Everyone is denying everything.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Judging by the slow-motion meltdown of a growing number of large banks in Europe, including Deutsche Bank (in the IMF’s words, the “world’s most important net contributor to systemic risks”), confidence in their solvency is evaporating. And the denial and blame games have begun.
Deutsche Bank CEO John Cryan denied any need to raise capital or ask for a bailout. That was followed by furious denials from Mario Draghi that the ECB’s low rates are partly responsible for Deutsche Bank’s current woes. Roughly half of all of Deutsche’s profits have traditionally come from loan interest; now, thanks to the madcap negative-interest-rate policies, that source of income is disappearing.
But the bank’s spectacular fall from grace — it has lost 90% of its market value since 2007 — is primarily owed to woeful, often criminal mismanagement. Hence, all the fines. As the WSJ’s Paul J Davies writes:
The bank faces all the problems that plague its peers, but it has most of them worse than rivals. Its costs are among the highest, its balance sheet among the most bloated and its longer-term profitability one of the least attractive.
Lies, Damned Lies and Contradictions
Things are so serious and the denials are flowing so thick and fast that many of the main players are contradicting each other — and sometimes even themselves — at just about every turn.
According to Draghi, Deutsche Bank is no longer “systemically important,” despite being assigned that exact same label by the BIS Financial Stability Board, the shadowy group of international financial bodies, finance ministries and central bankers that compiles the list of global systemically important financial institutions (G-SIFIs), in the process enshrining failure as the cornerstone of financial industry success. Its first ever list, which included Deutsche Bank, was published in November 2011, when the board’s chairman was… Mario Draghi.
As for the head of the IMF, Christine Lagarde, she proffered a wildly different take, telling CNBC that Deutsche Bank is a systemic important player in the global financial system, but “is on a solid base currently, and we are not at a stage in which I see the need for a government intervention.”
You can expect that opinion to change significantly in the coming days or weeks, as will Merkel’s dogged insistence that the EU’s Bank Recovery and Resolution Directive (BRRD) — which requires an 8% bail-in of a bank’s creditors, including very large foreign banks and hedge funds — be applied before taxpayers get put on the hook.
This was the line she held to steadfastly throughout the early months of Italy’s banking meltdown. In a recent interview she ruled out any state assistance for Deutsche Bank. A state-financed rescue could be a political liability for Ms. Merkel should she decide to run again in next year’s general election. But with Deutsche Bank’s assets amounting to 58% of Germany’s GDP, Merkel will not allow the bank to collapse. The damage to the German economy would be too enormous.
A License to Fail
Germany’s Allianz, a global systemically important insurer, has already made it abundantly clear what it expects the German government to do if Deutsche’s financial situation gets any worse, and that is to bail it out. “I don’t buy at all what’s coming out of Germany in terms of (the government) not wanting to step in ultimately if Deutsche Bank was really in trouble,” Allianz Global Investors AG Chief Investment Officer Andreas Utermann told Bloomberg. “It’s too important for the German economy.”
The question is how.
The answer, apparently, is to find a loophole buried deep within the EU’s bail-in ruling that would allow the German government and the ECB to save face while saving Deutsche with public money. You can bet that Europe’s best-paid financial lawyers have been scouring the text for the perfect escape clause. According to a Fortune article from July on Italy’s soon-to-be-rescued Monte dei Pachi di Siena, they may have found it: apparently the Bank Resolution and Recovery Directive only applies to banks that regulators have identified as distressed, not insolvent.
All Germany would have to do is prove that Deutsche is perfectly solvent, but just a little distressed. To do that, all it needs is an official-looking unclean bill of health — like say, a failed stress test.
To wit, from The Wall Street Journal:
Berlin could use a loophole in the bank-rescue legislation that allows a precautionary state recapitalization of a bank that has failed a stress test. The finance ministry could try to persuade the bank’s supervisor to test Deutsche’s capital cushion, allowing the government to step in with a capital injection should the bank fail the test.
While some economists see this as bending the rules, most say it would leave them intact.
And there you have it: a perfect temporary solution to another intractable problem. Just get Deutsche to fluff another stress test, as its U.S. subsidiary — the same unit that is responsible for the $14 billion fine that has pushed the bank to the very brink — has repeatedly done with aplomb in its U.S. stress tests. In simple terms, it’s a License to Fail (and get bailed out).
When failure becomes the ultimate virtue, you know the game is almost over. Once Germany’s über-austere government bites the bullet and rescues its own flagship bank with public money (as it quietly did with many of its smaller banks in the wake of the first leg of the global financial crisis), all attempts to reform Europe’s deeply dysfunctional financial sector will have come to naught.
