7 Charts Showing The Lock Out Of European Capital Markets And The Surge In Counterparty Risk

Tyler Durden's picture

It is not 2008. It is far worse. Unlike 3 years ago, the central banks were not all in on "bailing out the world" and thus actually had dry powder to do so, as they eventually did: where will the status quo go for a global bail out this time? Below we present 7 Bloomberg charts, following yesterday's indication of a liquidity lock out, showing all too well the surge in counterparty risk, but more importantly the lock out in European capital markets. To all those who thought that transferring ever more peripheral risk to the European core would have no consequences (sorry, it did: German CDS is wider than the UK for the first time ever), and did not hedge appropriately, our condolences.

First, overnight lending rates = counterparty risk... although we already knew this. Just see any of our CDS updates over the past month.

And 6 more charts: "Since July 15, investors have sought refuge in the ECB’s overnight deposit facility, which peaked at 1.45 trillion euros Aug. 8. Short-term funding stress also can be observed in the spread between 3-month USD Libor less the 3-month Euribor basis swaps, which has widened to negative 90 from negative 27 at the end of June. When this spread widens it increases the FRA-OIS spread, a sign of stress in European bank funding markets, further depressing the front end of Eurodollar futures contracts and intensifying pressure on EU banks."

Last, as a reminder, tomorrow we get an update on borrowings under the emergency punitive 7 day loan line from the ECB where last week we found one bank had borrowed $500 million in what is most obviously a dollar shortage, confirmed later by the resumption of Fed FX swap lines which do nothing but alleviate USD funding shortages.

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HelluvaEngineer's picture

No global bailouts.  Try global thermonuclear war.  Great game, btw.

Quintus's picture

But the only way to win is not to play.


russki standart's picture

Agreed, Quintus. In a rigged game, only the house eventually wins.

He_Who Carried The Sun's picture

Look at the $NYTV volume chart today!

Scary stuff!

Fish Gone Bad's picture

Fuck banks.  All this mess is from Woodrow Wilson being blackmailed for tagging his secretary.

achmachat's picture

hmm... must investigate further.

Squid Pro Row's picture

...Woodrow Wilson being blackmailed for tagging his secretary.

Do you have a reference for that?

Savyindallas's picture

Benjamin Freedman is the most common source of this. Supposedly he was blackmailed with a demand for $25,000 with the threat of  an alienation of affections lawsuit, which was conveniently paid in exchange for promises of future favors  -ie Supreme Couurt appointments, US entry into WW1, Federal resrve, income tax, etc.

History books are king to the idiot Wilson, but he was the worst President in US hsitory  -  when it's all over the triumvirate of Clinton/Bush/Obama may collectively give him a run for it though.  

Hearst's picture

Wasn't Wilsons secretary male?

Fox-Scully's picture

Engage them in a game of tick-tack-toe

Oh regional Indian's picture

A  paradox like that must have a name in game theory. Nice. Very zen. If you do not fight, only then can you win.


Sgt.Sausage's picture

It's called the Joshua/WOPR/Falken paradox.

Zeilschip's picture

They`re trajectory headings for Multiple lmpact Reentry Vehicles. - What does that mean? - l don`t know, but it`s great!

EscapeKey's picture

Ghanji pissed me off. Once he'd blast continuous propaganda your way, he'd never stop. Khadaffy was cool. As long as you bombed him occasionally, he was happy.


bill1102inf's picture

oh the horror, DOW +147 

Dr. Engali's picture

Ben is working his little ass off hitting that printer button trying to push it above 11,000.

citta vritti's picture

so he doesn't have to announce QE3 this weekend (too great a danger to his own institution, as he said at end of last press conference), to allow for stuff to settle down so they can be called in again as heroes

Catullus's picture

You know what would be awesome, if there was like a rate that told you the interbank offer rate at some random location where a lot of banks are located. Say like London. This could like tell me what the London Interbank Offer Rate is over a given period of time. I think I'd call it LIBOR. That would awesome. Alas, no such rate exists. Here's dreaming.

