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Cascade is to Domino as Greece is to Portugal as LTRO 2 is to...
In 2010 I penned a public post based upon subscriber research called Is Another Banking Crisis Inevitable. In it I presumed that serial and or cascading sovereign defaults will break the European banking system. Aside from calling me "Doom and Gloomer", has anyone really come close to proving me wrong? Short answer? Hell no!
...and in today's news...
Portugal PM Says Economy Behaving As Expected To Austerity
Troika officials are expected to give the thumbs up to Portugal's efforts, releasing about EUR15 billion to fulfill financing needs. Including that installment, Portugal will have received 70% of the bailout money since the program began mid-2011.
Pressure on Portugal's rescue program, however, has been growing amid fears the country won't be able to return to the market for financing in September next year as expected.
Last week, Citigroup said in a report that the recession should intensify over the next years, making the country's debt-to-GDP ratio increase more than expected and above the 120% the troika finds sustainable in the long term.
Therefore, Citi economists say, Portugal will require a Greek-like haircut of 50% of its debt.
Hmmm. More massive haircuts? I thought this Grecian move was the solution, not the problem. Then again, why should anyone else pay their bills if Greece is allowed not to pay theirs? Common sense, eh? From the Globe and Mail: "Portugal and Ireland will ask for a similar deal. Why wouldn't they?"
While it is not known whether Portugal has asked for equal treatment, Ireland was hunting for concessions even before Greece and the troika - the European Commission, the IMF and the ECB - confirmed Greece's second bailout after a 14-hour negotiating session that ended early Tuesday morning.
Ireland has been lobbying the ECB to cut the cost to the government of bailing out its banks, whose collapse triggered the Irish rescue.
"If the ECB are prepared to make this kind of concession to Greece, it would encourage me to think that they might be ready to make concessions on the promissory note to Ireland," Irish Finance Minister Michael Noonan said earlier this month.
The troika, however, has said that Greece's special treatment - notably the bond "haircut" - is a one-off event that was necessary to keep Greece from defaulting and potentially shredding the 17-country euro zone.
Offering the same terms to Portugal and Ireland is not on the table, if only for the sake of the stability of the bond market.
Well, I've warned about this last year and even went so far as to not only issue forensic reports on the banks, insurers and countries which I feel would be most affected, but have even offered downloadable models to allow subscribers (click here to subscribe) and even some of the free readers to calculate their own opinions. Reference the following models with their varying degrees of sophistication...
- BNP Exposures - Professional Subscriber Download Version - A full forensic look at both liquidity (funding sources vs liabilities) and solvency (writedowns)
- BNP Exposures - Retail Subscriber Download Version Calculates sovereign debt writedowns vs tangible equity
- BNP Exposures - Free Public Download Versionhot A freebie that definitely get's the job done.
As you can see from the screen shot below, just putting in today's writedowns, after effective recovery standing behind the ECB and the IMF(yeah, let's not forget to factor in reality), and not even bringing much into the discussion outside of the PIIGS debt, BNP still has a significant tangible equity hit. Now just imagine a cascading default which will assuredly go outside of the PIIGS confines and most definitely ding France something awful and you will find the equity slasher's blade will be bloody.
One place to look for pain in the cascading PIIGS default is France, as quoted last summer...
Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer
In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.
I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a minimal) in share price! Most are down ~10% of more today, alone!
French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers- Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers
I also provided a very informative document for public consumption which clearly detailed exactly how this French bank collapse thing is likely to go down: French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!
BNP Paribas
BoomBust BNP Paribas? as excerpted...
For those not familiar with the banking book vs trading book markdown game, I urge you to review this keynote presentation given in Amsterdam which predicted this very scenario, and reference the blog post and research of the same:
- a research note to subscribers, The Inevitability of Another Bank Crisis,
- followed by blog posts on the same, see Is Another Banking Crisis Inevitable?, as excerpted...
