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The Question Is Not Is Deutsche Bank the Next Lehman, It's "Is Lehman the Face of Banking in the Future

Reggie Middleton's picture




 

So,Tyler just ran an interesting piece titled "Is Deutsche Bank The Next Lehman?" There is one correction that needs to be made where Tyler says "Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008,  when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative". Well, I gave ample warning about Lehman (and Bear Stearns) way before that - to wit:

The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”. I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.) | I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton | Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008 |  May 2008

The concerns regarding Deustche are quite possiblywell founded, and like Lehman, I doubt very seriously if DB is in the shit can by itself. Reference my article "EU Area Residents' Step-by-Step Guide to Escaping the Upcoming Bank Bail-ins & Capital Controls":

The Impossible Trinity or "The Trilemma", in which three policy positions are possible. If a nation were to adopt positiona, for example, then it would maintain a fixed exchange rate and allow free capital flows, the consequence of which would be loss of monetary sovereignty.

Put plainly, either balance sheets get burned trying to buy and sell currencies, capital controls are implemented, or QE (sovereign monetary policy) fails. Trying all three simultaneously has NEVER, EVER worked! Of course, according to the ECB, it's different this time...

 

Guess what? Balance sheets are burned.

Realize why the ECB is doing this QE thing to the level that it is. Their banks are still in trouble, material trouble. Reference "Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe" from 5 years ago and tell me if you think its gotten better (Hint: pay very close attention to the countries these banks are domiciled in, capital controls data soon to follow several paragraphs below)...

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

 Well, it's all relative. The banks are smaller, leverage is down - and that's after 6 years of global QE, ZIRP and now NIRP, yet each and every bank is STILL big enough to collapse the country that it's domicled in...

 Global Bank Risk as Determined by Veritaseum

With this in mind, let's review the The Anatomy of a European Bank Run!

Below is a chart excerpted from our work showing the asset/liability funding mismatch of a French bank. The actual name of the bank is not at issue here. What is at issue is what situation this bank has found itself in and why it is in said situation. Both Lehman and Bear Stearns collapsed from the EXACT SAME PROBLEM! That problem is asset/Liabitlity mismatch.

bankrun diag

What many bank depositors who believe their bank deposits are actually cash don't realize is that they are creditors to the bank - short term lenders. You bank accounts, time deposit accounts, CDs, checking and savings accounts are short term, UNSECURED loans to bank that uses said loans to engaged in significantly and materially more risky endeavors to generate profits. What sort of endeavors, you may ask? Well, as was the case with many French, Cypriot, Italian, Spanish and German banks, making real estate, corporate and government loans of a longer term to profligate nations such as Greece, for one. It's good work of you an get it. Borrow from mom and pop savers at 25 basis points and lend to Greece at 23%. Good money, dude!

anatomy of a bank run

That is, until it becomes apparent that the money you lent Greece isn't going to come back.

bankrun het map

Even that, in and of itself is not a problem since the fractional reserve banking system doesn't really require you to have the money that you borrowed from mom and pop on hand to pay them all back. It works, until it doesn't. When mom and pop figure out what you've done with their money by reading and article such as this, that's when the stinky brown stuff hits the fan blades. You get a run on the bank as everyone tries to get those overnight, and 1 and 2 month deposits out - at the same time.

This is what happened to Bear Stearns and Lehman, literally overnight - although the signs were available months beforehand if you paid attention. I predicted both of these collapses at least 60 days before they occurred: The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?

Anyone in the EU area would be doing themselves a disfavor if they didn't read "EU Area Residents' Step-by-Step Guide to Escaping the Upcoming Bank Bail-ins & Capital Controls". Believe it!

 

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Sat, 06/13/2015 - 07:22 | 6192764 Reggie Middleton
Reggie Middleton's picture

Excerpted fromEU Area Residents' Step-by-Step Guide to Escaping the Upcoming Bank Bail-ins & Capital Controls:

Governmental Debt Assumed From "Too Big To Fail" Banks Are The Levers of Bail-ins. Liqidity Crises Born From Asset/Liablity Mismatches Are the Impetus 

Look at the government debt to GDP level that caused the Troika to act in the case of Cyprus, re: Capital Controls

