After Accurately Predicting the French Bank Run, I Now Predict US Bank CONTAGION!!!

Reggie Middleton's picture

The bank run in Europe appears to be underway again, exactly as I have anticipated. Remember, historically, bank runs were mainly instituted by retail investors pulling deposits. Modern day institutions and mechanisms have successfully been implemented to mitigate and stem the tide of such occurrences to an extent that many potentially devastating bank runs have been avoided. The caveat is, a new instigator of the bank run has emerged. Make no mistake about it, the institutional counterparty is the new purveyor of the modern day bank run. For those who have not been following my European bank run rants, see my many warnings to date regarding the highly contagious European bank run below. For those who have been following, skip past the link list to the news excerpts directly below to see what is going on today and coincidentally what we have been working on for the last week - which is just starting to come out into the mainstream media and the sell side analysts water cooler chatter...

It all started as:

First CNBC reports US Markets Indicating Sharp Selloff at Open on European Bank Concerns, This is shortly after reporting, by way of the Wall Street Journal reports: European Central Bank Dollar Loan Signals Euro Stress

The European Central Bank has lent dollars to a eurozone bank for the first time since February in the latest sign of escalating tensions in the region’s financial system.

A single bidder borrowed $500 million for a week, the ECB disclosed on Wednesday, after taking advantage of a facility that has largely lain dormant over the past year.

No details were given but the news suggested that at least one bank was having difficulties obtaining the dollar funds it required.

On its own, the use of the facility did not point to dramatic stress levels in funding markets, analysts said.

But it added to other evidence that European banks were struggling to access some forms of financing for the first time in a couple of years.

The so-called Euribor-OIS swap, a gauge of fear in the banking sector, is at its highest since 2009, while short-term euro basis swaps, which show a strong premium for buying dollars over the single currency, are at the most negative since the collapse of Lehman Brothers.

Meanwhile, the ECB continues to see high levels of funds being parked overnight in its “deposit facility”, rather than being lent to other banks.


“All the indicators are pointing in the same way: banks are becoming more keen to use official sources of liquidity than one month ago. Is it the crisis levels of 2008? No,” said Laurence Mutkin, rates strategist at Morgan Stanley.

Nick Matthews, European economist at Royal Bank of Scotland, said: “It is probably symptomatic of the kind of stresses and strains there are in the system.”

Acting with the US Federal Reserve, the ECB first offered US dollars to euro zone banks at the end of 2007. The program was reactivated after the collapse of Lehman Brothers in late-2008 – and again in May last year, when the euro zone debt crisis was at its most intense.

Any casual reader of BoomBustBlog has been thoroughly forewarned, and all BoomBustBlog subscribers should have their positions firmly in place, ready to monetize this situation after buying volatility on the cheap and short positions at favorable levels - reference the following documents, all produced while volatility was cheap and the subject banks were trading much higher:

  1. SPY option strategies in violent down moves
  2. This is the introductory post to a series of trade setups for European Bank at Risk
  3. and The Inevitability of Another Bank Crisis!

The Federal Reserve Bank of New York is intensifying its scrutiny of the U.S. units of Europe's biggest banks amid concerns that Europe's debt crisis could spill into the U.S. banking system, the Wall Street Journal reported citing sources familiar with the matter.

This is quite interesting and timely, for several weeks ago we started our own forensic investigation and many would be surprised at what we have found. All BoomBustBlog subscribers are strongly urged to download today's latest actionable note regarding the big American bank (see File Icon Actionable Note on US Bank/ French Bank Run Contagion) closely related to the big bank identified in The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely, as excerpted:

Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now -File Icon Bank Run Liquidity Candidate Forensic Opinion.
Here are a few screen shots from the free public abridged version (File Icon French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...




