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The European Banking Union That Is Not
Submitted by Mark J. Grant, author of Out of the Box,
There is no European Banking Union. This is a good place to start. It does not exist which is why all of the ballyhoo and discussion in the Press is of such little importance. This grand scheme is nothing more than theory at this point and not a very good theory at that.
Under any scenario presented some plan does not go into place for five years. The legislation could be changed, altered or retracted seventeen times during this timeframe. So when it comes to the next sovereign or banking crisis in Europe there is no Greek template, no Cyprus template and the reality is that there is no template at all for anyone to follow or for investors to rely upon. So for the next five years it will be the whim of the European Union that will dictate what measures should be taken.
This reality has contagion and fallout attached. The risk of owning subordinated debt, preferred stocks and equity in European banks is now incalculable. No one has any idea if another Cyprus conclusion might be forthcoming so that the differentiation between owning American securities and European securities is huge in my opinion. While the risk factor cannot be quantified it is still quite apparent to me that there is much more risk now in owning European securities and also that the market has not, at this point, adequately priced in this risk.
If you have money in a European bank, a depositor either as an individual or a corporation, if you own securities from equity to senior debt, if you have any kind of repo agreement; you are now in a position of heightened risk.
Both Greece with its retroactive clause changes and Cyprus with its seizure of assets, conversion of deposits to equity and the freezing of accounts with capital controls inaugurated, demonstrates one thing clearly; there was no due process of law at least as we know it in the United States. In each of these examples it was political whim that dictated the decisions and for the next five years there will be nothing different. For the next five years it will be politics devoid of the Rule of Law that will decide how anyone is treated when there is a crisis and given the financial condition of the European banks I can virtually assure you that new crises will be forthcoming.
Let's stick to just what we know. Greece, Cyprus, Ireland, Portugal, Spain, Italy and France are in trouble. I am not discussing the markets here but their underlying economic condition. Each of these countries are in a perilous state. If one major bank in any of these nations gets in trouble then you have no idea and I have no idea how the EU might respond. Is it to be the Greek template, the Cyprus template or some new scheme that will be implemented in a late night furry of political decision making? What can be said with accuracy is that there is no template for these decisions and that there will not be one during the next five years!
As usual there will be money made for those that get the timing right. Certain speculators will profit. As usual there will be money lost for those that get the timing wrong. Certain speculators will suffer.
What is of the utmost importance to understand though is that the discussion of a banking union has not led to the creation of one and that a massive amount of risk remains on the table for those that do business with the European banks. Any kind of business. I repeat, any kind of business.
"There was a tiny pop, and the place where Sirius’s head had been was flickering flame once more.”
-J.K. Rowling, Harry Potter and the Order of the Phoenix
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The problems go beyond Europe. If you have money in any banking system beyond what you are willing to lose, then you deserve what you get. Cyprus was the template for all western economies, not just Europe.
One day without any warning they'll Cyprus/Corzine everyone.....THAT is their 'exit strategy' 100% fact.
Anyone with an ounce of sense in their noggin should expect a permanent bank holiday + ultimate capital controls as the final step.
"...there was no due process of law at least as we know it in the United States."
Would that be GM bondholder style, Corzine, fast and furious, HSBC money laundering, etc. style?
SheepDog-One re "One day without any warning they'll Cyprus/Corzine everyone.....THAT is their 'exit strategy' 100% fact." :
... Yes, except it won't be an "exit" because banks and govts will still owe trillions and they'll still be trying to extract it from those who have nothing with whatever BS they can come up with. You can't get blood from a stone but that won't stop 'em from trying.
A banking union will cost trillions of euros in guarantees, and this is a political nonstarter in the FANG. What you have here is political theater, not a true banking union:
http://dareconomics.wordpress.com/2012/12/12/cosmetic-can-kicking-bankin...
If the Great Unravel continues as expected (for me it appears only to be a question of time frame though I remain open minded) exactly which banks and what nations will survive? Ultimately this is a (faith and belief) currency issue, not a banking issue.
This mess is exactly what you get with central planners and people who think they know better than the market. It is just like man believing he can control mother nature. For a small time yes... but mother nature will snap back violently. http://tinyurl.com/pp588mj
The BTFDpers awake to a Monday morning woody in the indexes. And, glod, I mean gold, is headed to the moon.
No union? Who will protect the Banking worker from death by a thousand paper cuts?
So you're saying FDIC insured bank deposits are the way to go?
$12 billion of FDIC insurance for trillions in deposits. Yep, this works out well...
fdic only insures the first 250K. there are trillions sloshing around money market funds, clearing houses, and large corporate and individual accounts that have no protection. treasury money markets have been closed to new investors since 2008 crisis.
Remember, FDIC provides insurance against bank failure. If they take deposits as part of a "bail-in", they save the bank from failure. Therefore, they owe you nothing. And you should be thanking them.
