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On The Trail Of Europe's "Mysterious" $2.6 Trillion In Toxic Debt

Tyler Durden's picture




 

The NYT has a pretty good article about the "mystery" of Europe mega toxic loans, which amount to $2.6 trillion just to Greece, Spain and Portugal, in that all attempts to find out just who is on the hook for all this debt have apparently yielded no results. We disagree: this is a topic that has been beaten to death before on ZH, and it is all too well known that France and Germany will go bust overnight if PIIGS debt is allowed to be marked even halfway to market pro forma for governmental bailouts, on the banks' balance sheets. Throw in Austria and Italy if the Hungarian crisis (amusingly, the Hungarian government is now scrambling to undo the harm it caused with its fast and loose words of caution last week, but too late - it has now lost all credibility) spreads to Eastern Europe, and the mystery is solved. But at least the NYT has some pretty charts.

As for the NYT's message, here is the gist:

The problem is, alas, that no one — not investors, not regulators, not even bankers themselves — knows exactly which banks are sitting on the biggest stockpiles of rotting loans within that pile. And doubt, as it always does during economic crises, has made Europe’s already vulnerable financial system occasionally appear to seize up. Early last month, in an indication of just how dangerous the situation had become, European banks — which appear to hold more than half of that $2.6 trillion in debt — nearly stopped lending money to one another.

“The marketplace knows very little about where the real risks are parked,” says Nicolas Véron, an economist at Bruegel, a research organization in Brussels. “That is exactly the problem. As long as there is no semblance of clarity, trust will not return to the banking system.”

Limited disclosure and possibly spotty accounting have been long-voiced concerns of analysts who follow European banks. Though most large publicly listed banks have offered information about their exposure — Deutsche Bank in Frankfurt says it holds 500 million euros in Greek government bonds and no Spanish or Portuguese sovereign debt — there has been little disclosure from the hundreds of smaller mortgage lenders, state-owned banks and thrift institutions that dominate banking in countries like Germany and Spain.

Depfa, a German bank that is now based in Dublin, is one of the few second-tier European banking institutions that have offered detailed disclosures about their financial wherewithal, and its stark troubles may be emblematic of those still hidden on other banks’ books.

Despite boasting as recently as two years ago of its “very conservative lending practices,” Depfa, which caters primarily to governments, has flirted with disaster. It narrowly avoided collapsing in late 2008 until the German government bailed it out, and today its books are still laden with risk.

DEPFA and its parent, Hypo Real Estate Holding, a property lender outside Munich, have 80.4 billion euros in public-sector debt from Greece, Spain, Portugal, Ireland and Italy. The amount was first disclosed in March but did not draw much attention outside Germany until last month, when investors decided to finally try to tally how much cross-border lending had gone on in Europe.

There is much more, but it is largely irrelevant. The IMF on Thursday said it can not possibly bail out all of Europe, absent another infusion of $300+ billion, and as the EU itself is insolvent, the debate of a European "game over" is not one of if but when. Unfortunately, the US is in far worse shape than all of Europe combined, but is much better equipped at dealing with a population so illiterate in financial matters that it can keep pulling the wool over the eyes of the sheeple years after the EMU is finished. Furthermore, the longer investors stay glued to their television watching the storming of the Athens parliament first, and soon many more, the longer the US debt catastrophe can stay out of sight and out of mind. Alas, once the European crisis is "dealth with" one way or another, the bored bond vigilantes will inevitably turn their eyes to the US, as Roubini recently predicted. It is all now just a matter of time, and how fast the kleptocracy can load up their vaults in various non-extradition countries with non-dilutable assets before it is all let loose.

 

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Sat, 06/05/2010 - 15:44 | 397129 mikla
mikla's picture

My only question now is whether it will be:

<BOOM> .... (pause) .... <BOOM>

...or:

<BOOM><BOOM>

...from the EU to the US.

Sat, 06/05/2010 - 15:51 | 397142 koaj
koaj's picture

depends on the speed of Ben's HP printer

Sat, 06/05/2010 - 16:32 | 397183 Turd Ferguson
Turd Ferguson's picture

For some unknown reason, I was reading these this afternoon. Kinda fun.

http://www.imdb.com/title/tt0137523/quotes

Sat, 06/05/2010 - 16:39 | 397201 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"How much can you know about yourself if you've never been in a fight?"

Sat, 06/05/2010 - 17:00 | 397217 Gully Foyle
Gully Foyle's picture

Mr Lennon Hendrix 

 

A freaking lot if you are a Sociopath.

Sat, 06/05/2010 - 17:18 | 397252 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Far from it.  Mad, yes.  Selfish, no.

Sun, 06/06/2010 - 00:51 | 397534 MsCreant
MsCreant's picture

GF meant that he is a sociopath, not you. It's not all about you ya know.

Sun, 06/06/2010 - 02:39 | 397645 jeff montanye
jeff montanye's picture

thank you.  clarifying.  funny and ironic.  possibly deeply silly as in too much of a good thing.

Sat, 06/05/2010 - 16:37 | 397196 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

BS always loved hanging out at P.Diddy's Hampton Mansion....

