No Capital Controls In The EMU? Liar Liar Pants On Fire
I have outlined the upcoming EU bank runs up to two years in advance (see the many links below). Whenever one expects a bank run, the first things TPTB do is institute capital controls to stem said bank run - which of course makes the bank run that much more necessary to get your capital out - wash, rinse, repeat! Remember, by treaty, no country in the EMU may use capital controls without automatically being removed from the union. Well, do you believe that to be fact that will last? Yeah, I don't either. Simply watch as the money bleeds from the banks and the bumbletrons attempt to staunch the flow using mechanisms that will simply exacerbate the flow. Even more incredible is the fact that even to this date, with the existence of publications such as BoomBustBlog, entire nations as well as their financial advisors, leaders, regulators and politictians STILL DO NOT EVEN COMPREHEND the nature of the modern bank run. You cannot stem the tide with capital controls, you can only exacerbate it.
On Saturday, 23 July 2011 I penned "The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!" wherein I went through both the motive and the mechanism of a European bank run, focusing on Greece and France as impetus.
You see, the problem with this bank holiday thing is that the real damaging bank run will not be staunced by the conventional bank holidays, et. al. because it is a counterparty run that will cause the damage, not depositors. TPTB in Europe don't have the chops to stem this one, at least not from what I've seen. As for how that institutional bank run thing works, we excerpt "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":
The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors. In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!
Make no mistake - modern day bank runs are now caused by institutions!
And Yes!!! The fodder for bank rungs are ALL OVER THE EUROPEAN SPACE!!!!
Today's MSM headlines make this quite clear, but before we get to them, just remember how obvious this was two and three years ago and why NOBODY should be shocked or surprised! See Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe from Wednesday, 31 March 2010 and Is Another Banking Crisis Inevitable? from Feb 4, 2011 and a complete video tutorial based on early 2010 work that has yet to be even one iota inaccurate...
Now, why would anyone be concerned about a bank run today? Oh yeah...
CNBC reports Spain Officially Requests Cash for Bank Bailout From Europe, right after I made it clear that CNBC is asking the wrong questions - to wit: CNBC Asks, "So Why Are Spanish Bond Yields Falling?" I Ask The Better Question, "Why Are Spanish Banks Considered Solvent?"
You also have CNBC reporting that Fitch Cuts Cyprus to Junk as Greek Exposure Hits (exactly as the Greek bailout constructionist lawyer from Gottlieb in the video above said it would last week). Exactly one year ago today I claimed Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par at 30x+ Leverage: Bank Collapse is Inevitable!!! I wasn't joking. Bank collapse is INEVITABLE!!!
If you remember, Greece was supposed to be in the clear right? Let's bring back Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! All said Greece would never default while I made it clear multiple defaults were literally guaranteed as far back as 2010:
and the list goes on...
Spain was even called as an unrecognized problem back in 2010: As We Have Warned, the Fissures Are Widening in the Spanish Banking System
So what's the purpose of all of this reminiscing? Well, the contagion trade is on and popping my friend. Those BoomBustBlog Armageddon Puts That Became Fashionable At Goldman are ready to be strategized. My next post on this topic will be on that big EU bank that was the last to be priced for contagion. In the meantime, remember (subscriber only - click here to subscribe) contagion model research:
- Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)
- Sovereign Contagion Model - Pro & Institutional
Next up is an updated take on that big bank hooked to deep into Greek and Italian exposure. I'll try to have the subscriber document and a free preview opinion up in a few hours on BoomBustBlog. In the mean time and in between time, follow me: