3 Charts On Why Eurosis Never Really Went Away

Tyler Durden's picture

Somehow the investing public managed to convince itself that a massive liquidity flood designed to 'help' banks (implicitly buy sovereign debt) with their government reacharounds actually 'fixed' the European economic imbalance problem because yields fell and reflexively this means all-is-well. Just ask Eastman Kodak shareholders how good it felt to rally over 100% the week before bankruptcy? Morgan Stanley has the mother-of-all-chartdecks on the European situation but 3 charts standout in our view by summarising the problems Europe faces. The last few days have seen Eurosis return - but away from the momentum and liquidity - did it ever really go away? This time is no different except LTRO 3 is becoming harder and harder as quality unencumbered collateralizable assets are few and far between - and with the recent weakness in Spain, how long before ECB margin calls start to ramp up?


European bank assets-to-GDP are out of this world!

If ever there were banks that were truly Too-Big-Too-Fail, Europe has them - is it any wonder the Greek Bailout was so focused on rescuing the bank balance sheets. Swiss banks dominate the worst end of the spectrum along with Dutch banks (huge covered bond markets) but the French, Spanish, and Belgian banks are all around two times their nations GDP! Of course this assumes the asset values are 'correctly priced' and not some non-MtM dream and while they are deleveraging (which itself causes aggregate credit supply issues for the real economy and overhangs for the financial economy), LTRO has done nothing but slow the efforts in a false-sense-of-security way. We could add a bonus chart here on European bank reliance of ECB funding - that shows Italy and Spain nearing Portugal's level of aggregate reliance - not exactly a resounding success.


Interest Payments as a % of GDP high and rising fast

Perhaps the cleanest measure of 'stress' or service-ability for the currency-using sovereigns shows that the amount European sovereigns pay in interest relative to their productive gains as an economy is rising rapidly and forecast to rise even faster. This will obviously get worse as the recession deepens from both rising costs (as post-LTRO rate normalize) and lower GDP (as austerity and balance sheet recession impacts come home to roost).


Gross Government Debt to Government Revenue is over 150% on average, rising fast, and at decade highs

The 'leverage' of the Euro-Area has never been higher. Across every nation, we are at over 20 year highs in terms of this measure of leverage. To impact this via the fiscal compact by raising taxes and deleveraging at the aggregate level can only exaggerate the recessionary pressure Europeans will feel.


While yields have indeed dropped, the reflexive response that ergo - Europe is fixed - is simply nonsense as nothing has changed and in fact the concentration and contagion stress is worse than it ever was. This time may be different as this time, the ECB is really in a box to fix the next risk flare without outright money-printing and Zee Germans vill not like zat!

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francis_sawyer's picture

The "fix" is in alright... You can be sure of that...

SheepDog-One's picture

If by 'fix' you mean 'lets head straight into WW3' then yea the fix is in.

Dr. Engali's picture

It's just a matter of when the missles start flying.

smlbizman's picture

o.t....but watching the big "o" announce this guy for the world bank job......why does hillary look like she is channeling steven segal with her mumu on...

Dr. Engali's picture


"If ever there were banks that were truly Too-Big-Too-Fail, Europe has them "

 We will never get through this if policy makers can't get beyond this line of thinking. The banks need to fail or be broken up if they are too big.

SheepDog-One's picture

No banks are too big to fail, they need to fail, and if govts wont do it because theyre paid by the banks then the people need to bring down the banks.

francis_sawyer's picture

Only one way I know of accomplishing that... Don't do business with them... I'm doing my part...

WonderDawg's picture

TBTF is the myth that the banks need to perpetuate in order to keep getting bailed out. How else would they be able to keep the gains while dumping the losses on the backs of the taxpayers? Come on, guys, get with the program. The Too Big To Fail meme keeps our money flowing to the wallets of the banksters, which is all that matters, cause they have expenses, too. I mean, the politicians can be bought for relatively cheap, but hookers and coke can get expensive.


Dapper Dan's picture

From RawSory  By Stephen C. Webster
Wednesday, March 21, 2012 16:22 EDT

Dallas Fed: Top five U.S. banks hold over half of industry’s assets


In its annual report for 2011, issued on Wednesday, the Federal Reserve Bank of Dallas released a startling report revealing that 52 percent of all the assets held by the entire banking industry have now become aggregated into the hands of just five companies, and the top 10 institutions have swollen so large that they possess wealth that equates to roughly half of America’s annual gross domestic product (GDP).

It is for those reasons that Dallas Fed president Richard Fisher, who’s otherwise known as a conservative budget hawk, has embraced the radical cause of breaking up the nation’s largest banks and forever ending “too big to fail.” In a letter introducing the 2011 report, he cautions that Congress may not have gone far enough with prior attempts at financial reforms, and that those bills may even be working against the struggling economic recovery underway.

Alarming as that sounds, it’s the Dallas Fed’s chart of U.S. banking assets that’s most startling.

In his letter, Fisher adds that if the wealthiest sample group is expanded to the top 10 banks, their total assets are worth approximately half of America’s annual GDP, which eclipsed $14.5 trillion in 2010.

