German Bank That Almost Failed Now Being Paid To Borrow Money

Tyler Durden's picture

Submitted by Simon Black via,

The 12.5 hours spent crossing the Pacific on Qantas flight 27 feels like going through a wormhole.

The flight departs Sydney, Australia at 12:50pm and arrives to Santiago, Chile the same day at 11:20am. In other words, the plane lands 90 minutes before it departs.

When I landed yesterday, the captain came on the P.A. and said, “Ladies and Gentlemen, I have good news; if you enjoyed Wednesday March 9th, it’s still Wednesday March 9th!”

It really does feel like going back in time.

This feeling was only reinforced when I whipped out my phone and saw that German bank Berlin Hyp had just issued 500 million euros worth of debt… at negative interest.

I wondered if I really did go through a time warp, because this is exactly the same madness we saw ten years ago during the housing bubble and the subsequent financial crisis.

To explain the deal, Berlin Hyp issued bonds that yield negative 0.162% and pay no coupon.

This means that if you buy €1,000 worth of bonds, you will receive €998.38 when they mature in three years.

Granted this is a fairly small loss, but it is still a loss. And a guaranteed one.

This is supposed to be an investment… an investment, by-the-way, with a bank that almost went under in the last financial crisis.

It took a €500 billion bail-out by the German government to save its banking system.

Eight years later, people are buying this “investment” that guarantees that they will lose money.

The bank is now effectively being paid to borrow money.

We saw the consequences of this back in 2008.

During the housing bubble, banking lending standards got completely out of control to the point that they were paying people to borrow money.

At the height of the housing bubble, you could not only get a no-money down loan, but many banks would actually finance 105% of the home’s purchase price.

They were effectively making sure that not only did you not have to invest a penny of your own money, but that you had a little bit of extra cash in your pocket after you bought the house.

Paying people to borrow money is just crazy, whether it’s homebuyers, bankrupt governments, or banks.

Global insurance giant Swiss Re calculated that roughly 20% of all government bonds worldwide now have negative yields. And over 35% of Eurozone government bonds have negative yields.

(They would know—along with pension funds and banks, insurance companies are some of the largest buyers of bonds.)

With this deal, Berlin Hyp becomes the first non-state owned company to issue euro-denominated debt at a negative yield.

They won’t be the last.

We’re repeating the same crazy thing that nearly brought down the system back in 2008—paying people to borrow money.

The primary difference is that, this time around, the bubble is much bigger.

Back then, the subprime bubble was “only” $1.3 trillion.

Today, conservative estimates show that there’s over $7 trillion in negative rate bonds.

What could possibly go wrong?

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Boris Alatovkrap's picture

Up is down in land of skittle color unicorn.

HedgeAccordingly's picture

Must be nice. To have the collateral to use to borrow and be paid to borrow. Surreal. But only benefits the asset rich but cash poor.

knukles's picture

It's nice to be the Head Reptile

Boris Alatovkrap's picture

Shhhhhh! Most citizenry is not knowledge that Illuminati bankster is really reptillian alien from planet Xunu.

Ghost of Porky's picture

Every customer who opens up a savings account gets a free muslim.

Mister Ponzi's picture

Simon should have mentioned that this was a covered bond, no unsecured debt. The bond is secured by a mortgage pool with the dedicated mortgage value considerably above the bond value. There is still no way that European banks issue unsecured debt at negative rates. And, most likely, it will never be different.

LordBuckFast's picture

Virtually everything we are being fed about the economy is BS and the elite do not give a damn, as they will soon be looking to run and hide in those nice underground bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi’s in the West to start a race war.

That should be enough to cover up the failed fiat ponzi scheme and take care of the ‘excessive’ population!


The agenda is clear......

rickowens's picture

how can i get paid to borrow money?

Freddie's picture

Simon Black like all the other Agora/Doug Casyey  and other newsletter writers sit at a desk and pretend they are on long transcontinential flights when they start a column. 

