I've Uncovered the Darkest Secret of the Financial System... Get Some Coffee Before Reading This

Phoenix Capital Research's picture


As noted in yesterday’s piece concerning how and why Europe could bring about systemic risk, EU banks are likely leveraged at much, much more than 26 to 1.


Indeed, considering how leveraged and toxic US banks’ (especially the investment banks’) balance sheets became from the US housing bubble, the chart I showed you should give everyone pause when they consider the TRUE state of EU bank balance sheets.


This fact in of itself makes the possibility of a systemic collapse of the EU banking system relatively high. Let me give you an example to illustrate this point.


Let’s assume Bank XYZ in Europe has a loan portfolio of €300 million Euros and equity of €30 million Euros. This means the bank is “officially” leveraged at 10 to 1 (this would be a great leverage ratio for a European bank as most of them are leveraged to at least 26 to 1 or worse).


So… let’s say that 10% of the bank’s loans (read: assets) are in fact worth 50% of the value that the bank claims they’re worth (not unlikely if you’re talking about a PIIGS bank). This means that the bank’s actual loan portfolio is worth €285 million (10% of 300 is 30 and 50% of 30 is 15).


With equity of only €30 million, the bank, at some point, will have to take writedowns or one time charges on its loan portfolio that would erase HALF of its equity. At this point, the bank becomes leveraged at 19 to 1 (€285 million in assets on €15 million in equity).


This announcement would result in:


  1. Depositors pulling their funds from the bank (thereby rendering it even more insolvent)
  2. The bank’s shares plunging on the market (raising its leverage levels even higher as equity falls further).


Thus, at a leverage ratio of 10 to 1, even a 50% hit on 10% of a bank’s loan portfolio can result in the bank needing a bailout or even collapsing.


Now, what if that €300 million in loans is actually the amount the bank’s in-house risk models believe to be “at risk” and the REAL loan portfolio is around €800 million?


Immediately, we realize that the bank is in fact leveraged at 26 to 1. At this level even a 4% drop in asset prices erases ALL equity rendering the bank insolvent.


And yet, based on Basel II requirements, this bank can claim in all public disclosures that it is only leveraged at 10 to 1. With this in mind, you should understand why the banks lobbied so hard against a rapid implementation of Basel III capital requirements (which would require equity and capital equal to 10.5% of all of risk-weighted assets.)


Indeed, Basel III requirements which were meant to go in effect at the end of 2012 will now gradually begin to be implemented in 2013. And banks will have until 2015 to adjust to the new capital requirements and until 2019 conservation buffers in place.


With that in mind, take my XYZ bank example, apply it to all of Europe, assume leverage ratios of 26 to 1 at the very minimum (Lehman blew up when it was leveraged at 30 to 1), and take another look at the housing bubbles in the above chart.


In simple terms Europe’s entire €46 trillion banking system is in far worse shape than even the US investment banks were going into 2008. And this is based on their leverage ratios alone.


However, even this analysis doesn’t go deep enough to explain how and why Europe will implode. Indeed, I’ve spent the last six months digging as deep as I can into the financial system to find the unquantifiable risks that aren’t being discussed by the financial industry.


I’ve found them. And they are worse than anything I expected to find. Indeed, what I’ve discovered is more horrifying than I’d care to admit. And I would very much like to share this information with you.


To find out more about it, swing by www.gainspainscapital.com.




Graham Summers


PS. For those of you anxious about Europe, we’ve recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.


This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com


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Fecklesslackey's picture

... But he does create catchy titles

SPADOC4's picture

As soon as I saw this was GS-BS-buy my newsletter....again....I paged down to see how many comments.

Wow, only two pages as I write this.

And a random sampling of the comments yields a composite, "get this F&cker off the Hedge, fer chrisakes".


I gotta laugh. Each time Tyler puts on a Graham Summers article, everybody piles on. Same can be said for that idiot (Soverign Man) that's always traveling the world, recommending two passports (or more) and how wonderful life is in Peru, Costa Rica, or whereever. Funny how that dipstick never posts scans of his passport. I still say he lives in Bumfuck Iowa in his mothers basement.

Spadoc out

CustomersMan's picture


...And Folks I've UnCovered, through even deeper investigation (via the article today on Greece, for example) the fastest way to bring about the demise of the Central Bankers:


1. remove all deposits

2. stop paying taxes. change exemptions to 99

   and I've added a third, for icing on the Frappachino

3. eliminate any direct deposits you currently have and ask for checks to be mailed instead

Dr. Sandi's picture


the fastest way to bring about the demise of the Central Bankers:

I was thinking of personalized trays of rat poison, placed on their desks by the overnight cleaning staff.

