Reek of Desperation Surrounds EU Banks, Regulators Prepare for “Derivatives Clearing Crisis”

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Zombification of EU banking system gathers momentum.

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

The past week’s events in Europe were dominated by the pound sterling’s spectacular flash crash to its lowest point in 31 years. As is often the case with flash crashes, we will probably never know what exactly triggered the currency to free-fall by 6% during Asian trading hours, though the most cited cause, apart from a “fat finger,” is the gathering realization that a so-called “hard” Brexit is a very real possibility.

But it’s an eventuality that can be expected to play out in roughly two and a half years’ time, at the earliest, and in light of the powerful forces arrayed against it, it may never occur at all.

In the meantime, something far more dangerous is happening on the other side of the English Channel: the slow-motion meltdown of the Eurozone’s banking system.

In its Global Financial Stability Report, the IMF warned that banks in Europe were too weak to generate sustainable profits even if — and here’s the kicker — the region saw strong economic growth. That hasn’t happened for years.

The IMF also cautioned that the banks’ weak profitability, caused by subdued growth in the Eurozone and ultra low or negative interest rates — something the ECB vehemently denies, preferring to blame the crisis on Europe’s smaller regional or local banks — could further erode their financial buffers and undermine their ability to support economic recovery.

“In Europe, about one third of the system – representing some $7.5 trillion euros in assets – remains weak and unable to generate sustainable profits,” said IMF economist Peter Dattels as he presented the report in Washington. As such, European banks need “urgent and comprehensive action” to address a legacy of non-performing loans and bloated, inefficient business models, he said.

“Urgent” and “comprehensive” are two words you’d rarely associate with the Eurozone, especially at a time when the region faces a relentless gauntlet of political threats, from the rise of “populist” movements in central and northern Europe to December’s do-or-die constitutional referendum in Italy. That’s not to mention what promises to be tightly fought national elections in the Eurozone’s two biggest economies, France and Germany, scheduled to be held respectively in April and October, 2017.

The last thing either Merkel or Hollande needs during election season is a region-wide banking crisis, which is why every effort will be made to keep a lid on the problem until the votes have been cast. But that is not going to be easy, not with Germany’s flagship lender, Deutsche Bank, continuing to sink at an alarming rate.

Things have got so desperate for the Frankfurt-based bank that it may soon be in need of corporate charity. According to a rumor unleashed on Thursday by the German daily Handelsblatt, the chief executives of several German blue-chip companies have discussed Deutsche’s problems and are — if needed — ready to offer a capital injection to shore up the bank.

If that doesn’t steady investor nerves, there’s always Plan Z: create new rules that would allow the ECB to effectively contravene recently introduced rules that forbid it and other EU institutions and nations from directly bailing out financial institutions without first bailing-in some of their creditors. According to Bloomberg, Plan Z is already under way. But instead of being used to bail out the region’s banks, the new legislation will be used to bail out clearing houses, Europe’s new too-big-to-fail monstrosities:

Draft EU legislation seen by Bloomberg sets out rules on saving or shuttering clearinghouses that would apply to firms such as London-based LCH. The proposals cover everything from the creation of resolution authorities to the powers they would have when winding a company down, including writing down shares, debt and collateral.

The ultimate aim is to dampen investor concerns about the threat posed by the global derivatives time bomb, much of which is tick-tocking on and off the balance sheets not only of Wall Street’s finest, but also of Deutsche Bank. Here’s more from Bloomberg:

The authorities would be able to recapitalize the clearinghouse by seizing variation margin, exercising cash calls defined in recovery or resolution plans and writing down capital and converting debt securities. They would also be able to auction off the defaulters’ positions, tear up some or all contracts and access default funds. The relevant central bank would be able to facilitate resolution by supplying temporary liquidity.

And here’s the real kicker (emphasis added):

“Should these options be unavailable or be demonstrably insufficient to safeguard financial stability, government participation in the shape of equity support or temporary public ownership could be considered as a last resort,” according to the proposal. Those steps would need to comply with EU rules on state aid.

As recent months have shown, EU rules on state aid are extremely elastic, especially when it comes to saving the hide of the continent’s biggest banks and corporations. In August, it was leaked that the ECB has bought bonds from the issuing corporations via “private placements,” thus putting freshly printed cash directly on corporate balance sheets at no cost to the corporation. Yet there’s not been a single whiff of protest from Europe’s competition commissioner.

It’s now clearer than ever that the ECB, the IMF, the BIS and all the other supranational alphabet soup creations will do “whatever it takes” in the coming months to keep Deutsche Bank and its brethren whole. But will it be enough? After all, the problems are not remotely contained to just Germany.

In Italy, JP Morgan Chase’s master plan to save Monte dei Paschi continues to flounder as investors show zero appetite for more MPS capital. In fact, expectations are so low that rumors have already began surfacing that an alternative plan, under the aegis of Italy’s former Industry Minister and senior banker Corrado Passera, is now in the works.

It all reeks of desperation.

So, too, does the semi-clandestine bailout of Spain’s state-owned Banco Mare Nostrum. With the markets showing zero interest in taking the bailed-out entity off the public’s hands, the government is trying to usher it into a forced marriage with largely state-owned Bankia. The message, once again, is resoundingly clear: the only way the bank can be maintained as a going concern is through continued and growing public support.

The zombification of Europe’s banking system — the legacy of years of doing “whatever it takes” to save giant insolvent banks — continues to gather momentum. Things are now so serious that some of the world’s most senior policy makers are not only beginning to warn of a new financial crisis, they’re beginning to turn on each other in public. They include Germany’s dour Finance Minister Wolfgang Schaeuble who, much like the IMF, lays most of the blame for Europe’s current problems on the “ultra-loose monetary policy” pursued by the ECB.

But as always with Schaeuble and Merkel, their complaints are meant for public consumption. When crunch time arrives for Deutsche Bank, and the only institution that can save it is the ECB (perhaps with a little help from the Fed, as on countless occasions before), such criticism will very quickly die down. By Don Quijones, Raging Bull-Shit.

Italy’s Monte dei Paschi’s cleverly concealed debt bomb has had explosive consequences, now associated with a gargantuan crime scene. Read…  Rescue of Monte dei Paschi Gets ‘Dark’ & ‘Complicated’



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  53 comments for “Reek of Desperation Surrounds EU Banks, Regulators Prepare for “Derivatives Clearing Crisis”

  1. George McDuffee
    Oct 9, 2016 at 7:59 pm

    We can continue to chant “free market” as a mantra to ward off the evil bubble and corporate fraud demons, with the usual results, or we can act.

    While this runs contrary to my generally conservative economic political outlook, it appears with the huge growth of TBTF financial companies, and the “hyper-innovation” of the industry, it is necessary to institute a policy of “what is not specifically allowed is forbidden” in place of the current “what is not specifically forbidden is allowed.”

    The hyper-innovation appears to be largely an [mostly successful] attempt to circumvent financial and banking regulations, and in the U. S. at least, our financial services sector is largely where the food and pharmaceutical industries, were prior to the creation of the FDA in 1909. Indeed, it was not until the tragedy of the deaths of more than 100 men, women, children and babies in 1937 due to the “Elixir Sulfanilamide,” an untested patent medicine that prior FDA approval before sale was required for all drugs. http://www.fda.gov/aboutfda/whatwedo/history/productregulation/sulfanilamidedisaster/default.htm

    It is therefore suggested that ALL financial products, including insurance annuities, should require prior regulatory approval, analogous to that required for pharmaceuticals, namely their safety and efficacy. While this will greatly slowdown the introduction of novel financial products, the recent track records of most of the new products such as CDOs [collateralized debt obligations] backed residential mortgage, commercial mortgage, student loan, credit card, and vehicle loan, ETNs, ETFs, derivatives of all kinds (which in the final analysis IMNSHO are simply gambling contracts, etc. indicate that requiring regulatory approval, and in effect clinical trials, are highly necessary, if the continual bubbles, collapses, Ponzi schemes, Enrons, AIGs, etc, are to be avoided. To the extent possible “grandfathering” should be avoided, and all of the “innovations” of the last 50 years should be required to prove their safety and efficacy, and that they perform some useful economic function, other than evasion of regulations and/or taxs.

    Requiring such pre-sale regulatory evaluation and approval will of course not eliminate the isolated incident, such as Phen-fen, Thalidomide, or the Dalcon shield, but it will limit the widespread systemic abuses, and if a reasonable reporting system is implemented, among the regulatory agencies, an “early warning” system will be created which can help limit damage to the aggregate economy, for example the S&L debacle.

    • Gil Obrero
      Oct 9, 2016 at 8:51 pm

      Ahhh, you Sir, speak in evil tongues. Your words to a banker or a corrupt politician and especially a Central banker is tantamount to incantations of vile evil spells that will condemn them to being possessed by demons and eternal purgatory.

      You Sir, in these hallowed banking halls are the ultimate devil, the font of all ills and evils for even thinking some vile treacherous thoughts.

