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Bankia: The Failed Bank In The Coalmine
From Mark Grant, author of Out of the Box
To Providence I Commend You
“'Tis now the very witching time of night, when churchyards yawn and Hell itself breathes out Contagion to this world.”
-William Shakespeare
The Immortal Bard must have been referencing Madrid when penning these lines or, if not, would likely approve of their application this morning. The nationalization of Bankia, the third largest bank in Spain, is not some isolated event that is singular and alone in nature regardless of the expected dampening and muted words and phrases issued by the Spanish government. The cancer has been identified but not isolated and you may be assured that it remains in the lymph nodes of the two major banks in Spain. Fortunately, during America’s financial crisis, many of the sub-prime mortgages were securitized and no longer resided on the balance sheets of the American banks. In the case of Spain we find not only the majority of the mortgages resident at the Spanish banks but we find an added dimension which is a huge amount of money lent to Real Estate developers which is impaired and still on the books of the Spanish banks. Further, in my opinion, none of these loans have been accurately accounted for and they are being carried at whimsical valuations by the banks or pledged as collateral at the ECB where the Spanish bank funding jumped 50% in one month and now stands at $294 billion. Following the bouncing ball; there is now so much encumbrance of assets between pledged collateral and covered bond sales that the actual worth of the two major Spanish banks is now someplace between “not much” and “De minimis” should the situation deteriorate to the point of impairment.
The Bankia nationalization also required a further injection of capital from Spain which obviously impacts the balance sheet of the sovereign as the government issues press releases trying to obscure the obvious. In Spain for the banks and for the country the math just does not work as unemployment and austerity measures are a toxic cocktail that will soon causes the drinkers to cry out for medical assistance. The jump in ECB loans is the first stage cancer but you may expect a major worsening and a higher level soon where both the country and the banks will require life support from some European institution and in a size that cannot be afforded without toxic shock in other nations. Consequently I again issue a warning on Spain and their banks and advise a great distance between you and them!
Greece-The Situation Grows Perilous
The argument for months was that Greece was such a small country that it hardly mattered and why was everyone focusing on Greece. I pointed out that the total debts of this country stood at $1.1 trillion and, since then, have gotten bigger even after the PSI took place. In fact, Greece borrowed $130 billion to pay off $105 billion and the ECB/EIB and the IMF refused to take the hits. Now just the country, the sovereign, owes $517 billion to various parties both public and private which is not only an astronomical number for a country of this size, about the same as the total GDP of Switzerland, but one that cannot be paid back by any stretch of anyone’s imagination. The 120% debt to GDP ratio flaunted about by the EU and the IMF some months ago is the stuff of nonsense, fairy tales and stories that would please the Brothers Grimm. Greece has been a continuing saga of make believe, hopes and prayers answered by no one as the nation is far past the gates that guard the entrance to Hades. Now it appears as if there will have to be another election in June as no one can form a government and the second most populous party wants to either renegotiate the terms of the IMF/EU agreement or leave the Euro and devalue to save the country’s finances and the Greek pride. If this should happen the consequences for the rest of Europe will be severe. You could start with the fact that it would wipe out, by approximately three times the total equity capital of the European Central Bank. If Greece defaults it would not only wipe out the new bondholders but impair the EIB and have a telling effect on the IMF. It was never the size of the country but the size of their debts and in an effort to protect the German and French banks at the time a monster was created by abysmal thinking and the fanciful notion that austerity would solve the problem which it plainly has not.
Then besides all of this there is the $104 billion owed to the other Euro nations through the Stabilization funds, the $65 billion of Greek bonds bought by the ECB to try and hold down Greek yields and the $135 billion in Target2 funds that the Greek Central Bank owes to the other central banks in Europe. Then it is just the sovereign debt, not the bank debt and not the derivatives and not the private debt and not the municipal debt but just the country that owes $874 billion which is just shy of 300% of their total Gross Domestic Product. $874 billion is also 27% of the total GDP of Germany and the numbers are not just frightening but very scary.
Greece is now long past the point where growth or Inflation can bail it out. The Europeans have played this game very badly in the attempt to hold the coalition together. The can kicking, heralded by so many as an achievement, has actually exacerbated the situation from a travesty to somewhere out past a calamity and there is no longer any way out without fiscal pain of the most serious kind whether Germany refuses additional funding or whether Greece opts out for their own reasons. We sail at the center of the maelstrom and the markets, quite soon in my view, will one day waken to the “Oh My God” moment which everyone has tried so hard to avoid. There is no longer any way out!
“To that Providence, my sons, I hereby commend you, and I counsel you by way of caution to forbear from crossing the moor in those dark hours when the powers of evil are exalted.”