D-Con takes the con out of conniving confidence artists.

fresno dan's picture

Because it is just really colored pieces of paper, the true leverage ratio is infinity to one.

the tower's picture

Graham Summers sounds like your typical 68 yo, left his career at 55, so has not been in touch for 13 years...

Travels the world in your typical leisurely pensioner way and writes some newsletters while his wife is making dinner...


And now he found it! Yes! You better get some coffee!!

Remington IV's picture

you just figured this out !!!



CustomersMan's picture


Reggie's material is much more "in-depth" and coherent without as many teasers.

MrBoompi's picture

I'd probably be shocked at the amount of "collateral" backing up derivatives.  No wonder they have to rig the interest rates!

Right or wrong, we know what they will do.  The Central Banks will provide liquidity to the troubled financial institution, and find a sucker to stick with the bill.  It's not like this is something that's never happened before.  Just add a few more zeros than before and we'll be back in business!

the not so mighty maximiza's picture

After getting my child sized white chocolate mocha frappuccino light blended coffee with an extra shot of espresso, one pump of sugar free raspberry flavoring, and no whipped cream on top; I must say this article was lacking good stuff.


I am more equal than others's picture

I skipped the coffee, took a crap instead, didn't read it and my, do I feel better.  Now back to surfing the free porn sites.

virgilcaine's picture

I'll drink to that.

eddiebe's picture

So this is bullish right?

rsnoble's picture

It's a lot simpler to just skip thru all the technical reading and just come out and say banks are pure fucking shit. That also eliminates the need for any future articles. You know, I know it, everyone else here knows it.........

carbon's picture

Those wondering why the Department of Justice has refused to go after Jon Corzine for the vaporization of $1.6 billion in MF Global client funds need look no further than the documents uncovered by the Government Accountability Institute that reveal that the now-defunct MF Global was a client of Attorney General Eric Holder and Assistant Attorney General Lanny Breuer’s former law firm, Covington & Burling. And there’s more.

Dr. Sandi's picture

It's not vapor when you steal something.

bankruptcylawyer's picture

+ for voting to take pheonix capital research OFF zh. 

_ for voting to keep it on. 

Dr. Sandi's picture

I learn things from the rebuttals to Graham's postings.

And besides, he's a master of apocalyptic financial porn. As I read his stuff, I sit here and gently stroke my silver.

Lester's picture

I will say Phoenix Capital DOES A Service, he gets discussion facilitated and moving in the right direction.

Have seen ALL the subscription services do an abrupt 180 from their original orientation.  Even Gary North in 2003 began a "trust the govt & the fed" sort of byline.  Why has Robt Prechter maintained his inane call on gold?  Still saying it will be $100 again in the near future, is he?  Howard Ruff is still alive.  Maybe he's never changed, thus we never heard from him again...


It is interesting to see the disconnect here.  Mostly a bunch of degenerate gamblers who can't quit looking for their next round-trip fix and don't care what they risk.

Anyone with any brains figured out the whole system is a lure to rob you of not only your money but also your life and health.  Years Ago it was apparent...

The insanity is so rampant the entire social fabric of America looks like a Ken Kesey acid-test.  Not like there are but moments til all crashes and burns.  Of course, if you still want to put your faith in Technical Analysis or Dow Theory or any other system that is your psychosis.  All is long-broken and will never come back.  May as well be playing dice or poker; at least the social interaction is there and the dialogue is Damon Runyonesque charming...

bewst's picture

I got a coffee before reading this. Coffee's still hot

q99x2's picture

Maybe next time you dig down you'll jump in. 


How many actually got coffee before they read that spunk?

The Monkey's picture

Who cares about bank assets when the methods to account for them can be changed? Who cares about leverage when central banks can inflate the money supply ad nauseum?

dumpster's picture

wow dug deep for the last six months to uncover stuff others have known  for 2 years

how deep is dog poop

Jack Sheet's picture

Bring back Rubber Scrota!

jcorbit's picture

Why does ZH permit these teasers from phoenix capital week after week? This junk is far below the dignity of the zerohedge and the expectations of its readership.

Enough already!

Dr. Sandi's picture

Sorry. I just had to chuckle at seeing dignity and zerohedge in the same sentence.

Dburn's picture

Lack of content or budget is tight so lack of Quality content. Content quality will go up as soon a ZH implements this  model with a few zings and zaps.