Later they pitch you on some residential real estate project so you can be an ex-pat in Argentina with Doug Casey.  Or hob nob with the Bushes in Uruguay or See Eye Aye spooks in Panama.

Kirk2NCC1701's picture

If YOU were the guy who ripped off $100M from the Fed, I'd bet that you too would be emailing Black, Agora, or Casey to buy an abode in S.Am., and then hob-nob with the Bush clan for Protection (at a nominal fee).

Sometimes you gotta wonder if some/many of their clients aren't people who are looking to hide "questionable income".

knukles's picture

Well just so you feel better about it, we here at the Knukles abode having given up pursuits of excess alcohol and K-hole long ago, instead of imagining we're somewhere else, I generally just scratch my nads now and then to remind me that it's all real.
Some days more real than others, but real.  As in sometimes bizarrely very real.  Scary real. 
So anybody really crazy out there, it's not as bad as you think, because if you imagine it then it's real as you did think of it.  See, your toughts are real thoughts.
Kind of a marriage between Schumpeter and Heisenberg

OK Who let the cat out of the bag?
Not me!
Where'd it go?
Over yonder.
Where over yonder?
I couldn't tell, he was moving.

Gadocat99's picture

There is about 7 trillion in 401k's.  So no worries - got it covered.

Dr. Engali's picture

At negative yields all this debt will pay itself off in no time. See problem solved, our banker overlords are geniuses.

gcjohns1971's picture

It is now official.

First Banks, and soon corporations are now in the business of taking out loans financed by central banks.

This differs from the past in that Arbitrage is no longer needed.

The front office "Deposit and Loan" business will appear to continue...but it will not longer be significant to the bottom line.

Corporations will still pretend to make things...but it will be more and more pretense over time, because the real money will come from taking out CB loans, and then collecting a revenue stream from them.

From the predition at the ECB conference to the confirmation now...






(Because it is Awfully Easy to default on a loan that pays you to take it.)

Irishcyclist's picture

I saw this same story reported today on the RT Channel.

Berlin Hypo was a basketcase.

There's no evidence today to say that Berlin Hypo isn't still a basketcase.


SweetDoug's picture

I explain things to my mother using drug dealing. It has a… Practical common sense aspect to it.

Mom! Never ever pay people to buy your dope from you! That's called… Losing money.

Pretty easy lesson, eh?

What's going to happen when all those mortgage companies, whop are 'trying to compete' with large banks, who are 'loaning' you money, in which you'll pay back less than the mortgage is worth?

Somehow, I just don't see that happening, as they won't.

And that'll just freeze up the whole mortgage/money lending industry, shouldn't it?


blindman's picture

it should be obvious that the only solution to an illiquid and bankrupt monetary sytem based on debt is more illiquid bogus debt. no?

blindman's picture

the rape, murder and beatings will continue until such time the morale noticeably improves.

walküre's picture

not long now before torches and pitchforks time

the uber dudes are really pissing me off now

last time a critical mass of people was pissed off with the shysters, their heads rolled

ThroxxOfVron's picture

This is how Fascism works.

Sometimes it is more overt and sometimes less.

Whther it is special tax breaks, or the largess of obviously over-generous no-bid contracts, or a pass on law breaking, or any other form of special treatment it is all the same.

SO, now the special treatment isn't merely bailouts but direct Central Bank supports?

I'm hardly surprised...

Taxes and regulations and laws are for oppressing and burdening the Citizenry and the inverse is reserved for the oligarchs/fascists/cronies.

onmail1's picture

euroPeons you need only one thing to do (as usual) :

Jump on ur ships 

& sail to gold rich third world

attack, hack , slash , murder

rob, steal , loot, plunder


and when ppl of those countries come back to you

(as refugees)

you give them soup & bread & get nobel prize

becuz Jeez said :

'Even if ur sins are as red as blood on wool

these will be washed away'