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German DZ, WGZ Banks Confirm They Only Passed Stress BS Due To "Mark To Maturity" Loophole
Next time your broker calls you and tells you you have a margin call on your short in stock XYZ, tell them you refuse to comply as you have it "marked to maturity", and on a long enough timeline, every stock will go to zero. This is precisely what (technically the inverse) German banks DG and WGZ, which had previously refused to post the details of their stress test "passage" did in order to pass the "Stress BSTM." Dow Jones reports: "WGZ's disclosure showed that it had accounted for almost all of a EUR35 billion portfolio of sovereign bonds as "held to maturity," thus avoiding the need to subject them to the discounts required by the "sovereign risk shock" in the tests." As we had previously expected, all banks would promptly reclassify their worst debts (Greek and Spanish exposure) as their best: i.e., as part of the Held to Maturity book. This is precisely what happened, and why Europe is still as insolvent as ever. And get this: 'bonds held in the banks' trading books were subjected to theoretical markdowns of up to 23% in the case of Greece, but the regulators didn't apply that to long-term assets, as that would have implied recognition of the possibility of a sovereign default--something they said was "unthinkable."' So the test tested for everything except for the all too real six sigma events that blew up Bear Stearns, Lehman, AIG, Merrill, WaMu, RBS, Northern Rock, Hypo, and the 7 or so banks to go tits up each week in the US (what is the latest MTD tally on bank failures in the US: 100? 1,000?), not to mention every bank in the world had the US taxpayer not involuntarily bailed them all out... And since this is precisely the same stress test architecture that the one and only tax cheat #1 created in the US a year ago, one can only imagine the level of scammery involved domestically, which had even less testing disclosure than in Europe.
More from the DJ:
Frankfurt-based DZ Bank and Duesseldorf-based WGZ Bank, two of the institutions at the top of the nationwide network of cooperative banks in Germany, had initially taken advantage of their right under German law not to publish the information.
However, the two changed their minds Monday, bringing them into line with the bulk of the other 91 banks that had taken the tests. Many analysts, suspicious that the methodology of the tests had in any case been too soft to represent a real test, had expressed suspicions of the banks that offered less than full disclosure.
More than EUR4 billion of WGZ's sovereign exposure was to the debt of Greece (EUR583 million), Spain (EUR1.197 billion), Italy (EUR1.527 billion), Ireland (EUR244 million) and Portugal (EUR623 million), generally conceived as the most at-risk members of the currency union.
DZ Bank, for its part, disclosed more than EUR11 billion in exposure to the same countries, including EUR5.19 billion of Spanish sovereign debt, of which EUR445 million was in its trading book.
DZ's exposures also included EUR1.195 billion to Greece, of which EUR259 million was in the trading book, and EUR3.26 billion to Italy, of which EUR318 million was in the trading book.
The sad observation after both stress tests, is that the entire world is as bankrupt as ever, if not more, yet because the idiotic market is confusing correlation with causation again (in this case massive fiscal and/or monetary stimulus to reflate risky assets, and/or direct purchases of all assets by the Fed, ECB and other central banks), with the occurrence of the stress tests, all algos, and momentum chasers, like good, habituated Pavlovian dogs, follow the bouncing ball to a 100x P/E until the point where the coordinated selling begins again due to no incremental upside catalyst, the market goes May 6 bidless, and all the salivating dogs are summarily put down, with the excuse that all these canine zombies were in fact rabid, thus pushing the blame away from the professors conducting the experiment. Simply brilliant.
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Pavlovian dogs make the best hamburgers.
Get back! It is going to blow!
http://www.youtube.com/watch?v=d_urLWPrONI&feature=related
The market is clearly having a Bobby McFerrin moment. We are going up, having closed above the 200dma. Bullish confirmation on all the usual underlying indicators. I neither like nor believe it, but am not getting in the way. SPX to 1,226 in short order while noone is looking ?
I guess we should hope that the economic decisions displayed by HelicopterBen and TimmyG will be "marked to maturity"...
Ok,we know the market is a scam and the rise in the S&P does not make sense. What is the new game plan? Wait for another imaginary deathcross?
And yet, the "markets" are buying into it and the MSM breathlessly report the great news and the entertainment shameless CNBCers tout tout tout.
Pathetic and painful to watch.
This has to be one of the funniest posts I've read on ZH.
My hairline is marked to maturity
"Officer, we both know that if this had been 2am there would be no traffic and you wouldn't even be here, so let's mark-to-the-future and understand that you were not able to see what occurred because you weren't there."
Even more fun could be had. Try filling out some bank loan forms with your assets marked to a maturity at some undefined time. That would be a real belly laugh after you get out on parole.
Bank fraud only applies to the borrowers.
Let's see, over the weekend:
1. NK threatened nuclear war.
2. Afgan papers come out, demonstrate that we will not/cannot win there.
3. Stress tests further debunked.
4. FDIC (don't know when this happened exactly) functionally admits insolvency/taxpayer bailout with planned issuance of Us guaranteed bond issue. 7 more banks closed.
And yet FDX raises guidance and we are off to the races. No mention of Dallas Fed Index. New homes sales JUMP 20%+! No one questions how the revision could have been SO dramatic. And then BP announces the relief well and it being completed next week to ensure the final push into the afternoon is complete.
1. NK threatens same thing at least once a month.
2. But we "discovered" $1 trillion in precious metals. Ergo, private investment; Ergo, problem solved (see Kenya for details)
3. Benny and Timmy needed an illusion of relative strength in the EU to contrast with the "unusually uncertain" outlook at home. Ergo, shift even more capital flow away from the U.S. to give a better rationale for QE 2.0.
4. There are still a few middle class taxpayers left. Another bailout can be arranged. This won't become a real issue for years.
I'm not surprised people are bullish. Ben apparently knows his Pavlov, but I'm gonna assume he hasn't read Jung -- i.e. thinks he can pull the masses back from the abyss of greed he led them to.
Hopium is one helluva drug!
It would seem to me that if this were true someone would be tempted to push said bank over the edge...
Is BoA rapidly liquidating?
http://www.mfi-miami.com/?p=4467
"http://www.mfi-miami.com/?p=4467"
Wow, very interesting post there. I wonder how much of it can be verified through other sources? If it is true, then that would certainly test the veracity of the new Financial (non)Reform Bill, vis a vis dismembering TBTF organizations!
Apparently they don't read Der Spiegel. (Or at least, not in English?)
Repeat after me...
The Stress Tests are akin to sneaking out a smelly fart during Christmas dinner then laughing about the stench whilst playing dumb.
Mommy!
Timmy's in the bathroom doing it again!
Flash Crash 2.0 - reloaded.
Tyler,
Superb, thank you.
DavidC
...but the regulators didn't apply that to long-term assets, as that would have implied recognition of the possibility of a sovereign default--something they said was "unthinkable."'
Unthinkable for those without brains, that is. Regulators are worth their weight in soap.
How can anybody here at ZH be surprised by this behavior?
ALL fiat currencies are backed by FAITH and faith alone, hence the need to concoct any lie, no matter how bizarre, to hide the Truth. Citizens lose faith in the Fiat, and it's GAME OVER!
EURO buying support mentioned since June continues and further upside is expected.
http://stockmarket618.wordpress.com