Free= a veritable deluge of advertising of the things you hate the most. Like JP Morgan ads. "Trust Us, No seriously, Trust us"
For the Skanky Crackorized Cunt Bigots and Racists, Ads from various Churches and Synagogues along with the NAACP and A "Save Israel" campaign from the Greater Church of Rapture.


Annual Subscription fee under $100 =

Level 0= No ads

Level 1. 95% probability hits in real time on In and out trades for a min of a $0.25 profit. Snooze ya loose. $xxx.xx

Level  2. 10 Minute Lead time on any Muddy Waters Report. Screw the email shit. A Windows app and mobile app included that sets off a loud alarm sure to get you fired and sure to make you care less when you load up on PUTs. Set up includes a direct trade through OLB or otherwise on the best choices for PUTs.  $x,xxx.xx

Level 3. Frequent and Merciless Streaming Videos of Major Bankers being tortured by viable  threats of a immediate return to mark-to-market and retroactive  citizen enforcement of Sarbanes Oxley complete with the all new iGuillotine. It's white, lightweight portable and everyone owns one with ZH getting 10% of sales, all courtesy of ZH's new Lobbying arm.

Free by buying level 0-2

Level 4. All of the above and pre-IPO shares for ZH and No more Grant Summers



smiler03's picture

I feel the same about RanSquawk. It takes up useful space on the right of the page and the posts receive very low viewing figures.

Do the Tylers have a commercial interest in RanSquawk?

clawsthatscratch's picture

Lol...imagine that!

Big banks don't "fail" they just collect bailouts from the yokel taxpayers and then hire more politicols to play the same game over and over again, but we all know this....its not new Ghraham.

WaEver's picture

Engineertheeconomy : briiliant post .

SheepDog-One's picture

No problem, RELAX, Draghi's dad has this ultimate set of tools, he can FIX IT! I Can Fix It - YouTube

shovelhead's picture

"Say the secret password and win $50."


steve from virginia's picture



10% of the bank’s loans (read: assets) are in fact worth 50% of the value that the bank claims they’re worth


The foregoing it too confusing. Here is a re-write:


10% of the banks' assets are worth half of what the banks assume them to be. Assets are loans that the banks make to others.


 - There is more than one bank with impaired loans.

 - With the passage of time the quality of bank assets deteriorates. Eventually 100% of all bank/finance loans are bad. The process is self-amplifying and exponential.

 - Loans have zero value as is true with regard money which also has no value. Money has worth (determined by exchange) when it gains value it ceases to be money (it becomes a collectible and is hoarded).


Within the debt-money system a good with value cannot be money as money-as-debt is the destroyer of value (an impostor is substituted for value).


This is the endpoint of debt-as-fraud or false inducement = money is also false.


The gold-bugs have a point: it is what it is, like Popeye the Sailorman.

Vinz Klortho's picture

It would give Phoenix Capital Research more credibility if they
understood that public share prices rising/falling does not affect
the equity of the bank, unless I'm missing something from basic

Preferred shares are considered a level of capital, but I don't think
that's what PCR is talking about.

Correct me if I'm wrong, but shareholder equity consists of paid in
capital, retained earnings, etc., minus the appropriate liabilities?

The banks can be totally insolvent and capital impaired, but the
ECB can "correct" this anytime it wants to.

Far from the end of the world.


Jeronimo's picture

Is there not a single subscriber among us?  That says a lot or if there is they must be sworn to secrecy.  Come on now, anyone, anyone willing to spill the beans.

WojtekSz's picture

i am subscribing to Grahams writings. What are you interested in?


GoldSilverDoc's picture

As a long time Zero-Hedger (signed up 2 months after it first appeared), I ask the following:

QUIT posting these obvious "the-world-is-going-to-end-protect-yourself-by-buying-my-newsletter" posts.  

They suck.  And as a matter of principle, I am not going to ever, EVER subscribe to any of the "information" these jokers provide.  

ZH, if you want to sell your email list to these folks, to make some money, no problem.  If you want to have opt-in or opt-out lists for this kind of stuff, no problem.

Just quit posting it under the pretense of "financial information".  It gives the MSM dimwits ammunition to call ZH a "fringe", "marginal", and "kook" site.

LFMayor's picture

You forgot Lunatic.  And you used the word ammunition, so you must be some cracka, sexist, gynophobic hater of some sort  /sarc off.

NoTTD's picture

Why did I get the coffee?  I could have done the spit take with water.  Easier to clean up.

silverserfer's picture

Shit i should have had my coffee before reading this. My mind is blown.

