Why the Big Banks Are Terrified of Le Pen Winning in France (but not BREXIT or Trump)

Phoenix Capital Research's picture

France holds the first round of its Presidential election this weekend.

The big worry for the markets is the fact that anti-Euro candidate Marin Le Pen could potentially win.

Now, the polls show Le Pen as having NO chance of becoming Prime Minister. 

Of course, the polls also showed that BREXIT would not happen and Hillary Clinton had a 98% of becoming President.

We all know how those turned out.

“So what?” one might ask, “why would a Le Pen victory matter? Both BREXIT and Trump’s Presidential election ignited massive stock market rallies… why wouldn’t France leaving the Euro do the same?”

One word…

Collateral.

The big problem for EU members from is debt.

Yes, we all know that EU countries are saturated in debt… but the key issue here WHO owns this debt and WHAT it represents to them.

To citizens of a nation, sovereign debt represents payment of social entitlements in exchange for long-term debt servitude as a nation.

To politicians of a nation, sovereign debt represents a means of paying for welfare schemes promised on the campaign trail.

For banks… sovereign debt represents the senior-most collateral backstopping their massive derivatives portfolios.

The derivatives markets, the same markets that triggered the 2008 meltdown, were never properly dealt with.

Today, at the time of this writing, there are over $700 TRILLION worth of derivatives in the financial system.

The bulk of this is owned/controlled by the large banks. And more than $500 TRILLION of this is related to interest rates or BOND YIELDS.

Why do banks own so many derivatives?

The Big Banks love derivatives because they represent a completely opaque asset class that can be priced/ traded/ etc. at whatever value the banks want.

Imagine being able to sell something of nebulous real value to anyone (corporates, other banks, pension funds, hedge funds and even countries buy derivatives from the big banks) at whatever value you want.

THAT’s what the derivatives markets represent to the big banks.

Now, of course, the banks all know the real deal here: that the derivatives they’re selling/ trading are in fact complete make believe of next to no real value.

Because of this, banks demand that other banks put up “collateral” to backstop these trades.

Collateral= an asset of actual, determinable value that would be posted if the derivative trade ever goes bad and a counter-party demands something of REAL value to cover the imploding value of the derivatives trade.

Sovereign bonds… as in the same bonds France issues… the same bonds that would be re-priced if France leaves the Euro… are some of the senior-most collateral backstopping these trades.

So… IF Le Pen wins… and IF she pushes for France to leave the Euro… and France subsequently has to revalue its bonds based on its new credit rating as a standalone country (not an EU member) we’re talking about over €2.2 TRILLION in sovereign debt needing to be re-priced.

Based on standard leverage for big banks’ derivatives portoflios, this debt is backstopping anywhere between €20 trillion and €50 trillion in derivatives trades (truthfully even €100 trillion isn’t out of the question).

In simple terms… France leaving the Euro represents another Lehman Brothers times 10.

THIS is why Le Pen potentially winning the French Presidential election is NOT another BREXIT or Trump situation…  there is in fact real potential for a debt-driven derivatives bomb here.

Will Le Pen? We have no idea. But the stakes are VERY different here for the banks than BREXIT or Trump winning.

On that note we are already preparing our clients to make money from this with three simple investment strategies designed to pay out when the markets enter periods of heightened risk.

To learn them you can pick up a free Investment Report here:

http://phoenixcapitalmarketing.com/bondbubble2.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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oncemore's picture

Dear author, your theis might be to something.

But what the banks really fear, is the loss of control. 10 banks control the EU today and France, going away, destroys the structure, they will have to deal with 27 individual countries away, Merkel does not need it

Dugald's picture

 

 

You are quite right Phoenix, you dopey twat, she is running for PRESIDENT NOT PRIME MINISTER,

SHIRLY, no one takes you seriously.....do they?

The Harlequin's picture

For those of you who are too used to parroting the usual cliches about the Front National, you had better read THIS:

https://scatter.wordpress.com/2017/04/14/guest-post-why-did-marine-le-pe...

