This clown parade of clueless opinions (did we mention Goldman had BES at a buy until this morning?), stretched all the way to the very top with Bank of Portugal itself issuing the following pearl:
- BANK OF PORTUGAL SAYS BES DEPOSITORS CAN STAY CALM
Uhhh, what else would the Portugal central bank say? Panic and withdraw your deposits from a bank whose exposures to insolvent entities have been largely unknown until today (and even now).
Ever since 2012, when we first revealed that the biggest problem plaguing Europe's financial sector is the $2 trillion+ in bad debt on the books of European banks (not our numbers, the IMF's), it became clear that the only way Europe can avoid a complete financial meltdown coupled with currency disintegration, is if it can constantly keep rolling over said bad debt (obviously the only way to do that would be to create an epic debt bubble leading managers of other people's money to do idiotic things like buy Spanish debt at 2.75%). This is why not only the BOJ launched its mega QE in 2013, but why Draghi also kicked in with NIRP a month ago: the logic - do anything and everything to reflate the biggest credit bubble possible as otherwise European banks will have no choice but to face up to their trillions in bad loans.
These banks derive the bulk of their revenues from non-interest related sources - basically fee income, and then they pay roughly 70% of that out (afer expenses) in compensation. What happens when fees are but below the compensation level?
As oil prices have risen on geopolitical concerns (that have been printed away by central banks in stocks), so gas prices at the pump in the US have risen to their highest for this time of year since 2008 (and that did not end well). We are not alone in our concern as Morgan Stanley's (and esx Fed) Vince Reinhart warns that a more extreme jump in oil prices would be enough to stall the recovery (lowering real GDP growth by 1.7 percentage points one year out; and perhaps more worryingly, raise CPI growth by about 3.6pp, lowering real consumer spending growth by a full two percentage points).
While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only this week that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with. It would appear our fears of global contagion (through various transmission channels) are now coming true as WSJ reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans. As we detailed previously, it appears the day when the Commodity Funding Deals finally end is fast approaching... and as we note below, why that will certainly be a watershed event.
Timothy Geithner is likely to go down in American history as one of the most dangerous, destructive cronies to have ever wielded government power. The man is so completely and totally full of shit it’s almost impossible not to notice. The last thing we’d ever want to do in our free time is read a lengthy book filled with Geithner lies and propaganda, so we owe a large debt of gratitude to former Congressional staffer Matt Stoller for doing it for us. Stoller simply tears Geither apart limb from limb, detailing obvious lies about the financial crisis, and even more interestingly, Geithner’s bizarre bio, replete with mysterious and inexplicable promotions into positions of power..."Geithner is at heart a grifter, a petty con artist with the right manners and breeding to lie at the top echelons of American finance..."
As we have heard numerous times this year already, tomorrow may be 'another' most important day of the year/cycle as Mario Draghi and his band of merry men at the ECB appear to be finally cornered (by market exuberance, macro weakness, and excess positioning) into "doing" something as opposed to just talking about it. While we have discussed the ins and outs of the potential for a small focused ABS bailout QE, negative rates, and why whatever Draghi does tomorrow will have minimal impact on the real economy; Bloomberg provides a quick and easy guide to the five things to watch for from Mario Draghi tomorrow...
Historically, Warren Buffett has seemingly disagreed with his father Howard who called for "a return to a gold standard" and knew the great Austrian economic school economist Murray Rothbard. However, we suspect his recent startlingly crony-laden comments on Tim Geithner's new book would have made his dad roll over his grave... "Sensational... Tim's book will forever be the definitive work on what causes financial panics and what must be done to stem them when they occur."
Just out from Bloomberg:
- Deutsche Bank preparing a capital increase, aims to raise EU8 billion through new shares by end of June, Handelsblatt says, citing unidentified people in the finance industry.
- Deutsche Bank likely to get new single investor
- Deutsche Bank new investor may hold 5%-8% of shares
- Deutsche Bank declined to comment: Handelsblatt
And the punchline: Bank’s new shares may be sold with 25%-30% discount. In other words, it is liquidity scramble time, and the bank is willing to give anyone with deep enough pockets a 30% discount to market price just to get some additional short-term funding.
Geithner Confirms Mafia-Linked Berlusconi's Forced Ouster, But Says US Did Not "Have Blood On Our Hands"Submitted by Tyler Durden on 05/14/2014 21:38 -0500
Silvio Berlusconi - ironically nicknamed "The Teflon Don" - has been found to have done business with the Sicilian Mafia for nearly two decades, according to Italy's Supreme Court of Cassation in Rome. Having attacked the "biased judges" who called his actions "a continuous crime," Berlusconi wriggled out from under this result since the link to the Cosa Nostra was, as The Independent reports, via his conduit and former senator Marcello Dell’Utri who was sentenced to 7 years for mafia association. While this confirms as fact yet another conspiracy theory, the bigger story was the confirmation of a broad-based bloodless coup to ouster the Italian Prime Minister at the peak of the credit crisis. "At one point that fall, a few European officials approached us with a scheme to try to force Italian Prime Minister Silvio Berlusconi out of power," Tim Geithner writes in his new book, and after telling the President about "this surprising invitation," they decided not to get involved (publicly): "We can't have his blood on our hands."
"They know nothing..." - grab your popcorn and settle in for the clash of the titans as the Cramer-Geithner lovefest explodes on to your screen... the question is will we see:
Cramer 2008 "if Geithner is installed as the next Treasury Secretary then we are done, kaput, finished... we are completely and royally hosed as a nation" or
Cramer 2012 "Geithner is one of the greatest Treasury Secretaries ever."
Bailing out banks is not hard when a nation has a sovereign currency and the banks’ debts are denominated in that currency.