Quinvarius's picture

Which is why the more you keep squawking about no more QE, the more ridiculous you sound.  The Fed simply will not let any asset prices go down without filling the hole created or buying those assets at 110 cents on the dollar.  Anyone who honestly thinks the Fed is not continually in bailout mode since 2009 is just not apying attention.  The Fed is not going to let all their work unwind and take the whole system with it.

Savyindallas's picture

How long can it go on? Forever? If so, they are geniuses. New laws of economics have been made. Perpetual Ponzi schemes are real.

TPTB_r_TBTF's picture

Yes, the system is perpetual:

The up/down cycles are all part of The Plan.

  • break an economic entity (with the help of new, "stupid" laws for example)
  • buy this entity (cheap)
  • fix this entity (with the help of repealing the above-mentioned laws; after all, you own the legislature)
  • sell the entity (for more)
  • break it again.
  • teach your children how to do this
  • teach your grandchildren how to do this
  • do this "break it; buy it; fix it; sell it" perpetually and get rich!

That is my version of:

"The darkest secret financial system."

Someday Graham will uncover this secret and blog it.

Lester's picture

"The Darkest Secret" is that total collapse is The Intent and Ruin of all who aren't part of "the club" is The Goal...

There is no more "investing".  Anyone who makes pretense at "investment counseling" is culpable for fraud.  No "promise to pay" including fiat money or bonds is "safe".

The deepest secret of "the club" is the Maslow/Ehrlich eugenecist effort which will and has spawned weaponry of all sorts to bash humanity's population back to the levels "the club" deems viable "for survival of the planet"...   Such a pity that so many have to die!

Insanity is not only rampant, it is the order of the day.
If you think you understand "markets" and capital deployment in these final moments, what you really are is the chump at the poker table.

The only action that makes sense is to be "out of the line of fire" and able to live self-sufficiently on every level possible.


There is a further dimension to what is hidden, but to even grasp that requires knowledge that The Spiritual Plane is where everything has always happened and that all historical witness of Christ Jesus and Father-God IS True.  Understanding Truth at this level explains all that is occuring and about to manifest. 

Historically, wealth was not about money; money was a servant of wealth.  Money facilitated trade for those things the wealthy did not produce.  Rather like being self-sufficient means less routine need to buy-your-way to a daily living and secures your future viability.   Too bad so few have any potential for viability on any level...

Here's hoping you've taken action for you & yours.  Wish you all God's Best!


TPTB_r_TBTF's picture

So, all the bad news means, "we are being punished for our sins?"

Sin is a jewish invention, a priestly protection racket.

And btw, Jesus never existed. Imagine that?!

shovelhead's picture

Jesus told me that he's gonna kick your ass.

TPTB_r_TBTF's picture

Jesus' Father said he's gonna burn me forever and ever in a heavenly BBQ.

Oh, i am so scared...

This is the same [socalled all-powerful] god who took 6 full days to create the Universe, and then he had to "rest".  Gimme a break!

  1. all-powerful gods donT need 6 days for one measly universe (of the multiverse).
  2. all-powerful gods donT need to "rest".

I do not "fear" that weak god!

Lester's picture

Unable to find accord with YahWeh, Jehovah, Elohim & HIS Son?

There is Scriptural Witness as to God's enemy running things in this world.
When Christ was weak from HIS 40 day fast in the desert, satan came upon HIM and offered HIM "the world"; if only Jesus would worship him.  Of course, The Lord declined; but consider that if satan does have power to appoint control of all things earthly to those who do his bidding, it explains the orientation of those who have the power, money, and other worldly desirables that men will cheat or kill for...

God's Witness IS Scripture.  Christ IS The Word Become Flesh...
Denying HIM don't make any difference; except to you.

The Deepest Reality is not a "secret", yet it is "dark" beyond comprehension of most...
In Matthew 24, The Olivet Discourse, Jesus Tells HIS Apostles that "Were the days not shortened, NO FLESH Would Remain Alive".  This Witness concerning the time just before HIS 2nd Coming...

Look at the Eugnecists, Ehrlich and his Population Bomb bullshit, Limits To Growth...  Look at the Elite fucks like Ted Turner, the myriad royalty and other super-rich whose goal is a "sustainable planet with about 200 milllion population"...

Really fits into the scope of satan's plan to destroy all flesh.  From 7 Billion Plus, down to 200 million in one  move; the rest to die soon after...

Hope you have read Cresson Kearny's NUCLEAR WAR SURVIVAL SKILLS... free download at www.ki4u.com and other sites.  Worth a read for sure...


The deepest, darkest "secret" is that God's Enemy seeks the destruction of All Mankind and his minions plan to help him achieve it...