      They will seek to destroy you, silence you and make an example of you so horrible and gruesome that no right thinking man will 3ever again countenance voicing pure unadulterated common sense.

    • nhz
      Oct 10, 2016 at 5:20 am

      “Indeed, it was not until the tragedy of the deaths of more than 100 men, women, children and babies in 1937 due to the “Elixir Sulfanilamide,” an untested patent medicine that prior FDA approval before sale was required for all drugs. ”

      And how well did that work out? Prescription drugs side effects is near the top of the list of causes of death in the US. Many FDA approved products kill, disable and poison on a massive scale just because the company that makes them has the money to bribe the officials and manipulate research. The only thing FDA is good at is keeping the big pharma drug cartels safe from competition and prosecution in the courts and making sure they have record profits on the back of the taxpayers.

      I have no doubt that more financial sector regulation would have similar effect, even more control by the cartels. Just look at how effective an institution like e.g. the SEC is, they are a sick joke. A better approach would be to make it by law impossible to offload any risks and costs to the taxpayer, and to make sure that companies and their management and shareholders are always fully responsible (also financially) for their actions instead of the current ‘anything goes’ approach. Companies that are ‘TBTF’ should not be allowed to exist in the first place. Of course, none of this will ever happen …

    • Winston
      Oct 10, 2016 at 9:09 am

      “It is therefore suggested that ALL financial products, including insurance annuities, should require prior regulatory approval, analogous to that required for pharmaceuticals, namely their safety and efficacy.”

      Right, because regulatory agencies and governments have always been so very good at their jobs.

      As long as we’re talking about things that will never be allowed by the financial sector until their total collapse (easily possible) makes them less influential and a wise, informed electorate (forget about that) insist upon the correct post-collapse measures, here’s THE fix:

      1. Commercial banks will function as break-even public utilities banned from speculation of any kind.
      2. Investment banks will be for speculators and any losses will be the burden of those speculators.
      3. No bank will be allowed to grow to become systemically dangerous in any way – get big and you will be split up.

      • George McDuffee
        Oct 10, 2016 at 10:59 am

        Very good suggestions!

        The tax code also needs to be changed such that interest is no longer a tax deductible business expense if the company has “excess” cash reserves, particularly if the loan is for non-productive activities such as “special” dividends, stock buy-backs, or pointless/monopoly creating M&A. Apple is a poster child for this, but there are many others.

      • Green Rock
        Oct 10, 2016 at 7:01 pm

        This whole mess could be ended by EU and US depositors taking every euro & $ out of the major banks. close the accounts. Move to a credit union. Problem solved. But, the real reason we have these problems is that people are lazy and hope for a big return on everything–even big bank service. You dance with the one that brung ya……

    • Petunia
      Oct 10, 2016 at 9:12 am

      The biggest problem with your idea of pre approving models or financial products is that you think they are all standardized. They ain’t.

      The way these models and products get created is by a managing director going to a quant or programmer and telling them they need to change the widget to do this, or look like this, or they need a new widget that does this other thing. The reason quants have full time jobs is because this goes on on a continual basis, daily, weekly, monthly. The complexity created to make these monsters would not make sense to a rational examiner.

      • Oct 10, 2016 at 11:50 am

        RE: And how well did that work out? Prescription drugs side effects is near the top of the list of causes of death in the US. Many FDA approved products kill, disable and poison on a massive scale…
        —————
        Indeed, and as I indicated there will always be some that slip through, such as Thalidomide, Phen-fen, and the Dalcon shield. However it should be noted that these are now off the market, in contrast to the numerous financial products which have been proven to be highly toxic/addictive that are still on the market, e. g. CDOs, auction rate securities and derivatives particularly interest rate swaps when part of a municipal bond package, and the creators of these products are for the most part still in business (and doing well), the exceptions being Bear and Lehman.

        It should also be noted that although there continues to be instances of FBI [food born illness] (and most likely always will be) the FDA, in co-operation with the CDC [Center for Disease Control], is limiting the occurrence/duration of these outbreaks, as contrasted to the many highly toxic financial products still on the market (and newly created), and in fact the management and accountable technicians of the peanut company and the egg company that caused Salmonella outbreaks and the compounding pharmacy that poisoned a number of people are currently serving time, and those operations have been shut down.

        • nhz
          Oct 10, 2016 at 3:18 pm

          sorry, but you have a way too optimistic view of this and clearly don’t know what you are talking about. I’m a biochemist involved with some of these issues and although I’m not in the US, I have almost daily discussions with US medical / biochemical / environmental specialists and know pretty well what goes on behind the scenes. FDA and CDC are utterly corrupt institutions. It’s all about making money, not about public health.

