact that in Italy, thanks in part to a quirk of the tax code, some €200 billion of bank bonds are held by retail investors adds an extra political dimension to the mix, as The Economist points out:

If the bail-in rules are applied rigidly in Italy, the outcry from savers will both damage confidence and leave the door to power open for the Five Star Movement, a grouping that blames Italy’s economic troubles on the single currency.

But it is the direct contagion effect that has Europe’s policymakers and central bankers most concerned. Contagion is a particularly acute problem in the Eurozone due to the so-called “doom loop” that exists between sovereigns and their banks, thanks in large part to the ECB’s tireless efforts to underpin both Europe’s biggest banks (by providing them with an endless supply of free money) and its bond markets (by doing “whatever it takes” to make European sovereign bonds virtually risk-free).

As a result, banks have been able to make a tidy margin by simply buying government bonds at officially zero risk. Another consequence, whether intended or not, has been to create a very dangerous relationship of mutual dependence between governments and banks. When banks invest heavily in government debt, they become dependent on the government’s good performance, which is clearly not a given, especially in the Eurozone. Meanwhile, the governments depend on the banks to continue purchasing their debt, which for the moment is a given. However, if either one falters, the consequences can be dire for both.

Despite pressure from fiscally hawkish Eurozone countries such as Germany, the Netherlands, and Finland to put an end to the doom loop by removing the risk-free status of certain sovereign bonds, to the barely concealed horror of Italian and Spanish politicians and bankers, recent figures from Standard & Poor’s show that banks across the EU have been investing more heavily than ever in government debt, increasing their exposure to €791 billion. The total amount that international banks have lent to Italy alone is €550 billion.

So which country’s banks are most exposed to Italian sovereign debt (apart from Italy itself)?

France — and by a long shot!

As Die Welt reports, the total exposure of French banks to Italian debt exceeds €250 billion. That’s triple the amount of exposure of the second most exposed European nation, Germany, whose banks hold €83.2 billion worth of Italian bonds. Deutsche bank alone has over €11.76 billion worth of Italian bonds on its books. The other banking sectors most at risk of contagion are Spain (€44.6 billion), the U.S. (€42.3 billion) the UK (€29.77 billion) and Japan (€27.6 billion).

These elevated levels of exposure help to explain why no matter how much Angela Merkel would love for the Eurozone’s new bail-in rules to be universally applied to the letter — for her own political survival, if nothing else — the risk of contagion, including for the already deeply distressed Deutsche Bank, is simply too great to be ignored. If Italian banks began falling like flies, it would only be a matter of time before investors began selling (or shorting) Italian bonds en masse, by which point the Doom Loop would be in full flow. And once it starts, it’s very hard to stop.

“The whole banking market is under pressure,” former ECB executive board member Lorenzo Bini Smaghi told Bloomberg. “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”

In other words, European taxpayers, get your wallets out, again. Your banks need you!

Oh, and Smaghi, besides being a former central banker, is also the current chairman of Société Générale, one of France’s biggest banks, presumably heavily exposed to Italian banks and sovereign debt, and as such a large potential beneficiary of a massive taxpayer-funded bailout of Italian banks.

It didn’t take long before David Folkerts-Landau, Chief Economist at Deutsche Bank – whose shareholders have gotten crushed and whose bondholders are getting restless – picked up the baton and told the Welt am Sonntag that a US TARP-like European bank bailout of €150 billion was needed to “recapitalize the banks.” This is code for using taxpayer money to bail out bondholders and stockholders, along with executive compensation, including his own. By Don Quijones, Raging Bull-Shit.

So the European banking crisis is coming into full bloom. Deutsche Bank in February tried a ludicrous ruse: buying back its own bonds. But even that miracle-nonsense has now flopped and its shares and CoCo bonds have plunged. Read…  I’m in Awe at How Fast Deutsche Bank is Coming Unglued

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  40 comments for “Who’s Most Afraid of Contagion from Italy’s Bank Meltdown?