And every other European country, from Italy to Greece, Portugal to Spain, would have a green light to do the same for their flag carriers. All they’d have to do is show that their banks are failing but are not insolvent. There can be no doubt they’ll find a willing accomplice in Mario Draghi’s ECB. Meanwhile, not a single thing will be done to address Europe’s very real financial problems, from its negative interest rates to its bloated leverage, via the Doom Loop that’s just waiting to spin out of control. By Don Quijones, Raging Bull-Shit.
Investors are not amused. Read… EU Banking Mayhem, One Bank at a Time, then All at Once
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DBank’s asset to capital ratio is 1187.5 to 1
Its interconnection to a few dozen other SIFIs world wide makes it as vital an organ to functioning of the global financial as any bank in the world
Overlay the chart from Pam Martens that shows these interconnections to the real possibility that the Saudis will do their 2016 version of the SA treasury dump shown in the movie Roll Over and that could be the load of bird shot that brings down a really big black swan. Bon appetite
That chart is crazy. This is exactly right- leveraged up [over] 40:1. less than 3% covered for every 97% of derivative face value. Holeeey you know what. This can’t be bailed out or in or . . . They are playing hot potato with this bank.
. the same unit that is responsible for the $14 billion fine that has pushed the bank to the very brink —
appears any German bailout – taxpayer money – will flow directly to US to pay the 14 Billion fine…..
Merkel will have a tough pill to swallow when this is known throughout Germany.
. Merkel agrees to pay US 14 Billion with German Taxpayer money to bail out unscrupulous bankers
hopefully there will be riots in the streets.
Of course she isn’t going to give DB 14 B so DB can give it to DOJ.
DB has to be able to plead poverty and also hint that the DOJ is creating Lehman 2.0
DB won’t get anything but a drip feed until settling with DOJ
Don’t you see what’s going on?
This whole debacle of financial systems is based and rooted from it’s incipient upon ideas of money-making, greed, materialism, capitalism, in short, personal selfishness for me and mine. These ideas flow against nature. They flow against harmony and real brotherhood between peoples. They set up competition and survival of the fittest to such a point all is destroyed in the end. And we call this with pampas arrogance progressive civilization! There is nothing civil in it. There is nothing progressive in it, only aggression into lower conscious regions that do nothing but heat the planet up to a high-wired, wi-fi, comatose frenzy!
Those that have the insight to see the error of all this lunacy start dreaming new dreams. Set sails for a different kind of life. One working along with nature and all of life. Let’s leave all this barbarism behind and find some real values in life like humanity, simplicity, and altruism. Real civilization is not about academics, technology, or sensuousness. It’s not about not having those either. It’s about selflessness, based in the sense and knowledge that we live together as leaves on a tree, that we share in other words, one conscious life together; that we are brothers and sisters and should have each others backs instead of just our own; logic and wisdom that has been trained and drummed out of us for a long time now and I ask, by who? By all the soulless hordes in mankind that are at the top right now.
Selfishness does not survive. Over and over again civilizations have come down from it. And each of us this time around has had a hand in it. When will we wake up and see what is really going on? Dissolution is going on. And there is only one course from here, die mentally to the old ways and bring back love and compassion to the heart.
Well said. I agree 100%. The cream has definitely not risen to the top in whatever you want to call the present system.
David Stockman recently said that the Fed has about 20,000 employees. Assuming for the moment that the other major central banks have a number of employees that are proportional to their nations’ populations, some simple questions immediately arise.
What do these employees do an a day-to-day basis?
Do the employees of these central banks communicate with each other and, if so, for just exactly WHAT purpose?
Do the employees of these central banks communicate with the employees of the “TBTF” banks and, if so, for just exactly WHAT purpose?
Do the employees of these central banks communicate with the employees of large investment institutions such as hedge funds, etc. and, if so, for just exactly WHAT purpose?
Just exactly WHO benefits from all of this communication and just exactly WHAT is that benefit?
I was in funds transfer for major banks and the fed oversees those operations. They make sure the funds for the day get cleared by a certain time and that the banks close solvent(a matter of opinions these days). They also make sure all the regions have enough cash on hand for their operations. Then there are the policy issues which is what most people get to see.
Who owns the FED
What do they do on a daily basis ? Obviously have meetings to discuss ways to BS the sheeple into submission and destitution
The FED has 20,000 people who all think exactly the same thing.
Mainstream economics has centred on just one economics, neoclassical economics, which has flawed assumptions about money and debt and is unaware of Hyman Minsky’s financial instability hypothesis.