-The Hound of the Baskervilles
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Just print some more money!
There is so very little natural / organic growth in economies these days. So much activity is dependent upon one intervention or another, and it's very existence depends on ripping more flesh from what's left of the self sustaining / value-for-value exchange economy.
All the powers that be can do is shuffle wealth from the value providers / actual producers of things, and on to beneficiaries who get to exchange that value for real things, having done nothing themselves to actually earn it. And so socialism sinks everyone together into the abyss.
Leo you forgot to use the word parasites.
Tru dat
That's very informative, but the market is set for major rally today based on premarket
I am reading renaissance history. You have no idea how many erections the Roi François I had during the year preceding the battle of Pavia....A bit like the current roller coaster market that will know its highs until its tipping moment. Francois stayed flaccid for one year, in captivity. But then it all came back with a vengeance!
Kings are like markets. What did the guy say from up in the clouds : Vengeance is mine...
So beware kings and markets.
Francis I of France - Wikipedia, the free encyclopedia
He understates the problem.
That parrot is dead!
http://www.youtube.com/watch?v=4vuW6tQ0218
"History repeats itself. The first as tragedy the second as farce." Karl Marx.
http://www.youtube.com/watch?feature=player_detailpage&v=zAcsoTBWd7w
Karl should know......marxism has never worked.....no matter how many times it's been tried.....it is good for the undertaker business however.
Would you like a glass of sherry with your Tapas?
I thought it was pappas frutas with the sherry...
Obviously you've never been to Berlin. Saw the bullet holes myself...
A philosophy isn't an economic system, but for sure I'd rather live in Cuba than Haiti.
Marx's theories are fascinating, and surprisingly predictive; however, communism doesn't work, nor do any "ism's" really... they are folly to the inherent corruption of man/humans... The day we stopped investing in the next generation, is the day we started rotting...and, I am not talking about "free lunches" or socialism; and especially not social capitalism (bailouts for management). "Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth - the soil and the laborers." Karl Marx.
Dead on if you ask me... but the problem with socialism is that people don't pay their fair share...
In America, the strange thing is we tend to pay for the lowest and least productive (which, I especially disagree with)... show me some chump on disability for depression/ after his jobless benefits ran out (those are the people milking and draining the system)-- and I will show you some (some else-- not draining the system) who is hard working, debt laden, no health care or trick fucked with some loop hole for a pre-existing condidtion-- that individual slaving away for minimum wage (while CEOs-- who probably got their from luck-- getting millions while their companies "vaporize"...
The problem, and the implosion, happen(s) when people who are completely cable and able to work and smart-- are totally barred from the game (no jobs) or ripped off or are laden with things like student loans and bad mortgages; or can't compete against the paper work/ legality-- i.e. BAC repeatdly losing someone's refinance package, etc.
When you bar and rip off the majority/ avg. people who are more then willing to pay their fair share, then you have problems; and that is the situation... Socialism isn't the answer, is neither is communism, nor is no hold bar capitalism (man developed society with rules-- and even Adam Smith promoted regulation)... however, common sense, logic, and fairness are the way to go... legal loop holes and scams, etc. are not. Why do have jobless benefits and not a work program is beyond me... let's see, pay people to do nothing, or pay capable people to learn a skill, while they help build a city bridge or something... we choose the later, becuase it's opression...period...
Why do have jobless benefits and not a work program is beyond me.
Employers, who tend to be the people who are most active in funding political campaigns, don't like to compete with government for labor. So work-corps are generally opposed by business interests.
This is also why, for example, prisoners don't perform useful work in most states. A contractor earning $21/hr to stand on the road holding an orange flag would lose his job if you let a convict do it for free, so he'll fight like a dog to prevent such policies.
'Consequently I again issue a warning on Spain and their banks and advise a great distance between you and them!'
Oh, yeah? How? By recycling the same old nonsense?
Only for you Mark, since you still write markets instead of "markets" you fucking slave.
I KNOW HOW WE CAN SOLVE THIS!
Maybe it's time to form a discussion group and organise a meeting to talk about all of this?
...
Now who should they hire as the catherer...
Zar-ko-zeeee!
Don't you mean remove the catheter... The patient is dead and no longer needs it.
Bank-ruptcy is supposed to settle accounts via liquidation and writing down toxic-debt - not just increasing it and turning it into toxic-public-debt instead.
Until that lesson is mercilessly hammered home and the public flat-out refuses to pay taxes to fund zombie banks, then this will only get worse, much worse in every conceivable way, and several that are not yet conceivable.
When banks are broke you close them down. And new ones emerge. If they have no capital they can't just pretend they do. Those banks must close.