  1. Chip Javert
    July 10, 2016 at 6:29 pm

    Well, ya know, as long as Angela Merkel is acting to save hr political viability, I guess it’s ok to screw millions of Italian tax payers. I mean, what else are the little people for? …besides, it’s not like the Italian political are against it.

    Jeez…and people want this level of corruption in the USA, you know, to help the little people….

  2. Vespa P200E
    July 10, 2016 at 7:53 pm

    No doubt the debt can will be once again kicked down to the future as ECB and the Italian government will bail out the Italian banks to prevent the contagion and global domino effect.

    That said it’s just a band-aid but the troubles often come in waves and what will ECB do when DB bank demands bail about same time for likely mother of all bank bailout?

  3. nick kelly
    July 10, 2016 at 8:16 pm

    We live in very interesting times. We just have stay alive to enjoy the spectacle.

  4. r cohn
    July 10, 2016 at 8:55 pm

    This is really a non event.When push comes to shove Merkel will agree to the “emergency ” provision so that Italy is able to recapitalize its banks.Then Dragi will amend the ECB rules on its bond buying program in two ways;first by amending its so called “capital key” rule and second by allowing purchases in excess of the current limit of %33 of a country’s debt .Then the ECB can go ahead and create more money out of thin air and buy more Italian debt
    As long as the markets accept the absurdity of creating money out of thin to buy bonds which are guaranteed to lose money ,this game can go on and on and on .But when it stops watch out

    • Karl McGaugh
      July 11, 2016 at 7:21 am

      My feelings exactly. The waste of taxes on the uber rich byway of debt based banking is killing all human progress. All of the banks are insolvent by the standards the common person would use. Interest on debt can never be sustained and as debt goes up it destroys human progress while enriching the .1%. Private banks should be put on 100% reserve book keeping like a pawn shop. City and State government banks should issue interest free money for social needs like roads and bridges. Local money can be converted to national money by open market trading. People caught in fraudulent transactions get serious prosecution with jail time.

        July 11, 2016 at 12:00 pm

        Somebody once said: Allow me to issue a nation’c currency and I care not who makes the laws.

        For some reason, this is not taught in High School or any University. It is not discussed. It is not taken serious. If you even bring it up, you area a Conspiracy nut-job.

        Who said it? Was he serious? What does it have to do with today?

    • angry Dutchman
      July 11, 2016 at 1:59 pm

      Italy does not belong in the euro area. We thank the French that they are in.
      Their currency must be the lira and Draghi can better leave. Any Austrian is better for the Draghi job.

    • Joost
      July 11, 2016 at 3:22 pm

      @r cohn: what will make that investors lose their faith? Some concrete examples please…

  5. July 10, 2016 at 10:54 pm

    Where do governments get the money to bail out their distressed banks?

    They borrow from the exact same banks that they are aiming to bail out! There are no other banks to borrow from! When ‘taxpayers’ bail out the banks it means the taxpayers are borrowing ‘at a remove’ … the government borrowing in their place, hoping nobody notices … the fraudulent transaction.

    Instead of borrowing, the Italian & other ‘Brand X’ EU governments should simply issue euros outright irrespective of Brussels. If the governments issued Greenbacks the ongoing short-term solvency problem would be ameliorated. Not a panacea but a way to remove the banking boot from these countries’ faces or rather, the hangman’s noose from both the banking industry- and its customers’ necks.


    Of course, it goes without saying that ALL other courses of action are certain to fail and slow-moving depositors will likely lose some if not all of their savings as has happened already.


    It is not just one or two banks in trouble. So-called ‘investments’ in the EU and elsewhere are Ponzi- and conduit schemes and related accounting control frauds. Why otherwise would interest rates be so low? Low/negative rates indicate both the absence of organic return and mispricing of risk, both of which tends to feed on each other. When the bubbles pop, risk emerges and interest rates become ‘volatile’. At a mere 1% rise in interest cost, bondholder losses = mind-boggling.

    ALL the banking executives need to be prosecuted for fraud along with officials who enabled it … a lot of ‘big names’ need to make that perp walk.

