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Banks Get Bailouts, They Don't Give Them

Tyler Durden's picture





 

From Peter Tchir of TF Market Advisors

Banks Get Bailouts, They Don't Give Them

From the moment the IIF proposal first came out I have argued that it is a good deal for banks - no accounting loss - a highly rated zero coupon bond - and higher coupon payments - in exchange for extending maturity on debt that couldn't be paid back. Banks were winners. The fiction of 21% haircut has been talked about by everyone with no real thought as to if there really was a haircut.

It was a good deal for the banks and not so good for either Greece or EFSF - whichever one was bearing the cost of the principal guarantee.

That the IMF believed banks would ever take a proper write down - reduce what they expect to be paid - is comical because the IIF proposal from the start was made to sound like a write-down even though it never was one.

So now, as a massive bailout is about to be announced and the fear of a Credit Event at the EU and IMF is at epic proportions, the banks expect they will get taken care of. Sadly it is probably good for bank share prices short term if they win but the regulatory animosity may grow and the occupy movement will get a more recent and specific event to focus on.

Since by now the EU should know where every single sovereign CDS trade is (because they must have asked the banks for that level of disclosure by now) they can go ahead and allow a good old fashioned default and kill some weak institutions and rebuild the system with healthier banks.

Or they will work with the IIF to create something they can spin as being a haircut for the banks that will in reality just be a convoluted way to get citizens to pay for it without even realizing it.

I like banks and it is their job to make money for their shareholders but it is sad the IMF and EU can't see that and deal with it properly.

 


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Wed, 10/26/2011 - 11:39 | Link to Comment jcaz
jcaz's picture

"Or they will work with the IIF to create something they can spin as being a haircut for the banks that will in reality just be a convoluted way to get citizens to pay for it without even realizing it. "

Bingo-  the circus is simply about misdirection.

Wed, 10/26/2011 - 12:04 | Link to Comment Popo
Popo's picture

It's truly amazing -- and scary -- just how many politicians continue to believe that banks are part of our infrastructure.  

Dear politicians:  Banks are not some kind of "public work".   They are not, as you continue to assert "OUR banks".  They are the enemies in our midst.  These are the most self-interested, dangerous, mercenary players in the world.   They will willingly destroy you, and their host-nations for a profit.  In reality -- that is exactly their endgame.

You are either their slaves, or you will destroy them.  There is no middle ground.  Pick one.

Stop trying to save them.  Yes, we need 'a' banking system.  But no,  we do not need 'this' banking system.

Wed, 10/26/2011 - 12:17 | Link to Comment Ghordius
Ghordius's picture

Popo, I live on a continent where nearly everybody does think the companies called "banks" are a public utility that is granted the special concession of creating credit. They are seen as part of the infrastructure, particularly in their involvement in helping the state to collect taxes.

And if you look at the history of banking in the EuroZone, very often banks belonged to the state or the state or the region or had a strong political involvement (with of course recurring scandals of cozy deals).

I agree that they are the enemy (the MegaBanks). But in the EZ way of thinking, when banks are small, regional, transparent and are kept at a short leash, they stop being wolfes and become (useful) dogs.

A good example are the Germans LandesBanken, or the Swiss Cantonal Banks, or if you go earlier the many small banks in Italy and Austria, all belonging to a region. The region is the majority shareholder and it does make sense for the citizen to say "our bank".

Wed, 10/26/2011 - 12:29 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

We have plenty of good ole local/regional banks here in the US that do crazy stuff like make loans to businesses, they are just overshadowed by the crap that is JPM,C, BAC, MS.  What should have happened was the large banks should have been broken up during the crisis and all the responsible regional banks should have gained market share.  Capitalism and free markets at work!  Didn't happen so we are going suffer for a very long time.

Wed, 10/26/2011 - 12:34 | Link to Comment Ghordius
Ghordius's picture

Of course, being small and regional does not prevent foolish behaviour.

But when the region/county/province/canton/state is the controlling shareholder, you have the opposition parties keen on noticing how badly the loc gov is running "our" bank.

I'm just trying to explain that EZ point of view that might be misunderstood in the US - bank-as-utility is strong in the EZ.