VideoEng_NC's picture

Like the Cubs winning the World Series, France getting a real set of balls & becoming a true independent entity makes one look around to see if the world is truly about to end.  Frankly, I tire of all the manipulation that is done to common folk by those who continually scheme.  Would like nothing more than to see a Fraexit & watch the schemers lose their minds until they think they've figured their next move.  Keep draining...

dark fiber's picture

LePen is running for President.  Phoenix are you so far gone you cannot even get this right?  And we are supposed to take the rest of your analysis seriously?

LotUnsold's picture

Is it just me or does Phoenix Capital always seem to grab the wrong end of the stick?

TePikoElPozo's picture

just re-hypothecate some more gold, cash out the credit default swaps and go long on derivatives... simple

MrBoompi's picture

Derivatives are a form of financial hostage taking.  It's almost impossible to restore "normal" markets or interest rates, opposed by the big banks, without triggering huge derivatives payouts.  Most likely directly to them or their owners.  This is the main reason they've made deriative-based debt superior to most other debt, to make sure they can confiscate whatever wealth is there before anyone else.  

gdpetti's picture

Yes, and this is the reason the Founding Fathers in the USA warned the nation about the central banks... as if the other bankers weren't bad enough, though their damage was usually local or regional.. whereas the central banks can expand like any empire, be it politics, business, religion et al.

IMO, this gambit of the bankers, on behalf of the deep state, which again works on behalf of the SG, some of whom could be the same... this gambit is part of the control of the world order....the old one, not needed for the new one..... as money is just another tool for control... all of these derivativs, debt etc is meaningless... it's for the puppet show and the deep state theatrics of war, death, disease etc.... puppet show stuff.... all debt is meaningless, worthless and can be disposed of in the flick of a switch... the snap of a finger... when and if the SG tell them to. The question is when, not if... same with all the other 'black swans' out there that they've engineered for the transition from the old to the new..... creating global chaos is their goal, thinking they can continue to control the results... but only the 'chosen ones' actually move on to the next level of the 'game'... all the puppets in the establishment and deep state are totally expendable... if you aren't ready to 'graduate', then you are background actors here in 'Purgatory'... a school in self-conscious awareness. Transhumanism is for the puppets, not the chosen ones, who don't need such tricks to make the shift.

The game is ending... we all know that...  not if, but when.... Mother Nature is the real party pooper, and I've always wondered if the PTB plan to keep the game, the markets pumped up until Big Momma arrives... I would think that they'd want to 'pull the rug' out beforehand... to create more chaos... as they feed off of negative energy.

Macavity's picture

What the deuce are you talking about, mate? Not that I'm saying you're wrong, I just don't understand what you're saying.

Macavity's picture

Nice one, mate. Give me details: how do you know derivative payout is more senior?

marathonman's picture

Look at MF Global.  Their clients accounts were seized by JP Morgan for 'collateral'.  Some clients were able to claw some or all of their money but most were still reemed by the collateralized trading of MF Global even if they weren't part of the trading.  

Here's an interesting article describing the mechanics that were set in place during the US bankrupcy law rewrite in the early 2000's.  You're welcome.

http://www.informationclearinghouse.info/article30016.htm

Macavity's picture

Fiendishly fucking perfect. How is that "legal"? Good example of legislative capture. And thank you.

Par Contre's picture

The big worry for the markets is the fact that anti-Euro candidate Marin Le Pen could potentially win.

Now, the polls show Le Pen as having NO chance of becoming Prime Minister. 

 

I guarantee you -- 100% -- that Marine Le Pen will not become Prime Minister.  She might be elected President, but she won't be the Prime Minister.

LotUnsold's picture

Haha!  What if they reinstate the Bourbons?

Jimbeau's picture

This is great. ANOTHER reason the US will get sucked into some kind of war...
When the euro countries start fighting each other, we'll just HAVE to insert ourselves into the mess because of some variation of the WWII treaties. WHEEEEEEEEEE...