    EU also needs to reform the collective economy around the principle of stringent energy- and natural resource conservation. The Union has been ruined by its perceived need to borrow trillions of euros every year to buy fuel and other inputs’; to waste this valuable and irreplaceable capital for absolutely nothing in return but for evanescent ‘utility’. The absence of return is why the EU and its banks — along with the rest of the industrial world — is bankrupt.

    Of course, doing nothing = ‘Conservation by Other Means™’ which is unavoidable consequence, it is underway already.

    • nick kelly
      July 11, 2016 at 1:00 am

      You are the first person I’ve heard blame the Italian banking crisis on fossil fuels.
      In the long run I think you have a point, however the current crisis is a much, much more familiar theme- living beyond one’s means.

      The head of Fiat- Chrysler Mr. Marchioni, has threatened to pull Fiat out of Italy unless Fiat can achieve productivity and work rules ” similar to those in the rest of the developed world’

      Like Greece, the place is awash in public spending that the economy can’t afford. To give just one example, in Italy unmarried daughters can inherit their father’s pension.
      Because it is practically impossible to lay off employees, business only hires as a last resort. If you are treated at an Italian medical clinic- when you go back there will be no record. As in Greece, avoiding records and receipts that could lead to taxes is a moral obligation.

      I just read a book about two guys doing a reno in Tuscany. The procedure to get a Italian driver’s license resembles a court case.
      They study the book and after passing a written the one who passes shows up for the driving test. He reports to a guy, thinking he is the examiner- but he’s the guy who negotiates (or something) with the examiner.

      The whole place is like that, drowned in rent seekers extracting a living not by producing but by occupying a position.
      No amount of monetary stimulus can revive these places.

      • John
        July 11, 2016 at 7:17 am

        What is the name of the book?

        • nick kelly
          July 11, 2016 at 9:36 am

          Sorry I read a lot and this one although good did not stick in my mind title or author wise. I’m pretty sure the word Tuscany is in title and the guys are a couple. It might be kicking around so check back in a day or two.
          Otherwise its a google job I guess

      • d'Cynic
        July 11, 2016 at 12:03 pm

        You have to give Italians some credit. About a decade ago they were hunting for dead souls all around the world. Apparently, when you get a pension in Italy, and then emigrate, they would send the pension after you. However, they neglected to follow up with the pensioner, and kept sending pensions after they died.
        But that would stop the freak show which is Italy, so they allowed Italian emigres all over the world to vote for their representatives in Italian parliament.

    • Petunia
      July 11, 2016 at 9:59 am

      Your comment reminds me a story I heard from someone I know. The person was standing on the beach of a condo downstream from where the port was being dredged. The beach was filthy with debris, mostly seaweed from the dredging. A resident comes by and says, “You see, this is global warming.”

      You see what you want to see.

      July 11, 2016 at 12:13 pm

      I don’t understand (but I really do) why a free, independent NATION does not issue it’s own paper currency, if it is going to use paper as “money”, why pay somebody else to print it? Print it yourself.

      Paper can not be money. Printed paper can not be money. Why? It has no value. It is printed paper. Real money has value within itself.

      If I give you 4 sheep ( has real value) for one cow (has real value) then the sheep and cow are “money”. If I give you 4 pieces of paper, adding up to 400 Reich Marks, for your cow, then you gave me money, something of value, while I ripped you off with my pieces of paper.

      Paper money began as a receipt for the GOLD you deposited at a bank. You did this since lugging around gold was/is heavy. A “note” in your pocket showing you had 100 ducats in your name/account at the Medici Banc in Florence, was “as good as gold”. You gave this “note” to the person who just sold his store location on the Ponte Vecchio. He then appears at the Medici banc, handed in the “note”, they checked it out, and then gave him, the seller, 100 Gold Ducats.

      The Medici family figures out, after a few decades, that many people never presented these paper notes, for gold, at their banc. Hmmm. Really. Well then, what if I issued similar paper notes, to my family and friends, and they can use them to buy up most, if not all the little stores on the Ponte Vecchio…….in time, you own all the best spots in town………..and nobody will be wiser that all those notes about town…..had NO GOLD behind them……………..

