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Europe's Fixed Just Like Wall Street Was "Fixed" in May 2008, How'd That Turn Out?

Phoenix Capital Research's picture




 

 

In 2008, as the financial crisis picked up steam, one by one the big bank Wall Street CEOs came forward to assure everyone that “everything is fine” and that their banks were “well capitalized.”

Anyone who did a bit of actual research knew this was not the case. But a large component of corporate (and political) leadership is to maintain confidence and calm no matter how bad things get.

As a result of this, in May 2008 alone, executives at Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and Merrill Lynch all stated that the worst was over for financials.  That’s right, in just one month executives at ALL of these firms issued proclamations that everything was just dandy for the banks.

The market took about five months to realize the truth, at which point these firms imploded taking the market with them.

I bring this up because we’re seeing this same game played out on a much larger scale in Europe today. Starting in November, various political bigwigs from the EU, whether it be Germany’s Finance Minister Wolfgang Schauble, France’s Prime Minister Francois Hollande, of Spain’s Prime Minister Mariano Rajoy have all stated that the EU Crisis is either over… or that at least the worst of it is over.

It’s rather incredible when you consider the complete and utter failure of these folks to solve the debt problems for a country as small as Greece (which makes up only 2% of the EU’s GDP).

Greece entered a crisis in 2010. Three years later, its major banks are STILL insolvent, the Greece economy has contracted over 20% (the sort of collapse Argentina saw in 2001 when its entire financial system failed), and nothing has been fixed.

So… the EU, with the help of the ECB, IMF, and the US Fed (QE 2 and 4 were basically EU bank bailouts in disguise), COULDN’T SOLVE GREECE’S PROBLEMS. And we’re supposed to believe that these folks can solve Spain, Italy or even France’s!?!

Let’s cut through the crap here.

The European banking system is a complete and total disaster. Remember how bad Wall Street was in 2008? Europe’s banks are many multiples worse than that. The US at least recapitalized its banking system after the Crisis.

Europe hasn’t. At all. That’s right, the banks in Europe have not raised capital to bring down their leverage rations, which is why the ENTIRE EU BANKING SYSTEM IS LEVERAGED AT 26 TO 1.

Lehman, which was a total sewer of garbage debt, was leveraged at 30 to 1. Europe’s ENTIRE SYSTEM is leveraged at 26 to 1.

Let’s take Spain by way of example.

In the run up to the Spanish banking crisis, Spain sported a housing bubble that DWARFED the US’s. Spain is the DARK blue line in the chart below. The US housing bubble is the little green lump below it.

How does a housing bubble get that out of control? By banks lending to anyone with a pulse. Indeed, a little know fact is that the banks sitting on 56% of the Spanish mortgage market were TOTALLY unregulated up until about 2010. As bad as US lending standards leading up to our housing bust, Spain had us beat by many multiples as the above chart illustrates.

The Spanish Government’s solution to this mess was to merge one garbage bank with another. They’ve been doing this for three years… but the Spanish banking system remains screwed up beyond anyone’s comprehension.

Take Bankia for example.

Bankia was formed in December 2010 when the Spanish Government merged seven bankrupt smaller banks in

The bank was touted as a success story, posting a profit in 2011 and even considering paying a dividend. Then the following happened in 2012...

  • May 9th: Bankia requests €4.5 billion loan, Spanish Government states that the bank is “solvent.”
  • May 21st: Spain meets Bankia’s request for loan and takes a 45% stake in the bank thereby instigating a partial nationalization.
  • May 23rd:  Bankia’s bailout needs grows to €11 billion
  • May 24th: Bankia’s bailout needs grow to €15 billion
  • May 25th: Bankia’s bailout needs are now €19 billion (2011 profits revised to €4 billion loss)…
  • December 27th: Spanish bailout fund announces that Bankia still has a “negative value of €4.2 billion” and will need another €13.5 billion in capital
  • January 2nd (2013): Bankia shares halted on Spanish stock exchange.

As a summary… Bankia was considered profitable in 2011… it was actually talking about paying out a dividend in April 2012. And in the following eight months, it was discovered that the bank was not only un-profitable, but completely and totally insolvent.

Today, nine months later, the bank has swallowed up over €19 billion in bailouts and still has a NEGATIVE value. With the additional €13.5 billion Spain claims it needs (assuming that is the actual limit… which I doubt) the bank will have consumed over €32 billion in bailouts.

If you think Bankia is an isolated incident, you’re out of your mind.