In 2008 – 20,000 FED employees in unison – “How did that happen?”
In 2005 – Steve Keen saw the debt bubble inflating – one person familiar with Hyman Minsky.
Someone said (reportedly, Andre Malraux) that civilizations come into being when people understand they have more duties than rights.
That’s why governments like to call taxes duties. There is an inverse relationship between human rights and government “duties.”
Frédéric Bastiat: Early free-market economist and classical liberal French author (1801-1850):
“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.” – Economic sophisms, 2nd series (1848), ch. 1 Physiology of plunder
“The State is the great fiction through which everyone endeavours to live at the expense of everyone else.” – The State in Journal des débats (1848) par. 5.20.
“If socialists mean that under extraordinary circumstances, for urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it.” – Justice and Fraternity (1848).
Federal Reserve Act 1913 was that ‘point on the road’ where the State and the Elite became one entity, beginning the removal of INDIVIDUAL destiny.
It would seem that all of this is true, but rather than the true recipients of socialist largesse being the unwashed masses, it is a handful of people on super large bonus structures who actually deserve to be lynched.
What would Bastiat have to say about the current state of affairs? In my opinion, he was like the French economics equivalent of Mark Twain, and is greatly underrated in modern economic discourse.
WillNotBeASlave. AGXIIK here.
Bastiat would be smiling that he was right, stunned that things have come to this parlous state of kleptitude and woefully sad that what he noted 180 years ago is now upon us on orders of magnitude worst than his more simple times.
Don’t worry though; Mark Carney and the Financial Stability Board are standing by to allay any fears which might occur before, during, and after any emerging crisis. The Masters of the Universe have the best creative accountants and lawyers in the Universe, so Bastiat, as good as he was, didn’t envisage a race of super-human entities from Planet Fractional, to race to our aid at our time of global need.
They’re taking names, and making large bonuses.
The Carney-val is about to begin!
very true comment!
ZH has an article today that DB-induced stress is causing a dollar shortage in the EU banking system. But then why are exchange rates almost flat today, rather than exhibiting a rise in the value of USD versus EUR?
Maybe because the supply of Fed dollars are sufficient, i.e. as in previous events there is no such thing as a shortage of dollars for more than a few minutes – or seconds.
Sancho Panca: Covetousness breaks the sack.
While reading this article I was reminded of the Clintons. It seems we have exported the worst aspects of American culture and business. The parsing and misuse of words, the true Clinton legacy.
Unlike George W. Bush, whose misuse of words only caused the death of thousands of Americans.
You are so right; DB has a retail operation as well as a casino operation. I believe the casino operation is mostly located in New York, and London.
The stock exchanges around the world are casinos and subject to exactly the same gaming laws as casinos in the U.K.
Not ever reminded of Goebbels, McCarthy, Cheney ( Mr. WMD) Chris Bridge- Gate it and the current master of utter BS, but too dumb to make it plausible: Trump
The Clintons made lying an art form. I believe it will be their ultimate claim to fame, from the best to the worst. Even now when I see Bill lying I’m amazed at how believable it looks. Hillary is awful at it.
And the others you mention are simply liars, big difference.
As George said in an episode of Seinfeld, “if you believe it, it’s not a lie”. Not having a conscience is always helpful for any political leader. But if you tell lies, you’d better have a good memory and this is where in the long run they all come unstuck.
The lying lawyers:
Bill Clinton, Tony Blair, Obama, Hillary Clinton.
Lawyers are trained to say whatever is necessary to win their case (lying).
You’re right … Bill is as good at lying as Barry Soetoro, both of whom might even fool God for a split second when they stand in judgement, but Hillary is an utterly terrible liar, which automatically puts her out of the running for the office in which being a professional liar is 200% the perquisite that it is for Sec. State.
Heard the Clintons were both disbarred as lawyers. Something about lying..
“Heard the Clintons were both disbarred as lawyers. Something about lying..”
You do realise that is a lie, and libelous statement?
The Fact is, that neither of them over time, applied to renew their license to practice in the states they were licensed to practice in.
Which are rubber stamp, revenue gathering renewals, in America.
In our country, once obtaining a practice certificate, and admission to the bar, it is for life, unless you are disbarred.
I suspect Deutsche Bank’s destiny, just like MPS’s, is more closely tied to internal politics than to insolvency and EU rules.
Both the German and Italian governments would really like to bail out their zombies and be done with it, but they are locked in a staring contest with one another and, possibly more critical, they both have political troubles at home.