      Look at the “money” in your wallet. Do this. Really. Take it out. Look at the very top: FEDERAL RESERVE NOTE.

      It is not even money. It is intrinsically worthless. Forget the “intrinsic”. It is worthless. Then why do you and I use paper in transactions. YOU, and I, have been brainwashed.

      How does it feel?

      THAT is why we are in this mess and THAT is why I am called a conspiracy nut-job. I’m a nut-job but the conspiracy is real.

      • Petunia
        July 11, 2016 at 5:30 pm

        The worst thing about the Federal Reserve is not that they issue IOUs as money. It’s that they are a private corporation that issues IOUs as money.

  6. MC
    July 11, 2016 at 2:59 am

    There’s one thing that needs to be understood.
    This “Italian banking crisis” has been in the making not for a decade, but for decades, at very least since the Italian economic miracle (a smaller sibling to the Wirtschaftwunder) dried up in the 70’s.
    Already in my childhood banking scandals were depressingly common, especially at local level, as was impunity for those involved. As they say corruption and incompetence if left unchecked are like a snowball: they must increase.
    Now, Italian banks share with Japanese keiretsu one characteristic. If one is going under for scandalous enough reasons (meaning always in both cases), it won’t go bust. There will be a “merger”, a “buyout” or a “takeover”, with the resulting group taking over not merely the assets, but all liabilities as well, meaning a “new” bank is often very near sinking the minute it leaves the harbor.

    Speaking of liabilities, more is surfacing regarding that mass of NPL’s which now even the Italian government recognizes amounts to “over €350 billion”. A stunning, mind bending 44% of the total is due to “construction and housing” and another slightly less worrying 28% is due to “manufacturing” (data in print on the 8/7/2016 paper issue of La Repubblica). It means just two sectors account for 72% of NPL’s or €259 billion and change. And this assumes the mass of NPL’s doesn’t grow as it did last year: “Ops, we just found another €50 billion in NPL’s under the rug!”.

    If the problems due to manufacturing go back a long way, at least to the early 80’s, those regarding housing and construction deserve special treatment.
    Speculation has always existed, but it literally exploded after EMU came in being. As we covered many many times, the euro amounted to a strong devaluation of the Deutsche mark and a strong revaluation of the lira. Italian manufacturing firms, starved for investments to increase productivity since the 80’s and hit by punitive taxation, were fair game for their German competitors.
    As the US tried doing, there was a very robust attempt by successive Italian governments to replace manufacturing with construction, especially residential and commercial, which paid good dividends for a massive five years before entering a eight year and counting slump.
    A good chunk of those €158 billion in NPL’s generated by “housing and construction” was produced in the past decade, first due to bubble dynamics and later to keep propping up faltering construction firms or hare-brained but politically backed schemes.
    Here the importance of local politics and power balances, very much like in China, is much much underplayed despite its enormous importance.

    One thing that needs to be remembered is the collateral quality. Italy is littered with abandoned warehouses and manufacturing sites and some areas are cluttered with rows of brand new houses “for sales”.
    Part of the reason is prices have been artificially propped up for years now in face of dismal sales and increasing stocks: buyers knew proces had to come down a long way and they started doing so this year.
    In turn this will affect assets banks have on their books: by next year houses and warehouses they took over from debtors are going to be worth 50 or 40% of what they were worth last year, further contributing to set the clock closer to midnight.

    • nhz
      July 11, 2016 at 3:30 am

      I guess Italy can learn from the Netherlands and use more crooked games to push up real estate prices ;-( People are still paying their ultra-low mortgage fees in Netherlands because they are ‘winning’ and ‘owning’ a home is far cheaper than renting nowadays.

      Dutch home prices have been rising into the sky for 25-30 years thanks to an ever increasing arsenal of crazy government subsidies, deductions, guarantees and other incentives that encourage everyone to buy a home with money they don’t have. Probably it helps that the housing stock has been artificially restricted for years by politicians using zoning laws, to make sure that local politians and other crooks get their cut.