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moneymutt's picture

Since January, I was gunning for "contagion" to be the word of the year, but not too happy that between financials and Fukushima it is too true....but I'm thinking Downgrade may be giving Contagion a run for its money....but contagion has the more global conotation, so more appropriate as we have GLOBAL problems...we are all in this together whether we wanted to be, whether we deserve to be or not....

janus's picture

well, big swing to janus this morning; bigger than i'd expected.  almost 4% to the pretend good for the week.  gonna sit out tomorrow -- for now at least -- i don't think the buying will be anything near sufficent to staunch the bear-bite bleed, but "they" may turn their focus from treasuries to equities for a day...just to quiet the drums along the mohawk for the weekend, just so the big fat white man can pretend it's all good, and enjoy one last weekend of R&R on the beaut. blue medit. 

i'm goin with you, Reginald: i'm not doin dow futures next week...settin up right now to short citi, goldman, jp, and get ready to run a broad-sword up that's gonna be spectacular!!! pig blood everywhere!

have you seen the little piggies/

crawling in the dirt/

and for all the little piggies/

life is getting worse/

always having dirt to play around in/

have you seen the bigger piggies/

in their starched white shirts/

you will find the bigger piggies/

stirring up the dirt/

always have clean shirts to play around it/

in their sties with all their backing/

they don't care what goes on around/

in their eyes there's something lacking/

what they needs a damned good whacking! (selah)

onward to war, excelcior,


IQ 145's picture

I bought BAC at $7.37 yesterday, so I'm no so enthralled with all this contagion consmagion talk. But I noticed the damn Frenchies got more than their fair share of the Pie in that picture up there. Typical Frenchies, can't even share a pie fairly. Oh well.

11b40's picture

I.Q. how many?  145???  & you went long BAC?

Not that I haven't made plenty of my own mistakes, but hey, I'm just a hillbilly idea of his IQ.

New_Meat's picture

grunts b in awe of them hi IQ folk

Jovil's picture


I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion.



One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said.

notadouche's picture

I'm just waiting on your next missive on Apple.  I've made a fortune on your Apple thesis.

Almost Solvent's picture

I love the smell of fresh snark in the morning . . .

Young Buckethead's picture

Reggie Middleton, the Oracle of Truth! (As compared to that other shill)

I haven't seen you write on this, Reggie. Maybe you can post a link . . .

With the US allowing the big insurance companies (Met Life, State Farm, etc.) to become banks for access to the Fed Window, is this also occuring in Europe? I don't think there's any question the Fed will bail out the EU banks, but how deep will they bail out the US and EU insurance companies? And from your perspective, how large are all these insurance companies versus the large banks? What happens when the customers no longer have any faith in the insurance companies' ability to pay claims, or the channels they invest into dry up?

fajensen's picture

Bigtime: A bank can deposit any sort of dreck as security for new loans in the ECB. The Danish central bank just announced a "we lend to anyone, no questions asked"-policy.

They will bail & fail until there are no taxpayers left. Before that point is reached, they will run out of pension savings and max out government borrowing capabilities. Nobody knows how large any of this interconnected OTC crap is; it is not traded in any open market so nobody knows what the other side is holding or even if all the bets cancel each other out.

In the exchange-traded standard options market there is a "machine god" watching and one has to post margin too. OTC is just that, Over The Counter, a piece of plywood on a market place in Grozny would probably do to write CDS's ;-)

PS: The incoming "socialist" government in Denmark will be handed a bag of shit with a live grenade in it. This will be fun.

Zero Govt's picture

yes wouldn't we all like to have an Insurance Companies business model can create a revenue stream out of effectively 0.00/thin air (betting). I'll insure your car if you pay me $500 per annum, your house or small business for $1,000, your office block for $20,000 ...surely the for-runner for the banks $600 Trillion derivatives market (orgy on a vacuum)

No wonder Insurance Co's are so keen to brown envelope every politician to make it force of Law to all businesses and citizens buy this empty crap ..more financial alchemy (robbery)

fajensen's picture

Exactly - Telco's are all offering "fixed rate, unlimited talk & data" plans now because of securitisation; a fixed streams of payments can be turned into bonds, which can be sold off and leveraged a conservative 100:1

Mountainview's picture

Bank-run is the catch-word... Silently in Greece and Italy costomers of banks are withdrawing their deposits, prefering to keep banknotes (not issued by their own county) at home. So the banks run only on central bank money and some inter-bank deposit. Inter-bank gets more and more expensive (look at CDS rates).