The Italian and German governments are locked in a years long struggle over budget deficits, a struggle Draghi’s all-in sovereign bond purchase schemes have made more symbolic than anything else: does it really matter how big are the deficits run by Italy (or Spain, or France, for all that matters) if the ECB will monetize them right away on a strict no questions asked basis? German politicians have long sold to their voters the idea that their French and Italian colleagues carry far too much weight inside both the EU and the EMU , and hence they are responsible for the failure of the “European project” and should be reeled in.
Of course this is all a Punch & Judy Show. German still exports far more than she should thanks both to an artificially depressed domestic currency and artificially inflated currency in France, Italy and Spain. And, austerity or not, paying 0% interest on debt is always sweet.
The internal political situation is more complicated.
In Germany it is still unclear if Angela Merkel will run again or retire next year. My educated guess is she’ll run again because far too many are pitching themselves as her replacement. But she does not command the numbers she once did and some of her choices have been singlehandedly responsible for turning AfD from a fringe party struggling to elect a city councilor into a potential kingmaker.
I’ll say her for the records: the chances of AfD winning any election, let alone ruling the country, are zero but the party has grown, and is still growing, so much it can make a coalition government extremely difficult if not impossible.
The same cannot be said about Italy. By numbers alone M5S is Italy’s first party and is kept from gaining power only by almost everybody else having banded together for the scope.
M5S is rabidly anti-EU and a clean electoral victory would mean those financial markets which these days are held to be the most important thing in existance would throw a massive temper tantrum.
Banks are considered only slightly better than criminal syndacates everywhere, and Germany and Italy are no exceptions. Bailing out banks would strenghten AfD and M5S and this is something neither Merkel nor Renzi can afford.
However, the problem is forcing a bail-in, a restructuring or whatever can end up hurting people who are among the present ruling parties’ most loyal supporters.
That’s why my take is Germany and Italy will end up setting their differences aside and try make their problems the ECB’s problem: if the non-elected technokrats in Frankfurt bail out DB and MPS, the political windfall may be much reduced thus allowing both Merkel and Renzi to kick the can down the road a little more.
PS: I am sorry if I have gone too “political” here but the problem is this banking fiasco is so closely intertwined with present political issues it just cannot be separated.
You are absolutely right, the financial regulations will be adjusted whenever needed to keep banks “solvent”. The resolution to this will be political, the financials can always be adjusted as they are just a bunch of numbers in a computer.
AfD and M5S will continue to gain support because the situation is not getting better. Increasing number of people are becoming disillusioned with old parties as the economy grinds sideways while the only thing that seems to be rewarded is graft and corruption. Question seems to be how long will it take until these parties can no longer be ignored or railroaded.
Ireland’s taxpayers picked up their banks losses.
Did the ECB bail out Spanish, Greek or Cypriot banks?
We have to impose austerity because there is no money.
They have set some bad precedents that give them little wiggle room.
And what would be your assessment for AfD and M5S in case of a banking crisis, and depositors loosing their money, one way or another, i.e. in case of full Weimar?
I cannot speak for AfD because I have not read their economic manifesto yet (days only have 24 hours), but M5S would not bail out MPS.
I know manifestos are nigh on useless (“Read my lips…”), but at least give an idea of the underlying ideas in a party.
M5S is basically a long delayed allergic reaction to Italian politics. This means no bailout’s, period.
Choice parts of MPS may be nationalized by an M5S government but the bank as we know it today would disappear.
Depositors in Italy are insured, up to €100,000 or so, so most retail customers and small businesses wouldn’t lose a penny.
There’s the issue of bondholders, but I suspect by then Mr Draghi would have scooped up all MPS bonds that aren’t nailed down in a not-so-stealthy attempt to help the ailing banks.
The manifestos are fig leaves, rhetoric to co-opt disaffected public. Politics is opportunism, they will say anything to get in, and then do what ever opportunism will allow for vested interests.
Make the Ecb do it, for DB, then the rest, then the Eur becomes even more worthless than Cny or the Rbl.
There needs to be consolidation in European banking.
The mafiosi in the Ecb wants it at the bottom, to protect his buddies.
In reality it need’s to be at the top, consolidation all the rotten big bank’s in the process the NPL bundle can be dealt with correctly. Rather than by the Mofosia at the Ecb sweeping it under the rug again” he would need many more big rug’s for that.
Well, having a thrashed currency is something the big euro-area exporters wouldn’t mind one tiny bit.
Here I’d like to remind two things.
First, the world is presently locked in a long running currency war among big exporters which has already seen one player (Switzerland) throw the towel in.