      Take away all the government guarantees and I don’t think Netherlands and its banks will be any more solid than Italy. It has the biggest total debt (compared to GDP) after Greece – most of that debt is private debt (about 750 billion), and about 90% of that is mortgages for extremely overvalued homes. The debt problem might be the same size as that of Italy, in an economy that is much smaller in size (and to a large extent depending on finance, instead of real production like Italy still has).

      Also it’s crazy that the Dutch government can guarantee several hundred billion of mortgage debt without any repercussions for its credit status or EU position, while Italy cannot guarantee its banks (indirectly its businesses) – at least some of the Italian companies are producing something, you can’t see those Dutch homes produce anything …

      Of course, many EU countries have similar problems if you look under the hood, only the details of the debt load and malinvestment are a little different; most of them have been splurging on debt right form the start of the common currency. Nothing has been solved after 2000 or after 2008, the problems have just kept growing. And Germany is about the only EU country that doesn’t have a housing bubble …

      Yes, not much different from the often ridiculed China either …

      • nick kelly
        July 11, 2016 at 9:51 am

        The Dutch economy first took off in the 60’s when it hit shallow water natural gas- any idea how that sector / wells is doing?

        Years back my family had Dutch relatives by marriage. One of them had been off with some psychological disability for years at close to full salary.

        • nhz
          July 11, 2016 at 12:12 pm

          The gas provided easy money for years, supporting an oversized wellfare system that is now slowly eroding (people who are already ‘in’ usually keep their plush benefits and new migrants get treated especially well) and huge profits for companies involved in gas extraction and transport like Shell.

          But they had to limit gas extraction recently as it was increasingly causing earthquakes and damage to homes in the North part of the country (relatively unpopulated, less wealthy than average and far removed from the center of political power). Politicians have been fighting about this for many years until it became impossible to deny the link. I guess a factor was that recently some mansions from Labour party officials got extensive earthquake damage ;-)

          While extraction revenue for the government is declining strongly, the damage is getting bigger every year. As often, privatize the gains (for Shell and the national politicians who spend it on bread and circuses), socialize the losses (for ordinary people in the North, especially those who are not well-connected).

          Fortunately for Dutch politicians, government debt issuance has replaced natural gas as an easy and ‘endless’ source of easy money ;-(

      • MC
        July 11, 2016 at 10:27 am

        The major difference is supply and demand.
        Very much like in “often ridiculed China”, assorted fees and land sales are a major sort of cash for third and fourth tier municipalities. This means getting a building permit is ridiculously easy, especially if you just purchased land directly from the muni or from a firm it controls.

        Supply has kept on growing up to at least 2012 while demand dried up in 2010 and hit the skids a couple years back: in short the Italian housing market is oversupplied and hence prices have to adapt, no matter what the government, banks and owners want.

        But if you venture into commercial… it’s much much worse. If the housing market is oversupplied because of stocks built up in the past, commercial is massively oversupplied and it keeps on growing. Why? Because property taxes on commercial properties are good money in times of lean cows.
        But the Ouroboros Effect has already kicked in: plainly put the Italian retail sector is, you guessed it, oversupplied. It’s slightly but steadily contracted. This means that a brand new mall is not filled by brand new stores: it’s filled by stores fleeing from somewhere else, either to escape lack of maintenance/declining door traffic or attracted by freebies like free utilities for a fiscal year.
        This has led to the phenomenon of ghost malls. Perhaps I’ll take a few snapshots in the near future…

        • nhz
          July 11, 2016 at 12:28 pm

          Agree about the ‘major difference’ but don’t underestimate the amount of money Dutch municipalities are making from land sales, despite the extreme restrictions – a small piece of land for building a home in Netherlands is more expensive than a complete home including the land in other Western countries.