Wed, 10/26/2011 - 13:04 | Link to Comment TheGardener
TheGardener's picture

Anglo-saxon banking interests wanted the `unfair` advantage
of (regional) state guarantees of the Landesbanken to be axed. So the former sleepy affiliates of the Bundesbank got `global` and `aggressive` in their dealings to `compete freely`. Most got not only morally bankrupt.

Wed, 10/26/2011 - 12:19 | Link to Comment supermaxedout
supermaxedout's picture

 Big banks are the enemies in our midst.

I like this. This is true.They want to feed on us.

 

Wed, 10/26/2011 - 13:32 | Link to Comment Hugh G Rection
Wed, 10/26/2011 - 13:59 | Link to Comment sgt_doom
sgt_doom's picture

To the IMF:  "Buddy, can you spare a few millions SDRs?"

 

Wed, 10/26/2011 - 11:39 | Link to Comment LongBallsShortBrains
LongBallsShortBrains's picture

Sore bungholes too!

Wed, 10/26/2011 - 11:43 | Link to Comment Ghordius
Ghordius's picture

Peter,

you are one of the best!

"Since by now the EU should know where every single sovereign CDS trade is (because they must have asked the banks for that level of disclosure by now) they can go ahead and allow a good old fashioned default and kill some weak institutions and rebuild the system with healthier banks"...

What? You are asking from the EU sound, thoughtful decisions and speed too? What do you think they are, the childrens of Einstein and Speedy Gonzales? After all, we are talking about politicians, don't we?

I presume they will wait, deliberate, buy some failing banks first (instead of just shutting them down), depending how the Greece default will go... It will be messy...

Wed, 10/26/2011 - 11:40 | Link to Comment machineh
machineh's picture

I like banks that don't suck subsidies from taxpayers. 

None of the  braindead TBTF dinosaurs in this debt exchange meets that criterion.

Sodomize them till they croak!

Wed, 10/26/2011 - 11:41 | Link to Comment SheepDog-One
SheepDog-One's picture

Hey go for it, get on with the BS and announce MASSIVE bailouts! Half life for these suckers are now measured in mere hours, if not outright 'sell the news' events. 

Wed, 10/26/2011 - 11:43 | Link to Comment s2man
s2man's picture

Die you gravy-sucking pigs!

Ah, but I repeat myself.

Wed, 10/26/2011 - 11:43 | Link to Comment kengland
kengland's picture

"So now, as a massive bailout is about to be announced"

What is massive and how do you know this? They can't agree to the freaking haircut and you think they've nailed down a massive bailout?

Wed, 10/26/2011 - 11:49 | Link to Comment s2man
s2man's picture

No, they haven't agreed to it.  But they'll announce it, just the same.

Wed, 10/26/2011 - 12:03 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Peter has gotten much wrong of late, with his chicken-before-the-egg "the economic recovery can't happen without a housing market rebound" rather than the correct ECONOMIC RECOVERY CAN'T HAPPEN WITHOUT AN EMPLOYMENT [i.e. job-wage growth] REBOUND still fresh in my mind.

A question for Peter on this particular article should be how EU bank bailouts occur absent either a) a massive ramp up in € printing by the ECB (the likes of which will make even The Bernank blush), which will ramp inflation in the EU (and despite claims of how good this will be for German exports, which is utter nonsense given that much of German exports go to other EU Member States, it will enrage Germans and other EU citizenry when they're paying €12 per gallon of fuel), or b) massive haircuts for holders of both sovereign debt and EU private bank equity.

Either scenario above will create an inevitable cascade of destruction, given all the complexities and truly unquantifiable costs that CDO/CDS/derivative neutron bombs - waiting to detonate - will cause, not to mention the 'just plain vanilla' follow on effects from such direct exchange derived losses, which will be massive not even considering the derivatives issue.

I'd go further and argue that even a hybrid of trying to get a less destructive a) along with a less dramatic b) will be the equivalent of announcing a hope for the discovery of true alchemy, as the ultimate math remains the same, and stealing from either category to give to the other category above doesn't change the bottom line number that the EU debtapocalypse involves, but simply re-orders the deck of the losers and the magnitude of their losses.

 

Wed, 10/26/2011 - 12:11 | Link to Comment kengland
kengland's picture

"A question for Peter on this particular article should be how EU bank bailouts occur absent either a) a massive ramp up in € printing by the ECB "

That's not going to bail out the banks either. How will that shore up bank capital? They only way out is to nationalize what is worth nationalizing and letting these toxic banks blow up in the publics wallet. They can't grow their way out nor are they in a position to raise capital. It's end game.

Wed, 10/26/2011 - 12:29 | Link to Comment Ghordius
Ghordius's picture

The solution that comes to mind is expropriation.

I know, British and American legal precedents would make this quite hard to implement - but in the EuroZone this would be easy.

How?

1. The shareholders of bank X will have to give their shares to the ESFS and will get a compensation of X. Note: not market values.

2. Then you sort them in "good" and "bad" banks the way the Swedes pioneered.

Of course, point 2. is more expensive than point 1.

And no, there is no way to short or bet on it (this has to be part of the solution).

--------------

If the Squid would be in the EuroZone, it could be bought for $50bn! What a bargain!

 

Wed, 10/26/2011 - 13:11 | Link to Comment TruthInSunshine
TruthInSunshine's picture

kengland

"A question for Peter on this particular article should be how EU bank bailouts occur absent either a) a massive ramp up in € printing by the ECB "

 

That's not going to bail out the banks either. How will that shore up bank capital? They only way out is to nationalize what is worth nationalizing and letting these toxic banks blow up in the publics wallet. They can't grow their way out nor are they in a position to raise capital. It's end game.

 

I agree that massive € printing by the ECB won't cure the disease, but as in the U.S., it will act to allow for the delusion of some (and dilution of many others), as the insolvent banks and debt-plagued EU Member States are stuffed full of increasingly worthless euros, which can then claim that they then have the resources to deal with debtor claims (although they won't even at that point, but will only have been bought some time).

To make matters worse, if the ECB goes ahead and prints to infinity and beyond in a fool's errand to try and stave off the inevitable, the resulting inflation that will occur in the EU will further and dramatically dampen already weak consumer consumption as well as choke off the willingness of businesses to invest (it will undoubtedly lead to investment bank speculation of the most reckless sort, however, given their free money umbilical cord to the ECB and ECB backstop against losses - ala The Bernank plan).

So, consumers get further crushed, it would create a disincentive for private enterprise to invest or plan on expansionary activity, the central planning chokes off both consumption and private sector production/investment/R&D, the central EU currency gets debased, more private sector (and public sector, ironically) jobs are lost, and the cycle goes round and round.

All they would need at that point to ensure a complete crippling of the economic system in the EU for years to come would be ZIRP forever, to complete The Bernank Model of Financial & Economic Un-Soundness.

To infinity and beyond...right into the ground.

 

Wed, 10/26/2011 - 14:01 | Link to Comment sgt_doom
sgt_doom's picture

Or, TruthInSunshine, as many of us realize at this site, since there is no economy as it was dismantled over the preceding 35 years, any recovery is an arithmetical impossibility.

'Nuff said.....

Wed, 10/26/2011 - 11:43 | Link to Comment Rastamann
Rastamann's picture

typical.....LIBERTARIAN corporatist PIGS are always the FIRST at the gov't socialist welfare trough.

 

(just like their hero Ayn Rand ... who couldn't get off the gov't dole)

Wed, 10/26/2011 - 11:50 | Link to Comment redpill
redpill's picture

I read this post several times and found no plausible connection between Libertarians, Ayn Rand, and the subject matter.  So, in short, you're an idiot, or at best just a poor troll.

Wed, 10/26/2011 - 11:57 | Link to Comment Ghordius
Ghordius's picture

redpill, I think I know something/enough about Libertarians and I am more sure about the Austrian School, but Ayn Rand?

Is "Atlas shrugged" really that influential in the US?

I had the impression she is more used by the conservative right and the neo-liberals in connection with the (blasted) complete deregulation of banking...

Wed, 10/26/2011 - 12:17 | Link to Comment JohnG
JohnG's picture

From a historical sales point of view yes it is that influential.  Atlas Shrugged commands sales second behind the Bible in first.

That said, those who do not read Atlas in it's historical context, and read a little history about Ayn Rand (likely most people) get it completely wrong....