          Yes, they will sometimes deal with ‘traditional’ food poisoning issues but nobody has been serving jail time yet for those blockbusters drugs that kill thousands of people every year as a ‘side effect’ and work for just a few % of the people who use them, the vaccines that have devastating effects later in life or the systematic food poisoning by hormones, glyphosate and many other unhealthy add-ons in the US agri / food industry.

      • Oct 10, 2016 at 12:17 pm

        RE: The biggest problem with your idea of pre approving models or financial products is that you think they are all standardized. They ain’t. …
        —–
        Which pre-approval would minimize. In almost all other activities we have established standards, for example fastener threads and grades, standard pin spacing for electronic components, etc. These standards do not prohibit the creation of special threads, etc. for special purposes, but this is the exception, and any engineering manager worth the title would never allow unless a significant benefit over a standard thread or component can be shown. Another benefit of standardized financial products is it would allow apples to apples performance comparison.

        RE: … The way these models and products get created is by a managing director going to a quant or programmer and telling them they need to change the widget to do this, or look like this, or they need a new widget that does this other thing. The reason quants have full time jobs is because this goes on on a continual basis, daily, weekly, monthly. The complexity created to make these monsters would not make sense to a rational examiner.
        —–
        Indeed, and requiring pre-approval before sale would largely eliminate this, particularly if four approval criteria are used:
        (1) Is it safe, or at least does the rate of return compensate for the risk?
        (2) Is it effective? Can it do what it promises?
        (3) Does it serve a legitimate financial function? Gambling, hiding assets or creating a facade of solvency, and tax evasion are not legitimate functions.
        (4) How does this differ from other similar products? If there is no significant difference why not use an existing approved generic product?

        For air travel safety and accident investigation we have the NTSB/FAA, for road safety and accident investigation we have the NHTSA, for rail safety we have the FRA [Federal Railway Administration], for food and drug safety we have the FDA/CDC, for financial instruments we have nothing.

        • Petunia
          Oct 10, 2016 at 1:26 pm

          I would prefer to have all derivative contracts trade in standardize form on exchanges, but that limits the profitability of the firms creating them, which is why they don’t do it.

          As far as pre approval under your standards, please understand that the person creating the derivative, will be the person confirming the criteria. The fox guarding the hen. As a practical matter there will be few other people in the firm in a position to understand the instrument.

        • Oct 10, 2016 at 3:12 pm

          RE: …I would prefer to have all derivative contracts trade in standardize form on exchanges, but that limits the profitability of the firms creating them, which is why they don’t do it. …
          —–
          Which is why this must be implemented by legislation backed with draconian civil and criminal penalties.

          RE: … As far as pre approval under your standards, please understand that the person creating the derivative, will be the person confirming the criteria. The fox guarding the hen. As a practical matter there will be few other people in the firm in a position to understand the instrument.
          —–
          Which is why an independent critical objective review is so important before these are sold.

          If the flowchart of the instrument has a box with the label “magic happens here” it is not well constructed/conceived, and should not be approved for sale. If the propose/operation of the security/instrument/derivative/obligation or whatever is so complex/arcane that it can’t be understood by anyone [qualified examiners] but its creator (then most likely she doesn’t understand it either), or it contains “magic secret ingredients,” it should not be approved.

          It is no great trick to “net” an instrument’s performance using past historical data, given the computer capability and massive databases we now possess, and with a little more effort the projected future performance can be forecast using Monte Carlo simulation. These results can then be compared with the stated objectives of the instrument in the prospectus/narrative. A large variance between the stated objectives, and past performance using historical data and Monte Carlo [probabilistic] forecasts should raise red flags.

          There is also the question of what the REAL goals and objectives of the instrument are, and what its likely effects will be. For example if the major effect of the new instrument is to shift assets outside of U. S. jurisdiction to evade income and estate taxes, conceal assets, or make the assets judgement-proof in U. S. courts, it serves no legitimate economic function, and should not be approved.

    • Earl Smith
      Oct 10, 2016 at 4:34 pm

      And yet Thalidomide is now considered a wonder drug for special diseases.

      In spite of world wide regulatory efforts to ban it and burn the researchers at the stake it hung on in Brazil until more data emerged. Just do not give it to pregnant women as a sleep aid.

      There are a lot of special situations that exist where there is a sex linked problem. And the activists are determined to abolish those perfectly reasonable discriminations in the interest of sexual equality. The very idea of preventing a woman from having a job just because she may become pregnant. Those jobs should not be restricted to those who have been sterilized or past menopause.