"Diddy, you throw the best partys."  "I know I do BS, I be the best!"  "Sorry Diddy I couldn't hear you, it's kinda loud in here!"  "I know, I am the man!"  "Alright, hey I got a phone call, hold on."  BS got out of the indoor hot tub and walked outisde into the fresh night air after being handed a towel from a man servent.  "JC what is up?"  "What iz up?  Uhm, vhat doez dat meank?"  "Oh it's an expression that Diddy taught me.  Anyway, why have you rang."  Diddy joined BS outside; Diddy was afterall all about the Benjamins, and loved listening to conversations between money brokers.  "BS, ve in Europe AR in serious trauble.  Ve need your magik printingk press."  Diddy tapped him on the shoulder, "Tell him Central Banking is an art.  I loved that line!"  "Banking is an art, so this could be tricky....It'll cost ya."  "Vat do you vant?"  "Well you know Jean Claude, we are having our own problems here.  I don't know if we can do it."  "Please BS please!!!"  "Ok, but I want a fresh fleet of beamers and benzies asap."  Diddy tapped him again, "Tell him you want the Mona Lisa!"  "And I want the Mona Lisa."  "I can do the cars, but not the Mona Lisa."  "Deals off."  There was a pause and a sigh, "Okay, Okay, you can have the Mona Lisa.  But no jokingk around dis time, you open those svaps right avay!"  Diddy started dancing.  "Okay JC, you got it."  Diddy tapped him a third time, "Tell him to say it's all about the Benjamins baby."  "JC, a request from Diddy, say it's all about the Benjamins baby!"  "It's all about the Benjaminks baby!"  Diddy started dancing again.  "Ok, goodbye JC."  BS hung up, and walked back inside with Diddy.  "You know, I think I should put you in my next video."  "I would like that."  BS said with a cheeky grin.

Sat, 06/05/2010 - 19:30 | 397368 DoChenRollingBearing
DoChenRollingBearing's picture

And just for the record, Mr Lennon, which merry evening in June was this out there in The Hamptons?

I am not in that social circle, and enquiring minds want to know!

Sat, 06/05/2010 - 19:46 | 397376 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Last night!  Man you should have been there!  They had fire works, and strippers, and midgets, and stripper midgets!  Yeah, Diddy and BS are a little perverse, but they throw one HELL of a party!

Sun, 06/06/2010 - 00:53 | 397535 MsCreant
MsCreant's picture

I knew a midget stripper. She made a lot of money. Table dances were a challenge...

Sun, 06/06/2010 - 02:44 | 397648 jeff montanye
jeff montanye's picture

and she thanks you for the boost.

Sat, 06/05/2010 - 16:44 | 397200 etrader
etrader's picture

The Guardian

The head of the IMF (and Bilderberger), Dominique Strauss-Kahn, looks at the world and declares: "Crisis is an opportunity." He sees the precarious global economy and floats the idea for "a new global currency issued by a global central bank".

http://www.guardian.co.uk/world/blog/2010/jun/04/bilderberg-charlie-skel...

Sat, 06/05/2010 - 17:01 | 397220 Gully Foyle
Gully Foyle's picture

etrader 

It would solve a lot of problems for TPTB

Sat, 06/05/2010 - 17:10 | 397240 Fred Hayek
Fred Hayek's picture

Don't you just love people wanting to fail upward?

We've destroyed all your economies because we have no principles, no integrity whatsoever.  Just give us more power, perhaps unchecked power and things will be fine.

Oh sure.  How soon do you need it?

 

Sat, 06/05/2010 - 17:24 | 397254 etrader
etrader's picture

Rentendollar maybe an appropriate name....

 

Sat, 06/05/2010 - 17:37 | 397278 Cognitive Dissonance
Cognitive Dissonance's picture

Yeah, sure, no problem. The bazooka didn't work so let's man up with a cannon.

The really scary thing is that these insane people not only believe themselves but their pied piper music sounds increasing reasonable to those frightened average people who are beginning to understand that we can't kick the can down the road any longer.

"Please, just this one last time, make the button work when I push it and I promise I'll change my ways. I promise." The cries of a desperate junkie begging for a fix to forestall the pain of sobriety.

Sat, 06/05/2010 - 17:56 | 397290 etrader
etrader's picture

This year's  2010 formal deliberations (  Daniel Estulin)

1. Will the Euro Survive?
2. Development in Europe: Europe's Exit Strategy...On Hold?
3. Do We Have Institutions to Deal With the World Economy?
4. Greece: Lessons and Forward-looking Strategies
5. NATO and Afghanistan: The Practical Agenda for the Alliance
6. Iran and Russia: Economic and Financial Threats to the Alliance
7. The Consequences of War Against Terrorism
8. The Influence of Domestic Issues on American Foreign Policy
9.The Outlook for Japan's Economy
10. The Future of the U.S. Dollar: Alternative Scenarios

Sat, 06/05/2010 - 18:11 | 397296 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

First, Danny is awesome!  Disclaimer, I like Jones and Tucker for what it is worth.  However.......

#1 was actually how to cut up the bunt cake?

#2 was how bad did we fuck ourselves and everyone else?

Those Bildebergers are idiots and Tucker and Jones are giving them way too much credit.  It is very important to stand up to them, but the fact that Tucker says they have some magikal control over oil production is rediculous.  I think Jim chased the dragon a little too long.  Jones is getting taken on a "there is no peak oil" ride and they are going to throw him over a cliff. 

Oil shock coming in 3........2..........1..........

Sat, 06/05/2010 - 19:30 | 397369 Problem Is
Problem Is's picture

Who Needs a Bennie Bernank-ster???
To buy $$$ trillions in worthless assets and hide them in the basement from the public you just screwed with a massive bankster bailout...