The trust has been broken.
Ding, ding, ding
Yep, good luck to the Overlords from here on out....they only ones left buying their bullshit are HFT robots and everyone else is broke anyway so go ahead and ramp up stocks again and have another circle jerk, that's all.
We have a banking union here in the US. The banks are unified in their efforts to take everything from every last citizen regardless of race, creed, gender, or color. Eh well, at least they are democratic about it.
Yet another reminder to depositors in European banks : better be a year early than a day late.
Greece, Cyprus, Ireland, Portugal, Spain, Italy and France might be in trouble, but so are Florida, Michigan, Nevada etc. - and I would rather be unemployed eating Pizza and drinking wine in Italy than stuck in some sweatshop somewhere in China or India...
gold up 7.........short squeeze coming bitchezzzzz!!!!!!!!!!!!
Kito here is a question for you. Those shiny nuggets arrive at your door. In the meantime gold jumps to $1,500 an ounce. You walkin out the door and sellin em?
There is something wrong watching our resident deflationist root for gold.
well, i opened my mind to the idea that deflation may make gold attractive in the long term.......professor fekete brought out some good points about it, as did mish.....so doc, im going to the resident pro gold deflationist, bitchezzzz!!!!!!!!................my next purchase would come at 1100...................
Well whatever it takes...I'm glad you have seen the light. Now watch Obama make owning gold illegal followed by a bank holiday. By the way , with a new quarter starting we should have seen the last of the liquidations for a awhile. A lot of funds will have dumped it off of their books so they don;t have to answer questions about a non-performing asset.
I bought some stocks last week, because this nightmare is going to go on for a long time.
So did I. Stocks and bonds. I bought a lot of closed end funds when they were getting creamed.
I hear you, Good luck. I am still scared of Bonds. I should not be. Bill Gross told me it's going to be okay.
Fresh mutz sandwich bitchezzz!!!!!!! Dow 16000....
I think it's coming Kito. December is a long ways away though.
all the more to time to whet my palate..........
It's more of a hedge for me. I will continue to hold primarily cash unless something changes my outlook....
no i am keeping them as insurance....a hedge against kitos outlook......and if it drops down significantly in the near term i will buy a few more.............in the meantime im having fun with this!!!!!..............................
It's good to see someone having fun. Enjoy!
Greece, Cyprus, Ireland, Portugal, Spain, Italy and France might be in trouble, but so are Florida, Michigan, Nevada etc. - and I would rather be unemployed eating Pizza and drinking wine in Italy than stuck in some sweatshop somewhere in China or India...
Unemployed and eating pizza/drinking wine? So...would you be stealing or dumpster diving?
Striking public transportation workers in San Francisco:
BART Workers Strike After Failed Contract Talks"SAN FRANCISCO (CBS SF) — Bay Area Rapid Transit workers walked off the job early Monday morning after last-minute negotiations failed to produce a new contract agreement. The strike ensured a nightmarish commute to start the week, leaving about 400,000 BART riders to find another way to get work.S"
http://sanfrancisco.cbslocal.com/2013/07/01/bart-workers-officially-strike/
Teslas!
BART smells like shit anyway. Good comment from the comments section:
"Because $71 starting salary, $11K in guarenteed overtime, $52K in benefits, and 3 months of paid vacation a year (10-12 weeks) ISN'T ENOUGH?"
GDXJ WTF?? Up over $27? Is this right or am I getting bad data??
Looks like someone bought a shitload AH on Fri? Around 7:30 pm.
it's a 4/1 reverse split.
Looking for news...
http://seekingalpha.com/article/1519512-what-the-recently-announced-reverse-split-in-gdxj-means-for-shareholders
THX.
Next you are going to tell me there is no Santa Claus.
Mr Grant is a bit off the Mark with his analysis...
It's true that the recent deal between EU member states to turn the Cyprus Template/Non-Template into a standard Template for bank resolution will not take effect for some time and in theory may never officially take effect at all.
But it's also clear that EU member states intend to end taxpayer bail-outs when the next country/bank keels over, as will surely happen. In the absence of the new Template being up and running - which sets out who will take haircuts - the host government of the next disaster will simply apply the Template anyway. And they'll call it another "one-off". That's what they did in Cyprus and didn't even bother taking it thru their parliament.
As far as the Rule of Law in the EU, well, that was trashed four years ago.
smacker, you might forget that a lot of provisions were pre-approved by the Cypriot parliament. several laws involved in that, all discussed before the talks began. in fact, one target of the Prez was to push the deal in a way so that it would not be necessary to involve parliament again
"As far as the Rule of Law in the EU..." - methinks you are threading on thin ice, here. are you talking about "Common Law" here? the former British Dominion of Cyprus is not completely into that - as the land deal where Turkish Law was applied can testify