      • Oct 10, 2016 at 7:37 pm

        IIRC the foundational problem was that the Thalidomide molecule has chirality or “handedness.” The original Thalidomide, which was submitted and tested, was made using lab scale methods which only produced the “safe” molecule, but after approval the process was scaled up for industrial production. Unfortunately, slight variations in the processing conditions of the industrial production process v the lab process resulted in the significant production of both left and right handed Thalidomide, which was undetectable by the usual assay methods.

        The original Thalidomide as tested was indeed a safe and effective medication, but the other hand Thalidomide, which was produced in the scaled up industrial process, even in low doses is highly teratogenic.

        The important takeaway is that as soon as the link with teratogenic children was even suspected, it was pulled from the markets world-wide and the approval was revoked, The approval/testing process has been improved to check for the effects of chirality [pregnant rat testing], and close monitoring of production pharmaceuticals for changes in chirality is now done.

        https://en.wikipedia.org/wiki/Thalidomide

        • d
          Oct 10, 2016 at 10:07 pm

          “The important takeaway is that as soon as the link with teratogenic children was even suspected, it was pulled from the markets world-wide and the approval was revoked,”

          Rubbish.

          As a child evey time I went shopping/ theater/ events, in London, I saw multiple thalidomide effected children.

          it was not pulled until they could not deny the truth, and the eventual compensation payouts were pitiful.

          I can not understand, how they could contemplate using it in Brazil the way they did, let alone actual use it.

    • Gregg Armstrong
      Oct 10, 2016 at 6:41 pm

      Also, hopefully President Donald Trump will launch aggressive and vigorous Federal investigations and prosecutions where warranted into the Feral Reserve System’s activities since the beginning of this Greater Depression.

    • ambrose bierce
      Oct 14, 2016 at 11:43 am

      i might think that a engaged CEO would implement such a policy in the spirit of self regulation

      • Oct 14, 2016 at 1:08 pm

        It would indeed be logical for an “engaged” CEO to self-regulate his companies offerings, but not to put too fine a point on it, one does not get to be a CEO in the current socioeconomic/cultural environment by being Mother Theresa.

        Several studies have shown that many CEOs and other high level executives are borderline sociopaths, with minimal empathy or social consciousness. Indeed, many exhibit other mental pathologies in addition to sociopathy.

        It may well be necessary to enact legislation to force CEOs and other senior executives at the Fortune 500 level to undergo the equivalent of the annual flight physical required of commercial pilots, including psych evals and drug tests (e. g. Jimmy Cayne / Bear Stearns). After all, when a Fortune 500 company crashes and burns, it causes far more damage than the crash of even a fully loaded 787…

        http://www.forbes.com/sites/jeffbercovici/2011/06/14/why-some-psychopaths-make-great-ceos/#3613b47d4fac

        http://thehustle.co/your-ceo-is-probably-a-psychopath

        google on for 434k hits.

  2. Chicken
    Oct 9, 2016 at 8:34 pm

    Brits are smart. Consider who guarantees the unelected ECB, Germany? Italy leaving, ha, not quite but it would be better for them long term.

    • nick kelly
      Oct 9, 2016 at 10:25 pm

      How long term? (Italy leaving)
      In the long term we’re all dead.
      In the forseeable future a stand alone Italian banking system instantly collapses.
      An Italy not backed by the EU central bank would be paying 7.5 % or more to roll over its debt- so its debt service would at least triple.
      So cold turkey?
      The problem is that you have a large Communist presence, which doesn’t get the media coverage of the radical right because it’s not news.
      It is however a much more powerful force.
      A severe recession in Italy, which is the minimum you’d get if this feeble patient checked itself out- could result in severe political instability.

      • Chicken
        Oct 9, 2016 at 10:43 pm

        Italy has been a big loser as a result of joining the EU scam, how does remaining resolve the trend?

        Currently as a welfare recipient, breaking up is hard to do.

        • nhz
          Oct 10, 2016 at 5:30 am

          ‘Italy has been a big loser’: that is way too simple. Of course not all of Italy has been a big loser, the problem is that some people (usually the elites) profit strongly while others are punished (usually not as obvious, but in large numbers).

          It is the same story as Greece, people are fuming about e.g. having government salaries and pensions cut by maybe 20-30%, but they never mention that those were increased by often over 100% in the years after Greece joined the euro. Many people in Greece (not just the elites) have profited for years, the problem is that lately the bills for all this excess have started to arrive.