But wait, there's more - much more!
Next up on this topic, we will delve into BoomBustBlog subscriber documents to see who else is carrying exposure somehow overlooked by both the sell side and the MSM.
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Reggie - WE are listening - and so are lots of other folks. Take a look at volume. It would also be interesting to see if the duration of any single holding is increasing or decreasing. My guess is that it is decreasing and HFT robots and daytraders rule the markets. A cautionary note. While the temptation is to short the hell out of every bank with Euro-debt exposure, it is important to pay attention to institutional mission creep and counterparty power. Imagine for a moment that you had purchased senior GM debt for dimes on the dollar in 2007. Look how the system was twisted such that those bonds became worthless before equity. Lets not forget the SEC's Friday afternoon action forbidding of financial shorts. Never forget that in this game - you are an outsider - your interests are extinguishable. That is, you could be smart as hell, completely right - and still get screwed. I'm not trying to tell you how to play your hand, just pointing out that the guys across the table have a revolver and they are willing to use it.
Credit Risk (last chart):
Germany = 3%
France = 26%
Blitzkrieg all over again; this time with database Stukas and Euro Panzers - but they all lose in the end.
This gyro tastes like a Euro.
Ron Paul Punk ROck ANthem- http://www.youtube.com/watch?v=eWC_0jPFQ_Q
I personally believe we'll evolve past the need for monetary systems. It will just take a long bit of horrible suffering before we decide to expunge it forever from our lives.
Capitallism must change else it will die soon
i don't think it will ever happen. to quote gordon gekko
" It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?"
i understand every word you are saying. but the rabbit continually comes out of the hat, over and over. like lucy with the football. it will happen some day in the future but i don't think we will ever know when, like the time of jesus return to earth.
The question is, when are people going to realize that nothing matters when it comes to investing. As demonstrated over the past few years, fundamentals don't matter. Charts don't matter, No data matters. If it did, the DOW would be trading at or below 5000. The trend is your friend is the only thing one needs to be concerned about. The trend is manipulated just like interest rates to stop a market crash. The unintended consequences may occur one day but I don't think the powers that be will let it happen any time soon.
Exactly...that's why I keep saying "It's all Bullshit!
I think we keep forgeting that banks and HFT's aren't people, and people involved are inhuman, so the argument "when will people finally get it" isn't valid because the US markets are under complete FED control at the moment. I think it's coming to an end but who knows.
Greeks just had their minimum wage slashed, young people under 26 by 32%.....
......careful what you wish for, motherfuckers.
Greece is the most retarded nation in Europe when it comes to bureaucracy and the obstacles they put in youngsters. Fuck you Greece from a Greek young person
one point RM : there will never be a customer bank run in France on french banks, never. The french know those banks are de facto nationalised. That's why. Banque de France and ECB as back ups. This is not an anglosaxon construct, this is land of Cobertism tradition. Once you understand that you realize that that knee jerk cannot occur in France. And, BTW it didn't in USA after the Lehman moment....so even anglo-us constructs draw that line. I know on ZH that is considered madness and it is; but madness is where we are...since over TEN years, at least, in ponzi global finance. So what's new? This is a thirty year fiat fed FIRE economy risk asset trend that went viral.
So the Euro construct is a house of cards, although Draghi is now playing US oligarchs at their own game; short term, to cool market speculation by pumping over-liquidity, also ensuring longer term the can kicking, AS WE ARE ALL ON THE SAME SHIP; SS TITANIC.
If the bail outs don't work in PIIGS, the intermim period LTRO with the 6% spreads would have allowed banks to save a bit their skins and then the core countries would walk out of Euro group themselves; when they deem the can kicking is on negative financial return spectrum, and Euro game will be over and it'll be every nation state for itself, and first world then firmly on Armageddon footing, as the continental divides will be irreconcilable, on all five continents.