Cyprus euro-area-government-debt-to-gdp

Source: Trading Economics

Basically, once you pierce the EU area average AND have an oversized banking industry relative to GDP, expect a HIGH probability of capital controls in the form of a bail-in, etc. The problem is, there are a lot of EU residents and foreign entities that lend unsecured money (in the form of check, savings and demand deposite accounts) that are highly susceptible to getting "Cyprus'd". Check it out:

albania euro-area-government-debt-to-gdp

Croatia euro-area-government-debt-to-gdpFinland euro-area-government-debt-to-gdpFrance euro-area-government-debt-to-gdpGreece euro-area-government-debt-to-gdpItaly euro-area-government-debt-to-gdpKhazikstan euro-area-government-debt-to-gdpLuxemboourg euro-area-government-debt-to-gdpNetherlands euro-area-government-debt-to-gdpRomania euro-area-government-debt-to-gdpRussia euro-area-government-debt-to-gdpSlovakia euro-area-government-debt-to-gdpSpain euro-area-government-debt-to-gdpUkraine euro-area-government-debt-to-gdp 

Sat, 06/13/2015 - 03:12 | 6192648 wildbad
wildbad's picture

weel thats just like your opinion man.

but seriously...we are moving cash out of our german banks every week.  the "interest rates"' certainly aren't keeping us loyal as secondary / tertiary creditors of extremely leveraged corpoarations.

were i in a position to lend money to any bank over here I wouldn't do it on the basis of their balance sheets.  the only backstop are the laws which have been in place since cyprus turned from a noun to a verb.

Sat, 06/13/2015 - 07:24 | 6192760 Reggie Middleton
Reggie Middleton's picture

Excerpted from EU Area Residents' Step-by-Step Guide to Escaping the Upcoming Bank Bail-ins & Capital Controls:

 Next, Let's Realize That Cyprus Is Not A "Special Case", It Is Like The Template For Future Actions

Just the fear of another wave of bank collapse has government officials and regulators in fear. Why are they afraid? I made the cause of such fear clear to all as the Keynote Speaker at the ING Valuation Conference in Amsterdam in 2011.

With the knowledge contained in the video above, it's not hard to see the Infection spreads to North America as The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks! Hold on, before you start worrying about your Canadian bank, you should be aware that the EU banks are still much, much, much worse off. Let's forget Cyprus for a minute and look deeper into the EU. This is a tweet from Edward Harrison, the producer of the BoomBust TV show (no relation to BoomBustBlog)  and author of Creditwritedowns.com.

EU Capital Controls

Sat, 06/13/2015 - 01:14 | 6192554 Savyindallas
Savyindallas's picture

Reggie  -why don't you run for President? Both parties are always looking for african American candidates. Too bad they don't look for competent ones. The elites that own and control both parties would never select someone with integrity and competence. Unfortunately, the dumbed down sheeple who vote don't know the difference. If we don't figure it out soon (a longshot) we are toast.  

Sat, 06/13/2015 - 00:42 | 6192515 piceridu
piceridu's picture

Very nice work Reggie...nice to see you posting more regularly again.

Sat, 06/13/2015 - 06:53 | 6192748 messystateofaffairs
messystateofaffairs's picture

Prediction is a dirty job but somebody's got to do it. Everybody with a brain knows the financial (and socioeconomic) volcano is rumbling and bubbling) and looks to be the size of the Yellowstone caldera. All I know is that when it blows its going to be a very unpretty event.

Sat, 06/13/2015 - 08:10 | 6192801 DavidC
DavidC's picture

'Unpretty' - like it!

DavidC

Sat, 06/13/2015 - 00:16 | 6192483 GRDguy
GRDguy's picture

Nice work, Reggie, but some of us here bailed out of the system before 2006, as shown by my website. I was already completely out before writing the commentaries at http://GreatRedDragon.com but very few cared. Therefore it hasn't been updated for a while. Same circus, different clowns.

Sat, 06/13/2015 - 02:37 | 6192631 Squid-puppets a...
Squid-puppets a-go-go's picture

Mike Whitney was a guy writing of lehmans impending demise in 2007. Whats more he was very specific of the mechanism - he was saying credit defaults on collateralised loan instruments were gonna blow when mortgage repayments started stalling. 

i havent found his analysis to be as reliably prescient since, but he was really onto it then. i think he still writes for counterpunch these days

Fri, 06/12/2015 - 22:13 | 6192247 weburke
weburke's picture

good work Reg.

Fri, 06/12/2015 - 22:02 | 6192225 Crisismode
Crisismode's picture

Hey reggie,

 

How's that BitCoin-Knockoff going for you these days?

Is it worth 43-cents yet??

 

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