Conclusion: We are heading for bank nationalisations in Europe.

Version 7's picture

It wouldn't make sense. Just let them go. The banks are broke, and guess who would keep fitting the bill anyway.

Mediocritas's picture

Contagion to the US is guaranteed for two reasons: 1) a run on eurodollar reserves, 2) triggered CDS.

#2 in turn causes #1 which in turn causes #2...and so it goes.

The Federal Reserve will be forced to act to support eurodollar banks. Even if it doesn't, it will be forced to act indirectly anyway to support domestic money supply as a run on eurodollars translates to a drain on dollars and upwards pressure on the dollar. (This was the reason for QE2).

First we will see the ECB draw on its swap line with the Fed to provide eurodollars in response to a run in Europe but when this fails (and it will due to politics and lack of resolution), the Fed will have to do another QE2 and swap assets direct with eurodollar banks. A huge problem will emerge when it is realized that the draw on these banks exceeds their equity. Meanwhile, the ECB will also have to be dealing with a run on the euro system.

Inevitably, there will be implosions and CDS will trigger, creating an immediate surge in demand for dollars / eurodollars, exacerbating the problem. If the ISDA decides to play funny games and refuse to recognize / announce credit events, then all that will happen is that the implosions will be shifted as financial entities realize that the CDS they bought to "reduce their exposure" is actually hollow and provides no cover at all. These agents will have to eat heavy losses and blow up.

US banks are just as exposed to the spaghetti mess as European banks are. This shit is going global.

Young Buckethead's picture

Thank you very much, Mediocritas. I have wondered for some time what happens when the CDS market turns out to be a complete fraud. I never thought any of them would pay out, kind of like the insurance companies after a natural disaster - act of God and all that.

Mediocritas's picture

You got it, and even if the ISDA *does* do the right thing, we'll quickly find out that, like 2008, the counterparties to CDSs are insolvent and can't pay up, leading to CDS triggering on them and a cascade.

I'm keen to see who the next AIG will be...

Problem this time around is that the holes left by exploding banks will be so deep that even governments won't be able to fill them in. The only option is for central banks to print us into poverty and war, unless people grow brains and dethrone the financial sector.

moneymutt's picture

if central banks printed as much money supply as will vaporize with derivatives, and spend it for basic things like deposit insurance, commericial paper markets, backing money markets, and funding basic governement services while letting all investors get wiped, it might actually help little chance fo that happening, slim to none...either the print at rate quadrillion times what they have, or money supply resets via debt bubble pop and global guess is for global jubilee.

I was in Peru in Fall of 08 and they were talking about how their economy was actually sort of normal then compared to inflation years...given US situation I was all interested and asked what happened to banks in all this, the tour guide said humorously "what banks, there were none"

Element's picture

"either the print at rate quadrillion times what they have, or money supply resets via debt bubble pop and global guess is for global jubilee."


It will be Jubilee, yes, but it will be informal and undeclared because TPTB have no incentive, decency or spine to commit to formal Jubilee.

Thus it will be hella-messy and destructive/disruptive.

The attempt to avoid orderly deflation-deflation work-out and BK, actually and necessarily leads to a more severe disorderly debt-deflation work-out and BK.


"Political Leaders" are a debilitating illusion, they do not actually exist.