We will then be in 1936 mind set... that's where the current construct is taking us; so stop barking up the Euro tree and start barking up the fascisation of first world tendancy.
Thanks RM for your posts.
You have to read my stuff in its entirety, preferably the paid content. I know its a task but this is not a simple message that I convey. Long story short, you have $5 billion in funds at BNP, and you find out they are in the funding/solvency crapper. Do you leave your funds there relying on your "Cobertism" theory or do you remove it and place it with JPM (who will probably end up taking it anyway:-)).
Get the Get the point? Institutions, from a risk/reward perspective, simply will not mess with a bank with that much overt risk. Look at how many funds have already had their funds locked up, or worse, outright lost (Corzined!!!)
EZ momentum is now heading toward nationalism, you might even say socialism. No Greek, except plutocrats, will stick their digimoney in the jpMorgue no matter what. The entire premise that 'the last man' standing is simplistic/vague. Same holds for the rest of EZ...
exactly - I expanded on it further up. perhaps "commonalism" or just "solidarity"?
in latin, it's just a simple phrase: Viribus Unitis - the roman understanding of a republic or alliance
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@Not Applicable, from above:
not at all.
you grew up in a legal and moral system that was first formed in the Middle Ages, were the Barons were aching to be less dependent from the King (the Magna Charta) and serfs were aching to be more free (the Common Law Principles) from the landlords. Add the American Revolution and there you have your worldview.
we grew up in a legal and moral system that was first formed in the Greek and Roman cities. Were being citizen was about giving up part of your own sovereignty (which included in some cases vassals, slaves, and a lot of personal power) to form a res publica, the public thing. our laws have been codified several times (last time big way by Napoleon - and now in part by the EU) to strenghten the legislature vs. the executive and particularly the courts. Add the French Revolution and the liberal revolutions of 1848, make a short detour in fascism and there you have our worldview.
it's just a different way to understand the polity and the way to bring forth policies, and a different balance between the common and the singular. stop treating your way as the only way, otherwise you can't call it the American Way, can you? ;-)
I hear you brother, but as I am not in that game, it is a theoretical conundrum for the likes of me! Thanks for the knitty gritty of your comments. Don't get me wrong, I think you are a brilliant script writer of financial movies; like all the others here. Kudos to you and thanks for the 5 billion $ tip!
So JPM rules the roost in Euro junking; until WS gets junked down the road! )))
Peace and happy hunting, zulu warrior!
RM, -del- IMHO you have not understood properly falak's point. -del-
An insolvent soverign without the ability to print its own currency trying to nationalize a group of banks whose assets are multiples of that sovereign's GDP is not a good bet. Now multiply that scenario times 7 or 8.
I'm not buying it, though you could be right in theory, in actual application given the circumstances lighting may strike you first.
RM, I believe you are right in every aspect except one: you assume people who control that $5 billion are both rational and responsible custodians of their entity's funds. If the last four years have taught us anything, it is that that assumption is absolutely, positively dead wrong.
Every single right of every single asset holder has been shat upon by the authorities, and the only thing anyone has done is ask for more. Equities have soared after the Bear Stearns deal proved shareholders have no rights. Corporate bonds have soared after the Chrysler deal proved corporate bondholders have no rights. Sovereign debt soared after retro-CACs proved sovereign bondholders have no rights.
Those who are custodians of capital fear missing rallies (as a lone wolf) more than they fear getting wiped out due to tail risk (along with everybody else). The first loses the custodian his job, the latter leaves everyone in the same boat.
Put logic, rationality and responsibility in a box and save it for another time when such traits are valued by society.
I hear your point, but if you look at how each and every big bank bank failure happened in the US and the UK, it was following a run by the institutional clients and/or counterparties - Bear Stearns, Lehman, WaMu, MF Global, Northern Rock, etc.
Ghordius point makes sense, except for the fact that it relies on the entire EZ block moving as one. Yeah, right! They will all agree because they all have similar economies, laws, voting patterns, and cultures... Right?