Come on You European Pussies...
Man up to the QE desk and get yourself a bald fraudster to devalue the Euro and inflate your way to success...

Sat, 06/05/2010 - 18:37 | 397315 EscapeKey
EscapeKey's picture

It worked so well with the Euro, so why not scale the experiment up?

Sun, 06/06/2010 - 00:46 | 397529 carbonmutant
carbonmutant's picture

I don't think the current regime in Iran is part of their plan...

Sun, 06/06/2010 - 03:05 | 397660 jeff montanye
jeff montanye's picture

and why not?  every desperate regime needs putative enemies to confuse, distract and impassion those easily confused, distracted and impassioned.  

pick a country.  isolate, subvert and impoverish it.  any attempts by the country to resist are proof of its intrinsic evil.  worked great with the ussr, china, cuba, vietnam, iraq and iran.  

some get careless, like when iraq invaded its former province of kuwait, forgetting only the u.s. gets to invade countries now with impunity (i would add israel but i don't want to be inflammatory and besides it's redundant).  

exception: china, when they buckled on letting foreign money at their resources they became our "friend" (and "funder").  the exception proves the rule.

Sat, 06/05/2010 - 16:02 | 397152 moneymutt
moneymutt's picture

When any claims a big mystery with the facts staring them right in the face they are obviously trying to cover for something.

Thanks ZH for continually exposing who the govts work for, who they protect...the banks

Sat, 06/05/2010 - 16:44 | 397204 quintago
quintago's picture

Well these types of stories translate into one thing only: uncertainty. And uncertainty tells us.....to short the market. It really is that easy folks

Sun, 06/06/2010 - 03:18 | 397664 jeff montanye
jeff montanye's picture

as (the great) john hussman recently wrote (paraphrasing):  looking at the recent gulf oil spill, the banking crisis/bailout and the european sovereign debt debacle, one realizes how poor most analysts are at analyzing worst case scenarios.  

i don't know about black swans but i believe there are enough black pelicans to go around.

 

Sat, 06/05/2010 - 16:02 | 397153 Muir
Muir's picture


Not to worry G20 just came out with communique that fixes all.

http://media.ft.com/cms/422d6406-7093-11df-96ab-00144feabdc0.pdf

 

The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions. Within their capacity, countries will expand domestic sources of growth, while maintaining macroeconomic stability.

italics are mine

Sat, 06/05/2010 - 17:03 | 397225 seventree
seventree's picture

The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances.

Is it just me, or is that sentence just a string of words with no decipherable meaning whatsoever?

confusion is mine

Sat, 06/05/2010 - 17:50 | 397289 SecretGoldfish
SecretGoldfish's picture

sounds a lot like one of my essay answers on the bar exam.  just toss a lot of crap in there and hope that it means something to someone.

 

 

Sat, 06/05/2010 - 19:12 | 397353 RF
RF's picture

I thought I was the only one who did that.

 

Sat, 06/05/2010 - 17:53 | 397294 Mitchman
Mitchman's picture

I think theyr'e saying "There ain't gonna be no U.S. style QE II."

Sat, 06/05/2010 - 18:08 | 397300 Dirtt
Dirtt's picture

To me this is a case of "doing the opposite of what is prudent" and then "saying what is prudent" and then hope that people will overlook 'what they are doing' and rather look at 'what they are saying' so that one day 'what they are doing' will somehow become prudent.

I hope that solves some confusion.

Sat, 06/05/2010 - 18:35 | 397313 Freewheelin Franklin
Freewheelin Franklin's picture

Sounds like "Fed Speak" to me.

Sat, 06/05/2010 - 18:54 | 397333 MsCreant
MsCreant's picture

I read, "We are flying by the seats of our pants and want to be free to pull any kind of stunt we need to, depending on what we can get people to believe. We know things will keep changing and look worse as we go along and we will have to pull more outrageous shit each step of the way. But luckily for us, you will become inured to it as each one comes so we will be able to sustain the bullshit for quite a bit longer as we go about looking like we are working on it when really, like the oil spill, there is nothing we can do. But we don't want you too pissed at us." 

 

Got it?

Sat, 06/05/2010 - 19:15 | 397357 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Clown magicians, I'll tell you, the lot of 'em.

Sun, 06/06/2010 - 02:10 | 397623 walküre
walküre's picture

Actually it makes perfect sense if you read between the lines which is why the other guy used italics to emphasize the key phrases of the agenda coming up.

They could have used less words though.

Simply: Austerity, smaller budgets, more poverty.

End of the story.

Thank you for paying into a ponzi that was never designed to work. The cat is out of the bag and now we are cutting all programs and services that you thought you paid into over all those years.

Sorry, and fuck you.

Don't take anything for granted.

Free ride is over.

Money will be tight. Cash will be king because the kings are sitting in mountains of cash.

Sun, 06/06/2010 - 12:40 | 397943 TBT or not TBT
TBT or not TBT's picture

That must be right.   Wealthy people accumulate cash in a big room in their houses where they can swim in it.   They don't actually invest it in, you know, capital, which might be used to produce ever more efficiently.   Your kings just lock it up somewhere, mountains of it, in order to make everyone else that much poorer.

Sat, 06/05/2010 - 16:05 | 397155 if
if's picture

That chart doesn't seem very helpful.  On the left side it notes the debt is held by foreign banks but the listed foreign banks on the right sum out to less than 50%.  So the majority of the debt was sold to entities outside of the EUR zone ?  And most of the debt is not sovereign so I would expect the owners to have bought CDS protection which would negate all but counter-party risk.