For the record, I agree with some of her points, though not all.  One cannot just wholesale "drink" a certain kool-aid without thought, and sadly many do not have that capacity.

Wed, 10/26/2011 - 13:14 | Link to Comment Hot Apple Pie
Hot Apple Pie's picture

Rand is very influential in the US, because most middle and upper-class high school students read at least one of her books in high school. Her ideas are very appealing to sixteen year olds who have always been cared for by wealthy parents, but most people grow up and realize what a comically narrow point of view it is when they get more exposure to reality.

Alas, some students go right through University and into politics or finance and never know anything but plenty, so they have no reason to think their success is due to anything less than their exceptional uniqueness among human beings (as opposed to say, the vagina they fell out of). On the opposite side of the spectrum are some number of people who worked extraordinarily hard and met great success in life, and rather than face the moral obligation they might feel to help others due to their good fortune, they would prefer to believe that anyone who didn't succeed as much as they did simply did not work as hard or had some other moral failing (see Herman Cain).

In America it is quite taboo to note that some people work very hard and still fail, because that would imply that success is not something everyone can earn by simply working more. Anyone earning a great deal of money by virtue of family, friends, or political connections is "working smarter", and therefore a superior human being, not someone who is merely lucky. There is no such thing as luck or circumstance in America (or in Ayn Rand's imagination), because if we believed anything was outside of our control then that might logically imply some sort of moral obligation to assist others who were less lucky.

Also, we have redefined Christianty here -- Christ encourages all to become wealthy, and will provide wealth to any who are faithful enough. Ipso facto, if you are poor, it is due to lack of faith, and therefore are unworthy in the eyes of God and it would be against God's wishes for society to help you in any way. Indeed, it would be downright immoral to assist the poor, because then you would be preventing their salvation.

Once you understand all of this, you will understand why our economy is fucked, and why Americans who are living off food stamps still line up around the block to vote in any millionaire who promises to lower taxes on the wealthy and get rid of social benefits like food stamps.

Wed, 10/26/2011 - 12:18 | Link to Comment maddogs
maddogs's picture

I'm not exactly sure why, but I'm seeing some parallels to 2008, inas much as the "last man standing" seems to be in effect. Seriously, are the E.U. Banks just trying to see whom flinchs first? I mean, this really reaaally looks like what happened 2008 -U.S.A..

At any length, I think we're going to see the same outcome, and nothing else. Fewer and larger TBTF, with a second time of where the USA is @ today.. ready to start the next leg down, 2 years from now.

I suppose what suprises me is it seems no amout of failed examples seems to change direction. 2 years ago, U.S> bailout, no help with underlying debt to leverage ratio in real terms, all after... well we're seeing it again, "it can't happen to me" mentality.... seems such a joke.

What a roller coaster!

Wed, 10/26/2011 - 12:40 | Link to Comment Rastamann
Rastamann's picture

why was Ayn Rand (real name Alisa Rosenbaum) the libertarian HERO, a hypocrite and living off the gov't most of her life?

Wed, 10/26/2011 - 12:55 | Link to Comment redpill
redpill's picture

Does nearly starving in the Soviet Union count as living off the government?

Wed, 10/26/2011 - 11:50 | Link to Comment azusgm
azusgm's picture

kill some weak institutions and rebuild the system with healthier banks.

 

That part is so often overlooked. It is not like there will be no banks if these bad actors go down. This will clear the field for real banks that are not casinos. Naked CDSs are bets, not investments.

Wed, 10/26/2011 - 11:58 | Link to Comment Elwood P Suggins
Elwood P Suggins's picture

Could you provide a list of the "real banks" that are not casinos?

Wed, 10/26/2011 - 13:02 | Link to Comment azusgm
azusgm's picture

Banks that perform in accordance with the prudence expected of utilities.

Wed, 10/26/2011 - 13:21 | Link to Comment Hot Apple Pie
Hot Apple Pie's picture

We have over a dozen credit unions in my city, every one of which is well-managed and focuses on silly things like small business loans, mortgages, and car loans. We also have some regional for-profit banks that do the same.

The only real purpose of big megacorps like BAC is to move billions of dollars around for things like corporate actions and to backstop insurance companies. It's not like you need to have a national bank branch on every corner like we did in the pre-digital, pre-ATM days.