          The local governments get most of their income from this one source, of course it has also proven to be an extremely unreliable source of ‘income’ because it is mostly speculation. Most new developments are on former agricultural land that is worth 2.5-4 euros per square meter, the government sells that to its citizens for 300-1500 euros per square meter … It is basically impossible to buy land from anyone except the local government (unless you are a politician or someone from the 0.1%).

          Contrary to what many people think, there is no shortage of land to build on in Netherlands, only about 5% of the country is build area (11% if you include all the roads, industrial areas, waterways etc.). The rest is mostly agricultural land. By increasing built area from e.g. 11 to 14% there would be enough room for even the most optimistic population growth scenarios for the next century.

          What the Dutch municipalities lack in volume they make up for in price …

          And regarding empty malls … we don’t have many ‘malls’ in Netherlands but the percentage of empty retail space is growing at feverish pace, due to internet sales and totally unaffordable rents (unaffordable for everyone except big retail chains). In my area 10-20 years ago at most a few % of retail space was empty, and usually at the less attractive locations. Nowadays even at the best locations 20-30% is empty, used by temporary pop-up stores or with fake displays that only give the impression that there is a real shop.

      • angry Dutchman
        July 11, 2016 at 2:17 pm

        Italy real production? Cars that start to rust in the catalogue. Nothing is real in Italy except tax evasion.

        • Petunia
          July 11, 2016 at 5:32 pm

          They make stretchable gold. I saw it on ugly jewelry tv.

        • MC
          July 12, 2016 at 3:52 am

          Tax evasion has long been an extremely convenient excuse for Italian elites to tighten their grip upon the country and cover their shortcomings, especially their ability to spend far more than they’d take in under any occasion.

          And about industrial production… if you own a Made in Germany BMW chances are it has a pretty high Italian content. ;-)

    • John
      July 11, 2016 at 7:29 am

      I think the housing issues are compounded by Italians believing that real estate is always the safest investment… A heuristic that doesn’t hold true when >25% of Italian apartments sit vacant. Prices stay artificially high as they’re all unwilling to sell at a loss, for now anyway.

      • nhz
        July 11, 2016 at 12:15 pm

        I think that is what almost everyone in the developed world believes …

        After all, in almost every Western country the RE market hit a homerun over the last 10-25 years and most homeowners don’t understand that increasing home valuation isn’t the same as increasing income (on the contrary, it usually means higher taxes).

    • nick kelly
      July 11, 2016 at 9:45 am

      Gee- apart from Tulip bulbs way back and stocks in 29 – it looks like nearly all modern bubbles are tied to real estate.
      I’m still reeling from the info on my niece’s condo apt in Vancouver- she rents it, paying 1500.
      About two months ago she got a letter saying it had been sold and to now pay her rent to xyz instead.
      Last week she got a letter saying it was for sale- for 440K.
      It is 540 sq. ft. and not in a great area.
      It was bought for 350 or so, so it’s a flip.

      • d'Cynic
        July 11, 2016 at 11:54 am

        This is now happening to other people in Vancouver. However, I am sorry to say, the golden youth deserves what’s handed down to them.
        About a year ago or so, when the housing market was still relatively “sane” compared than today, there was a signature campaign on change.org (what a joke) against foreign ownership, and subsequently, a rally. I expected that the youth, always on twitter would have been galvanized like when something happens to a puppy. But only about a hundred people showed up in small groups, not much bigger crowd than a street freak show.

        • nhz
          July 11, 2016 at 12:52 pm

          In my country the main complaint that the young people have is that the government puts restrictions on the amount of mortgage that one can get relative to income (still probably among the most favorable LTV worldwide) and that it has become mandatory to pay down part of the mortgage within 30 or 40 years (until recently most Dutch homeowners kept the maximum mortgage for the full period because of income tax deduction).

          ‘Everybody knows that home prices can only go up’, so paying down the mortgage is ridiculous and doesn’t allow taking full advantage of the lowest mortgage rates in 400 years ;-)

          With 1% mortgage rates and no downpayment required, most young people think they are all entitled to their own million dollar home right out of college (of course, do not mention the mountain of student debt when applying for a mortgage, because nobody wants to know). Renting or being ‘financially responsible’ is for losers.