          And in much of the EU it will be a similar story. Most of the German population is not much better off compared to the start of the euro currency, and in my country (Netherlands) I see the same: real incomes have very likely declined, people were saved by low rates, rising RE values and more debt. The elites have profited hugely, in my country that is mostly those in the financial and RE sectors, in Germany much of the profit is probably with the large (privately owned) car manufacturers.
          These elites are the ones who would really lose when it all falls apart (of course they will try to offload all losses on the taxpayers).

          Who is going to pay the huge negative Target2 balance of Germany when Italy and France drop out of the eurozone? Probably the German taxpayers, who didn’t benefit much from the euro in the first place (far less than many in the ClubMed countries, who have had a party for many years thanks to the euro).

  3. NotSoSure
    Oct 9, 2016 at 9:51 pm

    Not sure who’s desperate. The financial market understands that DB, etc will be bailed out. You can only have desperation if the outcome is uncertain and nothing you do can save markets. In other words, all of us would not have to be told when things are REALLY desperate.

    • chris Hauser
      Oct 9, 2016 at 11:13 pm

      exactly right.

      as to the sky is falling, that’s a generality, call me when the blue splashes on the ground.

  4. d
    Oct 10, 2016 at 12:12 am

    The alleged Accidentally “fat finger” smells very much of a “look over there” action from Europe.

    let it off in the Asian session, when nobody expects it, and large number of British and American traders, get stopped out, loosing a lot. Then only those awake, or informed, get to buy back in fast enough, to reap the major gain’s.

    I am not a sterling trader, but I did get a little on the rebound, then cashed out, as I trade the Asian session.

    The first one of these I ever experienced, was an SNB instigated event. It was awsome for a new trader. I made more than my initaly account investment, in seconds, and have traded with that free capital ever since.

    Pure luck I was watching, as I only had a loss stop on that trade.

    If I was a sterling trader, I would be very wary of more european “fat finger bomb’s” in this “brexit cycle”. A “fat finger bomb” that big, stink’s of the ECB.

    • nhz
      Oct 10, 2016 at 5:32 am

      Fat finger form the ECB, do you really think the US financial mob leaves such opportunities for their EU colleagues? Not a chance …

      • d
        Oct 10, 2016 at 5:47 am

        All the US mob would gain from such an act, is money. Its not worth the private political fallout that goes with it.

        Whereas the ECB, and the EU have a lot of political, and international pressure to shift, BD, run up to french and German elections, ETC.

        So the, ECB, EU, has much more to gain. Especially as DB shares just took another hammering, on the US deal, that as yet isnt a deal, on the 14 B number.

        If it hasnt already, the BOE, will identify the culprit. They wont say anything about.

        But they will, as always, at a time of their choosing, Do.

        Germany has asked for Calm and good manners in the brexit process.

        France, and the Europhiles in Brussels, want open warfare, with no rules.

        Sterling and Eur traders best have their stops and hedges in order, as manipulated volatility in their currency’s, may be here for a while.

    • MC
      Oct 10, 2016 at 8:09 am

      Something is definitely up, as yields on German sovereign bonds are literally “exploding” (meaning they are hovering around 0 instead of being in deep negative territory) right now, indicating a massive dump.
      Again the potential gains are there for those fast enough or forewarned about the event.

      I suspect the two events are closely related, with my take being they both originated in the same place instead of one being a reaction to the other.

      • d
        Oct 10, 2016 at 9:24 pm

        It stinks of ECB aid to Db and damage to England in one swoop.

        You can guarantee DB was one of the insiders who made a huge amount on that event.

        Why bail-in DB, when you can manipulate the market to bail the out for free..

        • MC
          Oct 11, 2016 at 4:17 am

          Exactly how many have banks been helped to the tune of billion dollars and how much good has it doen to them?

          During the July ECB stress test Deutsche Bank was given permission to include in its balance sheets €4 billion from the sale of Chinese bank Hua Xia.
          This deal has been talked over since the end of 2015 but it wasn’t finalized yet at the time of the stress test. In fact right now the deal is dead in the water as government officials in China have stopped the sale and may as well kill it.

          ECB stress tests are so notoriously lax banks simply cannot fail them so it wasn’t a matter of strenghtening Deutsche Bank in preparation for the stress test. It was either a piece of news carefully leaked to give stocks a quick jolt in the arm or something that shouldn’t have leaked down to the public, but did through either carelessness or malice.

        • d
          Oct 11, 2016 at 4:32 am

          “ECB stress tests are so notoriously lax banks simply cannot fail them so it wasn’t a matter of strenghtening Deutsche Bank in preparation for the stress test. ”

          I have written myself about the “Stress Test” that EU bank’s could not fail.

          Its hard to see where the corruption in the Italian, then club med, bank’s, stops, and the corruption in the ECB, Starts, these day’s.