The point of this? Europe’s banks are totally insolvent and have not been fixed. No EU leader is going to tell you this because their jobs depend on convincing people that everything is fine. Bankia was supposedly “fine” right up until the truth came out. Just like the Wall Street banks were “fine” going into 2008.

Just like Europe is “fine” today.

I know the markets have yet to fully realize this...the S&P 500 is approaching its all-time highs. But back in late 2007, the last time the markets were at this level... did stocks get what was coming then too? Nope. And by the time stocks "got it" things moved VERY quickly.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding, potentially taking down the financial system with them. Think I'm joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.

We have produced a FREE Special Report available to all investors titled What Europe’s Collapse Means For You and Your Savings.

This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

Best of all, this report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

Best

Phoenix Capital Research

 

 

 

 

 

 

 

 

 

 

 

 

 

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Thu, 02/14/2013 - 08:42 | 3242618 e-recep
e-recep's picture

enough of your report already.

Wed, 02/13/2013 - 19:46 | 3241517 SKY85hawk
SKY85hawk's picture

I would appreciate if someone would explain this 'American banks were recapitalized' statement more factually.

Others have said that the 700 billion to 1.+ trillion was loans to the banks.

Then the Tylers say that 75% of QE(x) went to foriegn banks.

Since JP Morgan did a major screwup in 2012, how can anyone be given credibility when they say AMERICAN BANKS ARE OK?????

 

Wed, 02/13/2013 - 15:03 | 3240764 Jack Sheet
Jack Sheet's picture

You will LOSE EVERYTHING if you don'tt subscribe NOW!

Wed, 02/13/2013 - 14:12 | 3240642 Joebloinvestor
Joebloinvestor's picture

They will say BANKIA was doomed to failure as it was the dumping ground for all bad debt.

They will say the same thing as each domino falls.

 

Wait till they roll up all the EU bad debt and then wave a magic wand and make it go away.

Wed, 02/13/2013 - 13:42 | 3240571 monad
monad's picture

Don't let the good snowjob be the enemy of the great snowjob.

Wed, 02/13/2013 - 13:02 | 3240490 The Reich
The Reich's picture

I like the ring-shaped cake

Wed, 02/13/2013 - 13:02 | 3240488 Haus-Targaryen
Haus-Targaryen's picture

I never understand the hate heaped upon this guy.  Normally what he writes is spot on, and lets be honest here -- EVERYONE has been predicting the collapse of the EMU for a while now because ... all the fundamentals point to a disorganized collapse.  What everyone, including Tyler, Reggie, Farage, Keiser, and the rest of the Anti-EU crowed (of which I am one) is the abject political fanatiscism of the EU elite. 

 

On this issue I'd give the guy some breathing room.

Wed, 02/13/2013 - 13:23 | 3240526 dmger14
dmger14's picture

I agree.  He does put some things into perspective, even though his timing is off like most and he was wrong about QE3 and QE4.  I do question his saying that the fed isn't doing QE3 and QE4 because its balance sheet is lower than last year, because that implies that QE3 and QE4 are lies, when we all know that can't be or the markets would implode.

Wed, 02/13/2013 - 11:52 | 3240332 digitlman
digitlman's picture

Don't act like you are out ahead of this thing.   You have been calling for Greece and the EU's collapse for a while now.  And what about that last QE call miss?

 

Yeah, keep yer "research", pal.

Wed, 02/13/2013 - 21:03 | 3241642 Buck Johnson
Buck Johnson's picture

Europe can't kick the can down the road anymore.

Wed, 02/13/2013 - 14:14 | 3240644 Vooter
Vooter's picture

So he's early...who cares? Unlike you, not everyone is genetically programmed to spend their time wringing every last shekel of profit out of a market. And they don't give out prizes for picking the top, either...

Wed, 02/13/2013 - 14:35 | 3240699 Shell Game
Shell Game's picture

On the one hand, Graham is on our side, he gets it and he places the blame on the right people.  On the other hand, this is Fight Club, bitchez - take the fucking kid gloves off on content that 1) is time and again redundant, 2) is heavy with self-advertising and 3) was shorting the market from 2008-early 2012. 

Wed, 02/13/2013 - 14:44 | 3240721 Winston Churchill
Winston Churchill's picture

I'm sure someone is.Needs balls like Kyle Bass showed he had pre

2007/8 when everybody else was long.This time I don't think there will be

a counter party left standing.A financial black death this way comes.

2014 looks ripe to burst.

Wed, 02/13/2013 - 15:13 | 3240793 Shell Game
Shell Game's picture

Agreed.

Up and down the food chain, if you don't hold it - and can't defend it - you won't own it. 

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