A more interesting question in the case of Spain might be how much and what kind of debt is held by Santander, the largest bank in the Eurozone, and BBVA.

 

Sat, 06/05/2010 - 16:13 | 397160 jkruffin
jkruffin's picture

Obviously, there are huge US failures coming real soon as Europe implodes.  First clue, Obama on TV addressing jobs as data came in poor on Friday and he has to attempt to reassure people, and market futures crashed.  I mean really, they had to put up a makeshift podium in a car dealer lot quickly.  Bush was doing this all during the last collapse of the ponzi system.

 

Second clue,  Giethner was just on CNBC with one of the lying sluts they employ, claiming Europe problems would not affect the U.S.  Yet today, he says this:

 

In a letter to the rest of the G20, Tim Geithner, US Treasury secretary, argued: “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery”.

Ministers from many countries stressed the need for structural reforms to boost the potential for private sector growth

In private, G20 officials said that the US had been the country most concerned about the new austerity drive and feared for the momentum for global growth. In the meetings it had been frank in the meeting in calling for China to revalue the renminbi and for Germany to boost domestic demand, officials said.

Mr Geithner, himself, was open about his fears in his letter to the G20. “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” he wrote, adding that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.”

Now ask yourself, what do you believe?

Sat, 06/05/2010 - 17:06 | 397232 Mitchman
Mitchman's picture

It is a very interesting split that we have on our hands between the US and the Europeans.  Apparently, the Europeans are determined to hang on to some form of fiscal sanity but it is the US that has the handle on key levers like the IMF.  I keep waiting for the Russkies and the Chinese to step into this muddle but we may be witnessing the beginning of some worldwide political, and therefore economic, realignment.

Sat, 06/05/2010 - 17:36 | 397277 ratava
ratava's picture

euros are too xenophobic to deal with russia and china, they need to be starved into it

Sat, 06/05/2010 - 17:49 | 397287 Mitchman
Mitchman's picture

Euros get most of their natural gas from their friends the Russians.

Sun, 06/06/2010 - 00:54 | 397538 MsCreant
MsCreant's picture

I thought it was from their diet. 

Sun, 06/06/2010 - 11:20 | 397846 TBT or not TBT
TBT or not TBT's picture

Maybe Geitner knows the Euro zone will fly apart in the short run, so he and the administration are preparing the blame for the doubledip in the US.   It's Europe's fault!    See, this administration has awesome awesome intentions so any bad results cannot be their fault.   It is various saboteurs and outside forces screwing things up.

Sun, 06/06/2010 - 02:20 | 397634 walküre
walküre's picture

Bullshit. The Chinese export more to Europe than anywhere else. Germans have been building Volkswagen in China before anyone else even looked at that market.

You're incorrect but it's typical when our media here is lopsided and doesn't report on anything that does not involve the US.

Here's a newsflash for you.

Europe has 550 million citizens with a broad middle class which has SAVINGS.

Compare that to the US where the middle class is hugely indebted, highly overleveraged.

Not to mention the mass poverty that is omnipresent around the US which simply doesn't exist in Europe.

I'm starting to see the reason for the Euro bashing and Europe bashing is part of the US imperialist propaganda.

According to the US world view, there can only be one super power.

Don't kid yourselves what is being played here. The internet is full of info and easy access to facts from European countries to create your own picture.

Europeans can afford to travel to the US to shop in NYC or spend Easter weekend in Florida. Europeans have tons of charter flights to several US destinations.

How many US citizens can afford to travel to Europe during their life time at least once?

 

Sun, 06/06/2010 - 12:20 | 397905 TBT or not TBT
TBT or not TBT's picture

"Europe has 550 million citizens with a broad middle class which has SAVINGS."

And which is OLD, and didn't save nearly ENOUGH, which is true mainly because they didn't have enough CHILDREN, to work to pay into the WELFARE STATE PONZI, and so they imported MUSLIMS, and failed to integrate them, and so they reproduce more than twice as fast, such that europe will no longer be "EUROPEAN" anymore within a generation, and will have another monster civil war before then, in all likelyhood.

But do go on with your americans-r-ignorant-hicks propaganda.

Sat, 06/05/2010 - 17:24 | 397242 seventree
seventree's picture

Giethner was just on CNBC with one of the lying sluts they employ, claiming Europe problems would not affect the U.S.

A sentence in this form is always a lie: "<enter any problem here> will not affect <enter any situation here>."

Sat, 06/05/2010 - 17:29 | 397268 cossack55
cossack55's picture

Why you doggin' the sluts, man.  Most sluts I know at least have an ethical framework upon which to build if a little lacking on the morals side.  CNBC succubus described as sluts? Forsooth!!!

 

Iceland Rules

Sat, 06/05/2010 - 16:19 | 397167 dumpster
dumpster's picture

the debate of a European "game over" is not one of if but when. Unfortunately, the US is in far worse shape than all of Europe combined, but is much better equipped at dealing with

 

a population so illiterate in financial matters that it can keep pulling the wool over the eyes of the (LEO's  added) years after the EMU is finished.

 

 Furthermore, the longer investors stay glued to their television watching the storming of the Athens parliament first, and soon many more, the longer the US debt catastrophe can stay out of sight and out of mind.

 

Alas, once the European crisis is "dealth with" one way or another, the bored bond vigilantes will inevitably turn their eyes to the US, as Roubini recently predicted. It is all now just a matter of time, and how fast the kleptocracy can load up their vaults in various non-extradition countries with non-dilutable assets before it is all let loose.