    • nick kelly
      Oct 10, 2016 at 1:25 pm

      If turbulence in the pound requires a conspiracy a lot of history will have to be re-written. The pound was in more or less perpetual crisis after WWII, culminating in the humiliating necessity of an emergency loan from the IMF in the early 70’s. (N.B. Before Thatcher)
      Before running to the IMF, a last resort because they knew there’d be conditions ( more drastic than they expected) they tried twice to hit up West Germany!

  5. Dan Romig
    Oct 10, 2016 at 7:45 am

    It appears that the business model of Deutsche Bank and others is broken.

    “In Europe, about one third of the system-representing some 7.5 trillion euros in assets-remains weak and unable to generate sustainable profits, …”

    “… a legacy of non-performing loans and bloated, inefficient business models, …”

    So why the hell would any sane person or institution pump more cash into a failed system without restructuring the system first? In my simplistic view, those banks that are broken need to die. Those banking executives who have run these failed and criminal entities need to be removed without compensation; they broke the damn companies after all!

    Legitimately run banks should continue operating, and grow larger as they serve both investors and clients successfully and profitably. Dinosaurs like MPS and DB should not have their inevitable extinction delayed another minute. Nor should the people of the European Union have any more euros taken from their governments to go into these broken banks.

    • d
      Oct 10, 2016 at 8:05 am

      The Majority of the operators of the failing banks, which a predominately club med, are all crony’s of the Mafiosi ,that runs the ECB, therein lies your problem.

      The nasty little mafiosi, does not run the ECB in the interests of the citicens of Europe, he run’s it in the interests of his club med banking crony’s.

      • nhz
        Oct 10, 2016 at 3:25 pm

        just look at where most of the top level ECB managers and almost every central bank honcho in Europe comes from: there is one US bank that does God’s work and owns them all. They dictate the policy, not the ‘ClubMed maffiosi’ (although I agree with you that within the ECB council the ClubMed countries dominate – by design).

        It’s also very telling that Draghi in his former life was one of the architects who made the current destruction of the EU financial system possible, through the sleazy deals he designed for Greece and other countries.

        I think the Italian maffia is very envious of that other mob that resides primarily in the US and makes far more money than they ever could.

        • d
          Oct 10, 2016 at 9:58 pm

          “there is one US bank that does God’s work and owns them all”

          That “Trading House” you call a “Bank” is Currently “Based” in the US. As it suits it, to be there.

          Calling it a “US Bank”, is stretching the truth, to breaking point. To suit your agenda.

          If you are objective about that “Bank”

          That “Bank”, is a “Globalized Vampire Corporate”. That owes allegiance to no state, or person.

          Just like a number of others. Who are currently mostly allied with china. But are still called US entity’s, by all the US basher’s.

          The US is simply a “Globalized Vampire Corporate” flag of convenience, for “That Bank”.

    • walter map
      Oct 10, 2016 at 8:27 am

      “So why the hell would any sane person or institution pump more cash into a failed system without restructuring the system first?”

      Because it’s not a failed system. It’s a proven extortion strategy: pay up or the banksters crash the economy.

      This system only fails the general population and the real economy. The banksters obviously like it just fine, despite the recurring crises, because they don’t pay for these crises. You do. You pay them.

      Why, when the situation is so clear and alarming, does it remain so stubbornly intractable to change? It is because those who have power in the world want it to be this way.

      • Dan Romig
        Oct 10, 2016 at 9:05 am

        Extortion is indeed the best description Walter.

      • Tom Kauser
        Oct 10, 2016 at 1:02 pm

        Reservoir dogs

  6. walter map
    Oct 10, 2016 at 8:02 am

    Has anybody noticed that whenever the banksters have a terrible terrible crisis that always the banksters who end up richer and everybody else who ends up poorer? Happens every time. You’d think they planned it that way.

    If you were a global banking cartel intent on reducing the world to debt slavery and penury, this is exactly how you would do it: mysteriously rack up trillions in gambling debts and make the general population and the real economy pay for it. Or else.

    One or two more cycles should be plenty.

    Banksters: “Suckers!”

    • Passenger_Pidgin
      Oct 10, 2016 at 11:06 am

      Re: “One or two more cycles should be plenty”

      My overly-simplistic understanding of US economic history (post Federal Reserve) is that the purpose of the credit cycle has been to corral wealth into fewer, “more responsible” hands. Now that the hands are so few and so incredibly responsible, why should the game go on? To me, the current wealth gap (US and abroad) says “mission accomplished” with scientific authority.