Second, the big German exporters such as Siemens, Bayer, Daimler etc were among the most enthusiastic supporters of the EMU (European Monetary Union) because it would have given them a weaker currency than the old mark without risking a head on confrontation with the old Bundesbank, a confrontation they could not win.
It’s deeply ironic to consider both Germany and Switzerland have traditionally done more than well with very strong currencies and Japan had its most incredible boom years when the yen gained so much over the dollar after Nixon closed the gold window in 1971…
It’s an old game.
One gets the impression that the banksters bought off the regulators so they could hold whole economies hostage for trillions. After all, banksters are known to have financed Hitler and Lenin and bankrupt small countries for sport, so why not?
Perp walks, confiscation, and reregulation, that’s the ticket.
Stunning Crimes of the Big Banks: Worse than Your Wildest Imagination
Economic collapses, war crimes, genocide. Ugly ugly ugly.
And business as usual.
The populists are very angry already.
This was a popular banner in a week of anti-austerity protests in Spain a few years ago:
“Unconditional bailouts for bankers and austerity for the people”
The people have been told that there is no money and they must undergo austerity.
If they manage to find lots of money for bankers ……..
It’s not going to be pretty.
“The people have been told that there is no money and they must undergo austerity. If they manage to find lots of money for bankers ……..It’s not going to be pretty.”
No its not and I cant think of a more deserving target of the peoples anger than the banksters Oh wait a minute maybe the divorce lawyers
The most important thing with investment banking is to have a Central Bank behind you that will clear your books of all the toxic waste you produce at regular intervals.
The FED cleared all the toxic waste from the books of US banks and its investment bankers were ready to start afresh.
DB never had that luxury and it is now drowning under all the toxic waste its investment bankers have produced.
It’s no surprise, the quantities of toxic waste produced appear to be infinite in comparison to the dimensions of the total system.
Rapidly diminishing confidence.
3/ Mass media
It’s amazing how incompetent regulators appear to be, repeatedly.
Deutsche is an octopus that will grab onto about everything as it goes into the red ink. The flailing has begun in earnest and as every other Jakemeister begins to drain his money out, there is no amount of government money sufficient to backfill the ocean of debt where this monster swims. The suck is coming here to front porch America, sooner than later; the octopus has lots of relatives. Keep drinking.
Yup its a big tribe Humpty and we aint in it Or was it club?
As Jean Claude Juncker says, “When it gets serious you have to lie”. I guess its serious.
“Things are so serious and the denials are flowing so thick and fast that many of the main players are contradicting each other — and sometimes even themselves — at just about every turn.”
It’s a hard life being a banker, you are allowed to create money out of nothing; you have no manufacturing, supply and distribution chains to worry about, all you have to do is loan money to people that can pay you back.
Somehow they never seem to get the hang of it.
Bankers only have one job to do and they can’t do it.
Time to add Italian bankers to the list of bankers that haven’t got the hang of prudent lending (see below).
Debt has been around since the dawn of civilization (about 5,000 years), we still can’t use it sensibly.
What are bankers like at prudent lending?
“What is wrong with lending more money into real estate?” Australian, Canadian, Swedish, Dutch and Hong Kong bankers now
“What is wrong with lending more money into the Chinese stock market?” Chinese banker last year
“What is wrong with lending more money into real estate?” Chinese banker pre-2104
“What is wrong with lending more money into real estate?” Spanish banker pre-2012
“What is wrong with lending more money into real estate?” Irish banker pre-2010
“What is wrong with lending more money to Greece?” European banker pre-2010
“What is wrong with a NINA (no income, no asset) mortgage?” US banker pre-2008
“What is wrong with lending more money into real estate?” US banker pre-2008
“What is wrong with lending more money into real estate?” Japanese banker pre-1989
“What is wrong with lending more money into real estate?” UK banker pre-1989
“What is wrong with lending more money into the US stock market?” US banker pre-1929
Globally incompetent at the only job they have to do.
Debt has been around for 5,000 years and bankers still don’t understand it.
Banking takes the brightest and best from nations and turns them into incompetent fools.
We then let them mess about with complex financial instruments, it was asking for trouble.
DB is the world number one in derivatives.
“Never believe a rumor until it’s been officially denied.”
This is the way that every government-linked institution operates. And now we have the official denial by both Draghi and Lagarde.
Can the bank be rescued? Not with all the currency in the world. Unless you add in all that would be needed to be digitized.
Was DB forced to gorge on more sub-prime debt, auto debt, student loan debt and green energy debt as a condition of the bailout?
We’ll fix this but…..
Such things do happen.