          They have all been programmed as little capitalists, eager to get their first steps on the housing ladder (at the cost and risk of others, but who cares …). Hopefully Mr. Market gets his chance to teach all these people a valuable lesson.

      • nhz
        July 11, 2016 at 12:40 pm

        My city already a ‘housing bubble’ in the early 18th century (a centur after tulip mania), tied to speculation in VOC stock (VOC = Dutch East India Company).

        Many middle class citizens started to build huge mansions in the countryside using their VOC stock as a downpayment with the bank. After a few years VOC stock value crashed (of course …) and never recovered; most of the mansions were never finished and demolished to provide building materials for ordinary homes in the city.

        Over the last 25 years, home prices in my city have increased by 500-1000%, even more for the most expensive homes. Over the same period incomes have increased by maybe 100%. Of course it helped that mortgage rates declined from over 10% in 1990 to below 1% today, and that the required downpayment went from 10-20% then to a few % negative today…

        So, just like in Italy or China ‘real estate only goes up’.

        People never learn :-(

        • d'Cynic
          July 11, 2016 at 7:54 pm

          What would Darwin call it if he wrote a sequel to “On the origin of species by means of natural selection, or the preservation of favoured races in the struggle for life”: the mass survival of unfit individuals?

        • nhz
          July 12, 2016 at 1:24 am

          @ d’Cynic (July 11, 2016 at 7:54 pm)

          it sure looks like economic evolution is running in the opposite direction of natural evolution lately, selecting for the biggest idiots.

          Although one could argue that over the last 50-100 years, human evolution has become a race to the bottom as well in the medical/genetic sense.

  7. Peter Forsyth
    July 11, 2016 at 9:11 am

    Ponzi is long gone and Maydoff is in jail but others in the majority run the world’s financial system

    July 11, 2016 at 10:25 am

    How do you write “Doo Doo Bonds” in Deutsch?

  9. Jerry
    July 11, 2016 at 10:44 am


    • r cohn
      July 11, 2016 at 2:24 pm

      These reports have been circulating on the internet for at least the past few days.Whether they are true and more important consequential is the question

    • MC
      July 12, 2016 at 4:08 am

      I am in Italy at the moment. Nothing unusual to report apart PM Renzi is selling his soul to the devil in an attempt to bury this latest scandal in the news.

      Again: as said before one of his chief minister (and heir apparent should he be forced to resign) was caught in last year scandal which saw four local banks go belly up.
      She survived not merely all calls to resign, but an impeachment motion by M5S as well.
      Renzi expended far too much political capital to ensure her political survival: the sight of the minister laughing, chatting at the phone and making defiant gestures at the opposition because she was absolutely sure of her impunity sent M5S numbers skyrocketing.
      In the latest local elections M5S literally savaged Renzi’s Grand Coalition, taking among many others the biggest prize of them all, Rome.

      The last thing Renzi needs is a banking holiday because it would mean that nothing, nothing could stop M5S not merely from seizing power but from obtaining a large majority as well.

  10. R Davis
    July 17, 2016 at 12:31 pm

    “but Italy’s banking woes have the potential to wipe out investors & undo over 60 years of supranational state building on Europe”

    supranational – having power or influence that tanscends national boundties or government.

    But is it real
    Is it true
    Or is it just an elaborate scam
    Brilliantly dazzeling them with bullshit.
    The EU is a means to an end which has nothing to do with anything other than the establishment ghouls syphoning off & asset stripping as many suckers as will buy into the scam.
    Don’t forget, there is a sucker born every minute.

  11. R Davis
    July 17, 2016 at 12:36 pm

    Harpo Marx – was on a ship to Russia – a group of guy’s were playing cards – Harpo noticed that one of the guys was being suckered – so he told him “your friend has you behind the eight ball” the man being suckered would not believe it of his newly found friend & stormed off, outraged.
    There’s a sucker born every minute.
    Go figure.

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