      With all of that being said, I think that DB has the potential to be a powerful black swan. The beauty of this is in the vast range of finger pointing possibilities that could make for interesting narratives and geopolitical developments. A few examples: a) Blame the US for fining DB into insolvency! b) Blame BREXIT and their lack of financial commitment in the first place. c) Blame Merkel and the Christian Democrats for not doing their duty and extending the game. d) Blame Putin – because we do it for just about everything and this whole situation in Syria needs a flashpoint.

      Obviously, letting DB fail would be a severe departure from past actions and existing policies. Just the same, I felt that the possibilities were compelling, so I thought I’d share.

    • Tom Kauser
      Oct 10, 2016 at 1:11 pm

      Jamie Dimon reached into his pocket and pulled out two fresh dollar bills and throw them on the table.
      Right now this is what your investment bank is worth!
      Bear Stearns sold for 10 dollars a share and Jamie dimon chuckled about his foresight of having a couple of ones in his pocket.

    • nhz
      Oct 10, 2016 at 3:30 pm

      not always … I don’t think the banksters who owned Lehman made out like bandits. Rumor has it that this was because they didn’t cooperate too well previously with the rest of the bankster mob. The FED and Paulson decided to teach them (and by extension everyone else in the banking sector) a lesson.

      Sometimes smaller banks get annihilated as well, with huge financial damage for the owners (e.g. in Ireland, Belgium, Cyprus). Many bankers lost their jobs after 2008 (mostly small fish, of course). Not that I feel any pity for them, but it’s basically only the TBTF banks and their higher management that always come out better after a crisis.

  7. Petunia
    Oct 10, 2016 at 9:04 am

    Looks like the ECB is preparing for the eventual repatriation of all that American tech money overseas. No matter who wins the election that seem to be in the cards. I watched a financial show where the hosts were salivating at the thought of all that money coming back. Guess what the big usage was going to be: dividends, stock buybacks, and M&A. I bet you all thought it was going to capital investment and creating jobs, HA HA HA.

    • Chicken
      Oct 10, 2016 at 11:35 am

      Then perhaps we should witness those stocks getting beat up on some trumped-up stories to provide insiders an opportunity to load the boat in preparation to distribute into the buyback strength?

    • Earl Smith
      Oct 10, 2016 at 4:24 pm

      The money coming back does not exist.

      Apple parked the money in Ireland for tax purposes and then loaned the money back to headquarters thus avoiding taxes. The big pot of investment does not exist, only an unpaid US tax liability, and no one will bring that back unless forced to by the IRS.

      I presume that a similar story exists for each of the companies involved with the 2.1 trillion dollar slush fund. Why would a company have the money sitting around earning a negative interest when it can be used to but the executive stock positions.

  8. Maximus Minimus
    Oct 10, 2016 at 12:09 pm

    The best way to solve the problem of non-performing loans is to create more negative deposit rates so the bank can lend more to the deadbeats. Then the ECB will buy the loan and keep it. It’s so brilliant.
    And corporations lending to the bank? A new phenomenon in the making.
    Doubly brilliant.
    What else haven’t we had before?
    Bending legislation to prepare for armageddon – as a confidence inspiring measure.

  9. Tom Kauser
    Oct 10, 2016 at 12:50 pm

    Jpm master plan to save MIPS?
    JPM is using MIPS to get DB!
    The governments are worried about DB to the point of giving JPM what it wants to save DB and yet its plan for MIPS is becoming impaired?
    JPM is using MIPS like GS used AIG to create the KA-BOOM!
    JPM wants into the MIPS book to cover its and the federal reserve tracks!

  10. Steve
    Oct 13, 2016 at 9:49 am

    “The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
    – Marcus Tullius Cicero 50 BC

    • d
      Oct 13, 2016 at 10:14 am

      And they staggered on until 476 in the West, and 1453 in the East.

      The problem we have, that they didn’t, is the Globalized Vampire Corporates, that owe allegiance or loyalty, to no nation, or anybody but themselves.

      They are a much bigger problem, than empty treasury’s

      • Oct 13, 2016 at 9:18 pm

        RE: …And they staggered on until 476 in the West, and 1453 in the East.
        —–
        But not as a Republic.

        • d
          Oct 13, 2016 at 9:37 pm

          Not as a republic, true.

          republicanism didnt even work for Rome/Byzantines.

          It is not a good democratic system.

    • Oct 13, 2016 at 9:14 pm

      It is well to remember that Cicero’s life ended with his hands cut off and nailed to the door of the Senate, and his head on public display in the forum.
      https://en.wikipedia.org/wiki/Cicero

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