Quintus's picture

What would be even better would be if your hypothetical interbank rate was not blatantly fudged by the banks who produce it in order to send whatever message of stability and normalcy they want the wider public to swallow.

Catullus's picture

That's the part I really don't get. I know some are claiming that right now is a rigged sell-off to justify more printing. But why not manipulate the rate which you're already manipulating to reflect that? Unless everyone important already hedged out all interest rate risk and movement in this rate would instantly cause the banks to be decapitalized.

Ancona's picture

Someone poured a bunch of cement in to their liquidity.

That sucks.

slaughterer's picture

Nobody wants to miss the next rally 

Who needs wars when you have HFTs and gold-collateralized Eurobonds?

Misean's picture

Transitory contained liquidity problems. Won't last 15 minutes.

carbonmutant's picture

More Bennibux on Friday...

Dexus Ex Bitchez

Oh regional Indian's picture

Eurozone is the right hand here folks.

What is the left hand doing? Besides bombing the bejeesus out of freedom hating mooslims, what is the left hand doing? 

Black swans always fly out of left field.

Could it be that there will be one more attempt to leave Asia holding the bag? Asia is floating on carry currencies, mainly. And exports in the self-same denominations. We will fall really really hard. Internal demand is a joke, another credit pumped joke.

Interesting times indeed.



centerline's picture

I always enjoy your posts ORI. Interesting times for sure.

Oh regional Indian's picture

Thanks and likewise Centerline. Though it seems you err on the side of brevity and me low-key-ciousness? ;-)

Vivek (ORI)

ArkansasAngie's picture

get it over with already.


HelluvaEngineer's picture

The crash has been postponed until Friday.  Please check back later.

MayIMommaDogFace2theBananaPatch's picture

"...maybe the smartest thing to do is pull it. And they made that decision to pull and we watched the...collapse."

Sudden Debt's picture

As RBS and Barclays seem to be winning this race, can you call this still a Europe catipal markets article?

I mean.... England... pound...



cowdiddly's picture

You want to know how the story ends? Easter Island..... Where the heck did these big stone heads come from? Musta been space aliens..............gasp surely the inhabitants did'nt eat each other. Where was Malthus from again?

Moral: never live on an island in TEOWAKANI without a damn good boat.

Dr. Engali's picture

I'm long gold an silver physical, but I sure wish gold would get a smack down so I can get more. This run is over done. Come on margin hikes.

rubearish10's picture

It's hard to sit and wait for a "dip". The feeling of "I should have sold or not being long enough" is most difficult to endure. "this run is over done". Nah, not really.

buzzsaw99's picture

the bernank will buy that libor back down, it is transitory.

csmith's picture

"...and thus actually had dry powder to do so,..."


Dry Powder. Plenty of it around.


"I got a monetary plan and it involves a lot of toner."

Sudden Debt's picture

Did anybody read this excellent aritcle about the SLV on SeekingAlpha?




smore's picture

SLV is for the unwashed, Goldmoney is for the washed.

LookingWithAmazement's picture

I don't see any trouble. The interest in keeping Europe up is too big to let it fail. The Bernank will drop a line, just like with that 1.2 trillion. Comes good. Boring world we live in.

TideFighter's picture

No QE3, but "Operation Twist circa 1961" will be the plan. I fail to see how this will stop a DOW plunge to 600 or less. When do we short T's?

vast-dom's picture

my humble advice: start dollar cost averaging into TBT now!



adr's picture

A true crash is Netflix falling to $50. Until that happens we are still in a bubble. Imagine the shitstorm that would be Netflix dropping to a p/e of 10. 

alpha60's picture

on the first chart, how about an explanation


these are the overnight lending rates that each of the banks are offering the market? or overnight rates each of the banks are getting in a particular market? which one?

scratch_and_sniff's picture

Psssst, hey you, pssst, what ever you do, dont look at the charts...

lesterbegood's picture

All this bankster badness pales in comparison to the celestial object approaching our planet from the southeast. Go to google sky and search 'Mercury". Click the infrared tab, look in the left-upper quadrant of the map.