 

does leo just post stuff .. and then runs and not read the varous information articles

leo what say you ,, are your reading this ?

Sun, 06/06/2010 - 12:32 | 397933 TBT or not TBT
TBT or not TBT's picture

"...a population so illiterate in financial matters that it can keep pulling the wool over the eyes ...."

Don't know many europeans I guess.   They're taught marxism, with a layer or markets are a necessary evil, all smothered in a heavy sauce of keynesianism, heavy regulation, dirigisme, peppered with direct state control.   The economic illiteracy level in Europe is pretty damned dire.

Sat, 06/05/2010 - 16:33 | 397188 frog
frog's picture

it's the cata,

 

ol right, I'm going to look for shells

Sat, 06/05/2010 - 16:38 | 397197 Turd Ferguson
Turd Ferguson's picture

From Roger Ebert: Only gradually are the final outlines of his master plan revealed. Is Tyler Durden in fact a leader of men with a useful philosophy? "It's only after we've lost everything that we're free to do anything,"

Sat, 06/05/2010 - 17:03 | 397227 Mitchman
Mitchman's picture

It's obvious to me that Tyler Durden is John Galt.

Sat, 06/05/2010 - 17:14 | 397245 Fred Hayek
Fred Hayek's picture

Ah forget it.  Who's Tyler Durden?

Sat, 06/05/2010 - 17:28 | 397267 seventree
seventree's picture

Nonsense. John Galt is an imaginary fictional character. Tyler Durden is a real fictional character.

Sat, 06/05/2010 - 18:09 | 397302 Muir
Muir's picture

Very nice distinction!

Sat, 06/05/2010 - 17:03 | 397226 buzzsaw99
buzzsaw99's picture

It's hard to prop up PIGSHIT when PIGSHIT doesn't want to be propped up anymore.

Sat, 06/05/2010 - 18:45 | 397326 dumpster
dumpster's picture

dipshits can prop up pigshit

 

ask johhny Bravo or yory,,, leo may have some clue

Sat, 06/05/2010 - 19:37 | 397374 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1,000,000

Sat, 06/05/2010 - 17:04 | 397229 Trichy
Trichy's picture

Bullish for Germany, I was sure it was much more.

Then again eastern Europe will bankrupt them any way.

Sat, 06/05/2010 - 17:06 | 397234 SDRII
SDRII's picture

New Japan Finance Minister also a "fiscal hawk." Question is will Europe and Japan be torched without striking back by perhaps shunning the heavy hand of the Fed and refusing to expand the buying/monotizing/sterilizing/whatever it is thereby usher in what one prominent German was rumored to call some healthy deflation. A golden trojan.  

Fed / Bernanke have adopted the Bush/Petraeus specops doctrine: fight the wars over there so we don't have to fight them at home. Hungary brings up a salient point however by highlighting that default is an option that can not be ruled out. Bank of america just launched their "earn" a principal reduction over time. Perhaps Geithner can convince the world that so long as the usury is deftly applied, no blunt instuments of course, principal is an anachronism.   

BIS on cross border liabilities and at risk currencies/swaps.

http://www.bis.org/publ/work310.pdf?noframes=1

 

 

Sat, 06/05/2010 - 17:18 | 397251 Fred Hayek
Fred Hayek's picture

If you remember that video of Jeff Sachs and Hugh Hendry from a couple weeks ago, Sachs as much as said so, that principal is an anachronism.  Gillian Tett asked if he actually thought the Greeks could pay back their debt and he reacted like a freshman had wandered into his office at Columbia and made an embarassing error.  It's not about paying anything back. It's about being able to "service" your debt. 

Sat, 06/05/2010 - 17:22 | 397258 doggis
doggis's picture

i aint buyin it, so i hope you aint sellin it.....why the bejesus is there no article about the 'mark to fantasy' junk that is sitting on the US money center banks' balance sheet.......just as my nanna used to say " keep your face in your own bidness, and keep it out of your neighbors - oh yeah and a multi vitamin every now and then can't hurt."

Sat, 06/05/2010 - 17:25 | 397264 doggings
doggings's picture

Leo just called me and told me to tell you

"Im bullish on the US and the whole world (buy solars)"

Sat, 06/05/2010 - 18:25 | 397310 Trichy
Trichy's picture

Does anyone know how Leo passed the test to get onto ZH?

Sat, 06/05/2010 - 18:40 | 397319 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

His work on pensions is phenomenal.  I wonder if Leo is pulling our chain sometimes.

Sat, 06/05/2010 - 18:42 | 397322 dumpster
dumpster's picture

three hole Monty

 

leo

was required to get two out of three  pegs in square holes . 

he remarked it is not possible , as only one fits lol  two are round ,, his remarkable ability to spot this instantly was a deciding factor ,

somehow this qualified him

he was not asked how a square Keynesian  economic policy some how fixes a round world

 

 

Sun, 06/06/2010 - 05:04 | 397690 Hephasteus
Hephasteus's picture

They won't let you in the marines till you take an oath. "Always Loyal"

They won't let you touch a pension fund till you promis to "Ponzi or Die".

Sat, 06/05/2010 - 17:32 | 397271 Harbourcity
Harbourcity's picture

The conspiracy theories walk a fine line between reality and fiction.

 

But at their core the conspiracies do us a service because they remind us not to trust everything we hear and to ask questions. 