Mediocritas's picture

We really need a Peru solution now. When the losers make bets so large that they can't be paid, the winners must acquire the losers (canceling out the bet). No liquidity injections, no bailouts, just let it all tank and let the lawyers sort it out for 10 years. It doesn't have to be a deflationary mess that destroys the entire economy because the government can step up to establish (with the Fed's backing) a temporary national banking system. Hell, let Google manage it, it's just information management afterall.

After a decade of detangling the spaghetti mess of derivatives, leading to constant mergers, takeovers and acquisitions, a few huge survivors would emerge from the battlefield. For their crimes, break them up Standard Oil style and distribute the fragments internationally as required. Regulate to prevent it happening again and wind down the national bank.

Instead, what we have is massive cash infusions to enable losers to pay the bets that were too big to afford. Consequently, the winners have a concentrated horde of cash to speculate with, leading to targeted inflation, and there's no JUST way to reverse the process. It's cold comfort that QE is a sterilized asset swap when the path for reversing the swap requires extraction of tax from people who had nothing to do with it and the criminals who caused the problem are living it up even better than before.

jesusfreakinco's picture

Reggie -

do you think FAZ is a good play right now?  Can't find shares of FAS to short... or would you pick individual names over the ETFs?



Weltanschauung's picture

I wish I had acted on all of your predictions. I would be soooooo rich

Weltanschauung's picture

 If only I had followed your advice throughout the years...  I would be soooooo rich

Caviar Emptor's picture

Reggie you're right. I think it could mean we're in for another round of bank consolidations, a huge Fed balance sheet expansion and maybe even (ghasp!) some more foreign bank takeovers. 

fx's picture

Oh yeah, Regie, you are soooo right! All your drea.., err, predictions have come true and since peoples' memories are sooo short Regie keeps padding himself on his back half a dozen times in each of his articles. So that nobody misses that the great Regie M. actually predicted it all. Maybe Regie would otherwise forget that himself. (Heaven forbid!).

I like your ideas and thoughts, Regie,  but this permanent self-congratulating is annoying, to put it mildly.

breezer1's picture

keep patting yourself reg, you the man.

JOYFUL's picture

you dare to diss da Regne Reginald?  Better keep your tongue firmly in cheek, er check, or it will be 'out with it, you gypsy savage!'  Oh, I forgot, junking is over, it's all OK now....self promotion and attendant critiquing, 

This is  a mans world

- James Brown 1991

Epaulettes bitchez! 


stormsailor's picture

looks like some buying going on in the /es right now, temporarily halting the plunge.  the 10 year treasury has calmed down.


i wonder every time we have a big down day if this will be the day that all the bases can't be covered.  so far everything has been "covered" to keep it from turning into a crash.


does anyone else ever have this damoclean paranoia

Freewheelin Franklin's picture

"You act as if the sword of Damocles is hanging over your head."

agNau's picture

MY multiple posts over last year, numerous sites:

1) Contagion.
2) Confidence.
3) End Game.

Nice to see you catching up Reggie!

mayhem_korner's picture

Links?  Rigor?  Analysis? 

Franken_Stein's picture


Bravo Reggie.

You should found a religion.

Who needs Jesus or Mohammed ?

Pah ! These dilettantic amateurs.


We have Reggie Middleton.

No one can beat that.


Pay Day Today's picture

lol I thought Reggie's byline said 'Run! US Banking Contagion', and I was like, wtf do I run to?

Milestones's picture

Gives us the true meaning of a Penny stock wihsper.     Milestones

Careless Whisper's picture

if BAC does a 1 for 10 reverse split there will be 100 Billion shares outstanding. 


KnightsofNee's picture

I told my dad last week to get his cash out BAC. He said he thinks it will be ok.

I tried. And...........its gone!

I'm so ronnery!


moneymutt's picture

yes, and its gone...some banks may be saved by powers that be, but BAC will not be one of them...

G. Marx's picture

Sheesh, you know how the folks can be. Next time try a little reverse psychology and tell him to put more money in.