StreetObserver's picture

Remember fellow Americans, if you have your money in a big bank, pull it out and put it in a smaller bank, here's why:

Part of Dodd Frank's fine print allows deriviatives, you know, the TRILLIONS of dollars in Wall Street casino bets, to be in line ahead of simple bank depositor's money already inadequately "insured" by FDIC insurance.

This article just reinforces that.

Smaller banks don't have derivatives in their portfolio and thus you are only inadequately covered by FDIC insurance, isn't that better?

Wells Fargo and Bank of America are the worst.

TheReplacement's picture

I appreciate your point but after looking into the "small" banks in my neck of the burbs I have to tell you, everyone has derivatives.

Just Another Vietnam Vet's picture

When it comes to DEBT.....the only amazing thing is that bankruptcy has not already been filed by countriles

like ..GREECE, ITALY, SPAIN, PORTUGAL and a few others.    like an iceberg..and .u..wonder how many others are not far behind. 

 

In recorded history,  it seems there has never been negative interest rates....but now the world has them. 

The EU was designed to have a common currency with separate governments, laws, banks, debt, military, etc. 

Makes About as much sense as allowing terrorists into a country and giving them taspayer "assistance".   

Go figure, in this upside down world.

 

WTFUD's picture

Suicide bombings and other terrorist attacks but it's Le Pen who's party are extremists, BAH! It's the current French Establishment ( Government/BANKS/Corporations/Elite and their/O'Barry shill Macron who are the extremists.

 

Ex-Oligarch's picture

CBS radio is broadcasting a report that in essence says that the latest terrorist attack just maybe might possibly a little bit effect the French election because undecided voters just maybe might possibly draw the obviously erroneous mistaken and unpossible conclusion that the crazy extremist xenophobic right winger Le Pen just maybe might possibly have a point.

Maestro Maestro's picture

Phoenix Capital,

 

You're a bunch of lying shitheads.

 

Banks can create all the collateral they need by mutually loaning each other a couple of trillion dollars through a non-publicly-owned front bank in the Caymans (to hide and cover up the fraud).

 

You misleading morons.

 

The only thing the bankers fear is the elimination of their RIGHT to create money out of thin air.

 

Until that incredible privilege is taken away from the bankers, you are all the bankers' slaves and otherwise subjects.

Fuck you for lying to the people.

striped-pad's picture

Agree with the point about creating collateral by creating asset and liability pairs, and hiding the liabilities somewhere.

OTOH, I'm not convinced it's much of a privilege to be able to write IOUs to other people, which is what bank money is. Anyone can do that. It's just a question of whether people accept it.

Maestro Maestro's picture

The difference is, the bankers owe it to themselves and they kite checks to the tune of trillions. You, on the other hand, owe it to the bankers and have to pay it back or else. (I'm assuming you're referring to credit cards, credit lines.)

worbsid's picture

Yep, the difference between a dollar Federal Reserve Note and a hundred dollar Federal Reserve Note is your faith that there is a difference.  

To Hell In A Handbasket's picture

+1000

Phoenix capital apparently forgot that the Central Bank is immune from auditing, so can create whatever money it needs to cover the shortfall. Secondly, the 2008 crash and subsequent bailout was done by the Central Banks printing digital money. The question mark and delays was based on the Central Banks finding a patsy to place the debt on. The general public of the world.

doctor10's picture

The entire world is short collateral-mostly because the human capital is neglected and abused

knukles's picture

Talking about the French, I was a little surprised to find out that "pain au chocolate" wasn't French for anal.  Not half as surprised as the girl serving me at Au Bon Pain

greenskeeper carl's picture

The answer to this question is very simple. France is part of the EMU/common currency, Britain wasn't. A big country like France could collapse the euro. The euro would probably not survive for long if France leaves it. Then it's not just France's debt being repriced, it's every single country in the EMU. That's the real disaster. If they can't even take France doing that, what happens when the EMU falls apart and they all do the same thing?