 

I salute those who cared about this issue from the beginning.

 

Sat, 06/05/2010 - 17:38 | 397279 RobotTrader
RobotTrader's picture

Meanwhile, money never leaves the market.

It just rotates to some other sector.

Note how all the money fleeing European sovereigns is now piling into "risk-free" California Munis and high grade corporates....

LOL...

Sat, 06/05/2010 - 18:24 | 397309 Sudden Debt
Sudden Debt's picture

 

Robo, your first pic only has a market cap of 95 mil.$. It's not even worth mentioning.

Eaton Vance California Mun. Income Trust AMEX CEV 13.24   +0.01 (0.08%) 95.28M   Eaton Vance California Municipal Income Trust (the Trust) is a non-diversified, closed-end management investment company. The Trust's investment objective is to provide current income exempt from ...

 

And the Ishares Iboxx only yields 5%, so in todays trends, that one might soon crash 60% easy.

Sat, 06/05/2010 - 20:39 | 397392 carbonmutant
carbonmutant's picture

Money is now rotating into "risk-free" California in preparation for the fall election bailout...

Sat, 06/05/2010 - 17:56 | 397295 breezer1
breezer1's picture

hi robo, you have been working out haven't you. looking great. love your brains.

the focus was placed on the european house of cards to take focus off the us house of cards. without gold and silver you will not get a chair when the music stops.

non- dilutable assets. i like that.

Sat, 06/05/2010 - 18:02 | 397298 Crummy
Crummy's picture

You don't get the chair anymore, it's lethal injection now.

Sat, 06/05/2010 - 18:40 | 397320 spekulatn
spekulatn's picture

NYTimes = debbie doubter  ;)

Sat, 06/05/2010 - 18:43 | 397324 Fix It Again Timmy
Fix It Again Timmy's picture

"principal is an anachronism - It's not about paying anything back. It's about being able to "service" your debt."  Damn right, I wish I could take over $1million in monoply money and lend it to my neighbor and get interest payments every month - I would not give a shit about the principal 'cause I got it from my kid's Monoply game - just keep that revenue stream coming in each month, I'm not GREEDY - screw the principal!

Sat, 06/05/2010 - 21:04 | 397405 uraniuman
uraniuman's picture

Terrific analogy! *****

Sat, 06/05/2010 - 22:03 | 397431 taraxias
taraxias's picture

Brilliant

Sat, 06/05/2010 - 19:03 | 397344 ciao
ciao's picture

Greece as sub-prime real estate.  Look not to the primary debt holders but to the wholesale funders and smoke counterparties of the 2nd tier DEPFA's.  All the way back to the USD.

 

Any wonder Geithner's solution at G20 is to push the Eurozone into more debt fueled growth while the Germans are pushing for fiscal cuts?   Savers vs borrowers.  The EU can take the US down and it is only a matter of how low it takes them locally.

 

Incoming deleveraging missile!  Eisenhower says hide under the desk!

Sun, 06/06/2010 - 02:30 | 397642 walküre
walküre's picture

Any wonder Geithner's solution at G20 is to push the Eurozone into more debt fueled growth while the Germans are pushing for fiscal cuts?   Savers vs borrowers.  The EU can take the US down and it is only a matter of how low it takes them locally.

Yes, and that is what this is all about.

The US is fiscally fucked.

There is no wiggle room to increase taxation on its citizens unless the golden cow, the upper 5% or so get slaughtered. Won't happen. The rest of the minions just don't have any more room on their credit cards.

The Fed is the Wizard of Oz and if they don't get audited, it's because they've got something to hide. Eventually someone will pull that curtain and the fraud gets exposed.

Greece is at least a visible basket case and they're coming to terms with it. Painful but possible.

Getting the Fed and UST to come out of the closet will take more time but soon the spot light is on because all others have admitted their disfunction.

Sun, 06/06/2010 - 08:26 | 397737 bob resurrected
bob resurrected's picture

Americans can solve their fiscal problem with a 10% VAT. Will they?

One cannot make Germans out of Club Med. Fiscal transfer, from surplus to deficit countries within the Eurozone, is the only viable solution for the Euro. Will they?

There is more dollar denominated debt to delever than Euro denominated debt to delever, toxic and non-toxic. Therefore, there is more demand for dollars than for Euros versus the supply, even as the Fed prints. The ECB will also need to print to allow the Euro denominated debt to delever without a systemic crash. Will they?

 

Sun, 06/06/2010 - 12:21 | 397908 trav7777
trav7777's picture

This is just nuts...an additional tax?  In THIS economy?  Talk about counterproductive

Wed, 06/09/2010 - 17:22 | 404450 RMolineaux
RMolineaux's picture

Trav:  Numerous studies have confirmed that the tax burden in the US is lower than in most European countries.  Yes, there is room for increasing taxes.  For starters, we can just reverse the Bush tax give-aways to the wealthy.  For seconds, we can collect all the taxes that are currently being evaded (estimated at 300 billion by the IRS).   A VAT is regressive and an admission of failure - failure to collect a progressive income tax that is fair to all.   On the expenditure side there is an endless stream of waste, starting with the pentagon - the fattest economic parasite in all history, running around like a hammer looking for nails (new wars to demonstrate their usefulness(?)).

Sat, 06/05/2010 - 20:43 | 397395 Mr Lennon Hendrix
Sat, 06/05/2010 - 21:13 | 397408 Atomizer
Atomizer's picture

Your second installment of TPTB deprogramming.