He goes on to suggest that Congress did not go far enough with the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (PDF) because it did not effectively deal with the problem of institutions growing to such heights that their fall threatens the whole economy

rufusbird's picture

Thank you, Dapper Dan, for posting the link to the article about the Dallas Fed with the Banks holdings charts. I printed them to show my friends who get a vacant look in their eyes if I mention "concentrated wealth", like they don't understand or believe it.


GOSPLAN HERO's picture

Eurosis of the liver can be fatal.

sabra1's picture

i thought euro-sis was the equivalent of big-sis!

youngman's picture

Its Print...Print...Print.....it is the only politically correct thing to do...they can´t cut expenses....even if they try...the worker bees will find a way around it....or they will vote you out for someone who will promise all the goodies...timeframe is what we should be talking about....and how to find the marks...the events that will make the change ......will it be a war....an announcement of a new reserve currency....a trade embargo....a coup?????

This I do not know...the banks will always have money as the Central Banks will just give it to them somhow...front door or back door.....but at some point it won´t buy anything worldwide..or much at home...

and don´t leave out government intervention..new laws..asset confications....its all in play..when you are drowning...you grab for anything that floats

alexwest's picture

# Gross Government Debt to Government Revenue is over 150% on average, rising

somehow USA IS MISSING FROM PICTURES.. allow me to add..

#1 Gross Government Debt to Government Revenue

USA FEG GOV revenues are around 1.6/1.7 trln per year.. GROSS DEBT is getting to $ 16 trln pretty fast.. SO ITS 9/10x times of revenues, ro 1000% ( yes thousand), so based on this matric its at least 5x times worse here than in Europe

# interest payments to GDP

ONLY IDIOT COMPARE THIS METRIC TO GDP. goverment pays debt interest from revenues, not from GDP.. yes, revenues are based on GDP, but good luck to try to raise revenues in this enviroment..

, so one must compare debt interest to gov revenues, but please dont fucking use current rates, try to use 10-20 years average on 10y bond.

#rest of probably same junk


kaiten's picture

I want to see the gross government debt to revenue for US. 15% revenue vs debt 100%. How much is that? 600%?


edit: I see, Im too slow :), alexwest just covered it

hedgeless_horseman's picture



The truly scary question is what are considered assets on sovereign balance sheets?

alexwest's picture

# Gross Government Debt to Government Revenue is over 150% on average, rising

USA FED GOV revenues are around 1.6/1.7 trln per year.. GROSS DEBT is getting to $ 16 trln pretty fast.. SO ITS 9/10x times of revenues, ro 1000% ( yes thousand), so based on this matric its at least 5x times worse here than in Europe


ekm's picture

ECB is printing loans to banks (hence printing loans to itself since banks are fucked up) and banks are buying the bonds.

It's called communism. That's all we did in communism in eastern europe, infinite LTROs and infinite MMT until food riots. No private buyer would be out his mind to buy elephant shit.

Dr. Engali's picture


Sarkozy wants to prosecute people for reading websites he deems terrorist's. I say Sarkozy is the terrorist. Prosecute him



Sandmann's picture



Auf diese Weise haben sich von 2007 bis heute 865 Milliarden Euro an Forderungen gegenüber anderen EU-Ländern in der Bilanz der Bundesbank angesammelt.


Bavarian Federation of Taxpayers, Rolf Hohenhau claims TARGET2 is NOT as Weidmann claims in his FAZ article but actually involves Germany financing its own exports since the other Central Bank does not in fact transfer funds to Germany for imports but simply parks an IOU at the ECB which has led to 865 billion Euros of Claims against the Bundesbank since 2007 and that the Bundesbank has TARGET2 liabilities which are not in effect covered by the ECB. That if Greece collapses or leaves the Euro the Bundesbank will need recapitalising.

ekm's picture

Vielen Dank for the translation, but this is no news. Germany's economic model is High End Export Financing, identical to China's which is Low End Export Financing.

However, please keep up with your posts since repetition is the mother of knowledge.

Sandmann's picture

It is "no news" save that it appears in today's Die Welt newspaper in Germany.

As for your comment repetition is the mother of knowledge, I prefer Adlai Stevenson's version:

We often gain more from repetition of the obvious than elaboration of the obscure

The major difference is that China is not yet in a currency Union with the United States though the chances of the Renimbi becoming the replacement US Currency once the Fed collapses are reasonably good



ekm's picture

I stand corrected. It's true, the fact that it appeared on Die Welt is news and I like Stevenson's saying.

I see zero chance of RMB becoming a world currency unless the following occurs:

- China beats out US in a world war and becomes sole world power.

- The rest of the world trusts China and exchanges real goods for pieces of paper.

Currently USA fulfills both conditions.

monopoly's picture

Sorry, double post.

monopoly's picture

If anything, it is all broken even more than it was. Nothing is fixed or better. And imagine if the inmates did not pump 4 Trillion into the market the last 3 years. Where do you think we would be? And how is that housing recovery working out for ya. What a bunch of crap and Americans fall for this shit.


bugs_'s picture

Eurosistosis is even worse!

alfman's picture

effing ecb-banker left speechless by courageous irish journalist!


Grand Supercycle's picture

The Wile E. Coyote scenario continues...

SPX daily chart with rising wedge enclosed by substantial megaphone pattern.