Nationalisation is simply the process of trying to resuscitate a zombie with make-believe public-toxic-debt, while hoping it doesn't still rip your country and society apart.
We need completely new banks, not merged re-badged, but still decomposing old zombies.
These banks are only here now because of an epic credit-bubble that created them.
That credit is gone.
So those banks must go too, they have no function, no purpose, create no good in the world, and are just filled with every sort of filth and economically degenerative poisons - toxins.
We owe them nothing, but our complete contempt.
I suspect this is all about ego and arrogance. The people making the decisions are just to high on themselves to admit 40 years of their failure has ruined the West. And now that the flock of chickens has come home to roost, they are going to close ranks even tighter. This is good. Because now it only takes one giant chicken to land on all their heads to end this.
Q, I agree -- too much invested at this point, whether they get it or not... i.e. whether they are conscious to it or not... the day Berneke realizes he his such an utter failure (and Berneke, clearly ain’t the only one—countless academics, bankers, economists, CEOs, etc.)… if they ever realized just how wrong they were—that’s is the day they wake up and bullet in their heads…
unfortunately, these are the same people who are also the delusion psychopaths that will undoubtedly remain in denial for all of their lives and blame everything from which way the wind blows to gays getting married on why their policies (DIDN’T cause) and everything and everyone else caused the global financial collapse (to include doomers and gold bugs of course)…
He who has the power can absolve themselves of failure. This is where we are at today.
Reality is really what the power structure says it is. Look a Fukajima, look at the Bush decisions for the Iraq invasion, look at the steps the EU has taken on Greece, Italy, Spain, etc. Look at all the trade agreements every President since Clinton has signed off on. Look at the worldwide creation of the debt based financial system.
Who among the worlds population will stop any of it? The fix is in and we sit here railing against the dying of the light. The majority does not give a damn.
+1000
Over the last 30 years the process of rolling smaller troubled banks into larger ones created the TBTF banks. The smaller banks should have been shut down. And bank concentration should have been avoided.
Most of those smaller banks weren't "troubled." They were PURCHASED.
Simple market mechanics tends toward monopolization if you don't specifically limit against it.
"And bank concentration should have been avoided."
This phrase was meant to encompass the ordinary purchasing of banks. I believe the rules to guard against such aggregation were removed sometime in the past 25 years. A mistake.
I hear that. I think it was that regulation backlash not too long ago. Back in the fat dumb happy days, they bought our government and wrote their own ticket.
Here's the problem - when banks die, the money supply goes down and the economy contracts. Now with credit derivatives, one medium size bank dieing can cause a financial nuclear chain reaction that take out all the other banks and pancake the whole global financial system. The money supply then evaporates (unlike MF Global client accounts) and the economy goes to cardiac arrest. Politicians get sacked, bankers lose lots of money, and the citizens get knocked out of jobs.
Stop the bankers from creating money from nothing and this sick freaking game will change.
The difference between central banker and a catfish.
One is a bottom dwelling slime sucking lower life form and the other is a fish
excellent read, mark :-))
Ps. luv the quotes
The people of the West are literally begging for the financial system to implode so we can start over with honest money, no debt, and free markets. When they get hungry enough, they will stop asking nicely.
The trouble will start with the middle classes, or what's left of them at this stage. One day soon they'll discover that TPTB did, in fact, have a plan for staying rich and in control after all this shit finishes winding up... and they ain't included in it.
The super-rich will mostly stay super-rich and know it, so they don't give a fuck. And the lower classes are too poor and fucked up on drugs, bad food and widescreen reality TV that they don't know what the hell is happening, anyway.
food stampe, you got to keep the masses fat on gov. cheese and that min wage (so they can at least afford McDonalds).... got to keep them-- just barely alive so as not to revolt. If and or when the food runs out, that's when shit hits the fan
i know you all know the answer, but i'm new here, and am quite lost, please, could someone (somewhat gently) explain to me...as TPTB have devised the miracle of inifinte printing, why don't they simply push erase and begin completely anew? if for no other reason than to create a smoke screen to secure their misbegotten gains and avoid the fate of other failed and headless monarchs?
Someone in the real world alwasys has to take "the loss" with real money.
Problem is the banking power has so closely allied itself with political power that they have been able to dictate who will take the losses. Its not them - its you and I - the politicians have transferred that loss to present and future generations of wealth producers. It has been transferred on to our collective capability through our labor to produce the wealth that we all enjoy. Additionaly, you also have the previlage of supporting the chronic, long term non producers who are not capable or have the desire of working to create their own wealth.
When we permit complete asset redistribution, the world ends. It's on the calendar.
thank you newworldorder and blunderdog for taking the time to gently explain...i'll revisit the medici's and machiavelli, on my descent back to athens and zeus.