The Grand Design - World Government 1968 PT-1 of 8

http://www.youtube.com/watch?v=S_JGwtBpMHM&feature=related

 

Sun, 06/06/2010 - 01:29 | 397574 adisensei
adisensei's picture

Brilliant article but I am not sure I agree entirely with my friend Tyler’s comments about the US being in a far worse shape than Europe.  I think it appears this way simply because it is more transparent in Yankee land.

I would start the quest for the proud owner of the largest exposure to the Euro toxic debt at the top, with the MOAB. I am not referring to the Mother of all Bombs (GBU-43/B) but the Mother of all Banks, the ECB, although it may just be one. They’ve been getting a lot of attention lately for buying a few busted government bonds, but that’s a piece of cake compared to prior sins. For those who can still remember the early days of the credit crisis, the trade of the moment (that lasted a good couple of years) was the ECB repo. All the European banks were lightening up their balance sheets by securitizing everything in sight and repo-ing it with the ECB. Unlike in the US, I have not heard about proposals for auditing the ECB.

Next, I would in look at Deutschland’s Landesbanken, probably the most screwed up systems around. See attached FT article:

http://cachef.ft.com/cms/s/0/1d1d9668-3ce0-11df-bbcf-00144feabdc0,s01=1.html

They also happen to be the main source of financing for the German mittelstand, the heart of the economy, providing them with loans with terms with which other foreign/investment banks cannot compete. Their access to cheap financing disappeared in 2005 when the European Commission forced Germany to stop the state guarantees and all the cash stocked up in anticipation of that event got reinvested in funky stuff. In the decreasing interest rate environment, in order to continue to provide cheap loans to the middle-market companies and local governments while their financing cost went up, the landesbanken had no choice but to reach down the yield curve and invest in securities which they were not equipped to analyze. Their bon appétit for structured products was matched only by that of their Western neighbors who, considering themselves more sophisticated (they are French after all), they went straight for the hard core stuff – single tranche synthetics and CPDOs. I guess this takes us to the next stop. I still remember a story about a French money market fund that invested in super-senior synthetic AAAs that blew up shortly after IKB’s demise.  But after all, Germany has the advantage of being well surrounded.  Further East they have the Osterreich who in addition to dabbling in exotic stuff they also liked acquisitions in Eastern Europe. For instance, in 2006 Erste became the largest foreign investor in Romania by acquiring Banca Comerciala Romana for €3.75 billion.  Nowadays the country has been temporarily rescued by the IMF last year as it couldn’t pay its pensions and last week had a 3-yr treasury bond auction that failed.  In light of what’s going on next door in Hungary, it seems the party is just starting.

The most fascinating part of the article is the similarity with what’s going on in the US. For instance the reference to the continuous rescue packages for Hypo Real Estate and the resemblance with those for Freddie and Fannie. It will be interesting to see how far this similarity goes.  Will Europe follow in US’ footsteps all the way? Just as after Lehman the US did its stress tests, now, after Greece, Europe is doing its own.

http://www.reuters.com/article/idUSTRE65411920100605

Going forward I would keep an eye on the succession at the ECB.  Just as Timmy became steward of the whole U.S. economic and financial system (and given the reserve currency status maybe of the whole world) after his magnificent leadership of the NY Fed, maybe Trichet’s successor will be no one other than Nikolaos Garganas, the former governor of the Greek Trapeza.

It reminds me of the dialogue in Pulp Fiction between Vincent and Jules about the funniest thing about Europe: “It's the little differences. I mean, they got the same shit over there that we got here, but it's just – it's just there it's a little different.”

Sun, 06/06/2010 - 02:47 | 397650 walküre
walküre's picture

Next, I would in look at Deutschland’s Landesbanken, probably the most screwed up systems around. See attached FT article:

http://cachef.ft.com/cms/s/0/1d1d9668-3ce0-11df-bbcf-00144feabdc0,s01=1.html

http://online.wsj.com/article/SB10001424052748703478704574611991663118488.html

WestLB, based in the industrial state of North Rhine-Westphalia and which had assets of around €288 billion at the end of 2008, operates as a central bank and a provider of services for Germany's biggest regional saving banks' network, as well as a commercial bank.

The bank was crippled by losses on mainly U.S.-originated debt securities in last year's financial crisis. To bolster its diminishing capital base, the bank has applied for aid measures from the German government three times, including guarantees and risk shields.

DO YOU UNDERSTAND WHAT THIS MEANS?

THIS ONE EXAMPLE SHOWS HOW EUROPE, IN THIS CASE THE GERMAN WESTLB WHICH WAS SOLID AND WELL FUNDED GOT FUCKED BY WALL STREET.

Sun, 06/06/2010 - 04:32 | 397679 ConfederateH
ConfederateH's picture

UBS got gang raped by wallstreet ($50B) and by washington (1$B settlement, >4000 pending lawsuits over bank privacy).   Wall street and particularly GS are uniformely despised the entire world over.   The age of the dollar-reserve currency is rapidly coming to an end, I would not be surprised if one CB makes a break and starts buying gold, this starting the run on the dollar.  Iran first said it was going to invest 30% of it's FC reserves in gold and dollars, and the panic could start at any time.  The earthquackes have been coming at an increasing pace, and all it needs is the right shock, and the volcano will erupt.

 

Sun, 06/06/2010 - 13:54 | 398032 idle muesli
idle muesli's picture

How was UBS "raped" by Wall Street?

Were they forced to purchase any garbage securities?