In the end, none of us know what will happen, but we can go by recent history, and recent history has shown us several devastating bank runs. Europe has a gaping economic capital hole that cannot be filled by renaming the hole to LTRO, or lending more money to over indebted nations.
Surely the end game must be some form of global bonds containing all sovereign debt that will be made the basis of the next global currency?
"an insolvent sovereign without the ability to print..." that's the whole point - if there is a danger to one of them only, then they look weak. but together they are not that much more insolvent than others (EZ total debt to GDP was some 85%, if I remember correctly) and for common purposes the central bank to print is there. shift the danger to all, and they act as a block - the whole purpose of the two clubs
again, there is the danger of looking at them with UK/US "Common Law" eyes - an understanding that the continentals don't share - laws and customs are less a question of traditional principles derived from the Magna Charta and more a question of political will, particularly when in need - supported by principles of Roman Law
I'm not arguing this point too forcefully, but you don't need that much assets to nationalize parts of a group of banks (as government, you can just force yourself in for a fraction of the "net" position, particularly if the FED makes another QE and the ECB has then the urge of "doing something for balancing" and is very, very accomodating. Saving banks on behalf of the government is what a central bank is for, in europe.
France, Italy, Germany, Spain, they all have a big tradition of government interventionism. If necessary, laws will be made for the task. Italy, for example, cannot stand the French Banks to fail. Hell, if push comes to shove they just take them over by force - and set an example for the others to behave. But we are not there, yet.
Btw : to make the deeper implication of this difference of legal cultures sink home : the whole european construct today is on this page, excluding Uk and possibly Holland; this last in mind set but not in practical terms; as its economy is totally linked to Germany. The Roman tradition of politics centerpiece is the euro construct since old Empire days; markets are means to a political end and not an end in themselves, as the Ayn Rand theory tradition in uber-alles post-war USA has spun as the ultimate superior market modelisation of USA's post-Keynesian free enterprise ideology.
I think even the USA will wake up now that simple market Adam Smith/Ricardo/Ayn Rand theory does not resolve society's problem and the "social" chapter as an END to society's role now has to be defined; and not just be confined as a MEANS, to capitalistic efficiency, as the OUTsourced model has made it in extreme stark reality.
This current asymmetry is the writing on the wall; we need a new capitalistic paradigm. IMO.
You seemingly have no understanding of the concept of personal freedom and how a world of relationships governed by voluntary cooperation will always be superior than governance by empowering criminals with the tools of violence to "make it so."
It's sad to think that adults would even consider enslavement a proper social institution, let alone advocate it as superior to freedom.
+100
"If men through fear, fraud or mistake, should in terms renounce or give up any natural right, the eternal law of reason and the grand end of society would absolutely vacate such renunciation. The right to freedom being the gift of Almighty God, it is not in the power of man to alienate this gift and voluntarily become a slave."
-- Samuel Adams
That's the theory; now compare it to practice. We are in the west, members of a civilization, where fact and logic are paramount.
If you would like to use the example of the US construct as it has evolved in FACT, in the last hundred odd years, to defend your idealism I have no problem. But to assert in the face of this concrete reality a principle based on a system that defends personal greed as motor of civilization and call it a "concept of personal freedom of a world of relationships governed by voluntary cooperation"...in the face of the opposite...is beyond me.
I don't defend a particular model as such. I'm just saying that European social democracy evolution, if there is a balance between personal freedoms and collective minimal requirements, within a democratic and republican framework, is not a worse system than the one the US pretends is their universally proven superior system, I don't see proof of this. Sorry, its not there, this manifestation of voluntary cooperation...towards a perfect market model.
eh? you are talking about something completely different from us
- gave an answer further down
I hear the sound of a helicopter.
If I was the Irish, I would be like WTF? The Greeks get a deal and I do not, because the are a "one off event", to hell with that...