Sun, 06/06/2010 - 15:13 | 398132 adisensei
adisensei's picture

Dear Friend, while I respect your Swiss patriotism, I am far from sharing this view.  UBS was a major protagonist on the IB scene around the world and not least in the US.  The disastrous outcome is only due to their ineptitude and to the fact that they were competing in stupidity with Citi and RBS. Their management was either corrupt or plain stupid and shareholders were all too happy with the quarterly results when from 2000 onwards they were ramping on risk. I just can't accept the point that they were raped by Wall Street when they were in fact WS, even if only Wall Street North. It is funny how RBS and them are across from each other in all respects. As to the second point which is not just UBS specific, there are tax evasion investigations related to Swiss banks in addition to the US, in Germany, France Italy etc.  They were the first to get caught and now suffer the consequences.  See articles about the famous Credit Suisse stolen data etc. The two largest banks represent a danger to your dear Confédération Suisse sovereignty given that they are 4x GDP and another blowup may just finish it off.

Wed, 06/09/2010 - 17:49 | 404508 RMolineaux
RMolineaux's picture

This is a very useful discussion of the origins of the US/European banking crash.  My conclusion is that the bulk of the blame lies with the massive and fraudulant securitizations done by GS and their cohorts on Wall Street, with the collusion of corrupt rating agencies.

The Europeans made a grievious error in trusting Wall Street by buying this trash paper.

Perhaps UBS fell for Phil Gramm's Texas bullmanure.

In any case, the political structures in Europe offer greater hope of extracting themselves than does the US.  In the US, the congress is completely subservient to Wall Street and will do nothing to make these criminals pay for their crimes.  It is incapable of raising taxes or lowering pentagon expenditures.  European political parties are more ideologically oriented and can be expected to respond to the crisis more in the interest of rank and file citizenry.

 

 

Sun, 06/06/2010 - 12:26 | 397921 TBT or not TBT
TBT or not TBT's picture

Yeah, they were stooopid to trust the ratings agencies, it turns out.

Stupid is as stupid does.

Sun, 06/06/2010 - 14:54 | 398111 Dismal Scientist
Dismal Scientist's picture

THIS ONE EXAMPLE SHOWS HOW EUROPE, IN THIS CASE THE GERMAN WESTLB WHICH WAS SOLID AND WELL FUNDED GOT FUCKED BY WALL STREET.

You're kidding, right ? WestLB, along with its little brother IKB, are prime examples of slack German bankers greedily hunting for yield, and paying f*ck all attention to what they were being pushed into by the squid and friends. Not for nothing did the Economist refer to the headquarters of both of the above as 'Dunceldorf'.

WestLB has a history of overreaching and screwing up. Advanced muppetry, not 'solid and well funded'. Unbelievable...

 

 

Sun, 06/06/2010 - 07:42 | 397724 Trichy
Trichy's picture

Agree sensei that Europe is probably in the same shape or worse due to the European ostrich tactics. The only difference is that some European economies are still based on a strong export driven industrial and manufacturing sector, giving those economies a trade surplus. That's going to make a difference in the sustainability in the longer run at same time as it is a strain on the Euro.

  

Sun, 06/06/2010 - 04:42 | 397680 ciao
ciao's picture

And € at under 1.20 is just a bigger 2008 all over again.  All this talk of "safety" when it is just bad collateral & margin being called so many bounces down the bank wholesale funding line.  No matter the lending market or the currency there is a USD hyper leveraged origination at the bottom of the whirlpool.  Every cent of the money coming home to the USD has a date with a debt reckoning guillotine.

Sun, 06/06/2010 - 13:02 | 397985 doolittlegeorge
doolittlegeorge's picture

what's wrong with the North Atlantic Treaty Organization "keeping open trade routes" as the now former President of Germany demanded?  It's not like the people of Belgium get along...or like "it's all about geography."

Sun, 06/06/2010 - 14:22 | 398069 Bruce Krasting
Bruce Krasting's picture

Just a question. The Times pic show that german French etal banks have ~700b of trouble on their books. But if you look at what is outstanding by the Spain and bad boys it comes to E2T+ of do-do. So who is holding 1.4T of crap?

I sure hope it is not US money funds that invested in "high grade" sov. paper with a currency swap. On thinking a bit, I am sure that some of it is in our money funds. So the better question is, How much?

Sun, 06/06/2010 - 15:12 | 398117 adisensei
adisensei's picture

...

Mon, 06/07/2010 - 01:12 | 399063 Hephasteus
Hephasteus's picture

Didn't they make a movie out of this. I think it was called The Mist.

Thu, 02/24/2011 - 01:27 | 991901 shawnlee
shawnlee's picture

If you remember that video of Jeff Sachs and Hugh Hendry from a couple weeks ago, Sachs as much as said so, that principal is an anachronism. Gillian Tett asked if he actually thought the Greeks could pay back their debt and he reacted like a freshman had wandered into his office at Columbia and made an embarassing error. It's not about paying anything back. It's about being able to "service" your debt.

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Fri, 04/08/2011 - 01:27 | 1148771 shawnlee
shawnlee's picture

If you remember that video of Jeff Sachs and Hugh Hendry from a couple weeks ago, Sachs as much as said so, that principal is an anachronism. Gillian Tett asked if he actually thought the Greeks could pay back their debt and he reacted like a freshman had wandered into his office at Columbia and made an embarassing error. It's not about paying anything back. It's about being able to "service" your debt.

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