Wed, 10/26/2011 - 12:01 | Link to Comment Ghordius
Ghordius's picture

"Naked CDSs are bets, not investments." Not enough.

Derivatives are uncovered bets that don't belong in companies that are "system-relevant" and therefore "to be bailed out if necessary".

I have nothing against casinos of all kinds, just don't attach the "bank" label on it and don't cry if you go broke with them.

Wed, 10/26/2011 - 11:51 | Link to Comment Pondmaster
Pondmaster's picture

Tchir the Peter lost me when he said "I like Banks" - another wasted article , and waste of net electrons. 

Wed, 10/26/2011 - 11:54 | Link to Comment unionbroker
unionbroker's picture

ya im like banks i like to get bjs not give them

Wed, 10/26/2011 - 11:55 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Or they will work with the IIF to create something they can spin as being a haircut for the banks that will in reality just be a convoluted way to get citizens to pay for it without even realizing it.

Ummm...back where I come from what you're sayin' we call Theft

Banks learned through positive-reinforcement and conditioning that failure is the BEST option in this economic climate. There is no incentive to "make money for shareholders" because doing so jeopardizes employment, bonuses, golden parachutes and the very existence of the bank going forward. 

As we learned from AIG: survival depends on the ability to threaten to fail and make a splash doing it (aka TBTF), certainly not on eeking out a hard-earned profit. That's strictly for chumps


Wed, 10/26/2011 - 11:58 | Link to Comment SWCroaker
SWCroaker's picture

"Since by now the EU should know where every single sovereign CDS trade is....."   

 

Pretty big assumption there, Peter.  You do know that asking for details about a bank's actual balance sheet is something of a faux pas, and shows a severe lack of trust?

Wed, 10/26/2011 - 11:57 | Link to Comment Everybodys All ...
Everybodys All American's picture

The IMF has become way to powerful in this process and has absolutely no government oversight. Who in their right minds would conclude something other than that a tax payor revolt will occur as a result. It is bad enough that Germans are bailing out Greeks but now we can conclude Americans are likely bailing them out as well.

Wed, 10/26/2011 - 12:04 | Link to Comment NDXTrader
NDXTrader's picture

Work with CDS all of the time. If ISDA doesn't call a "credit event" on a even a 21% haircut would blow up the CDS market. What's the point of buying insurance if the insurer never pays? Also, it may be out of ISDA's hands if the insured checked the following box:

"One credit-event trigger available for selection under
the ISDA forms is the occurrence of a “restructuring” with
respect to the reference entity regarding one or more of
its obligations. The term “restructuring” invites ambiguity,
and has led in the past to disputes over whether a credit
event has, in fact, occurred. Generally, in the world of
credit default swaps, a “restructuring” is the occurrence of
any one of the following events that binds all holders of
the reference obligation: reduction in the rate or amount of
interest payable or accruable; reductions in principal or
premium; postponement or other deferral of a date or
dates for either the payment or accrual of interest, or the
payment of principal or premium; or a subordination of the
reference obligation."

Wed, 10/26/2011 - 13:24 | Link to Comment TruthInSunshine
TruthInSunshine's picture

NDXTrader

Work with CDS all of the time. If ISDA doesn't call a "credit event" on a even a 21% haircut would blow up the CDS market. What's the point of buying insurance if the insurer never pays?

Look at AIG. Friends of our benevolent New York Branch of the Federal Reserve (Goldman, JP Morgan, et al.) all got their AIG derivative bets paid in full, compliments of a 200+ billion USD taxpayer bailout of AIG (as in, one single entity - but part of the approximate 5.2 trillion that Treasury and The Fed have now extracted from taxpayers and shoveled to banks, Wall Street kleptocracy and other VIFOPBDSG [very important friends of Paulson, Bernanke, Dudley, Sack & Geithner]). Timmy Geithner's past status as the Prez of that esteemed NY Federal Reserve Branch, nor Dudley's former executive status at Goldman, nor Hank Paulson's former CEO role at Goldman, nor any of the endless conflicts of personal interest at that time had anything to do with that bailout, though, as it was done purely for the good of the American People that AIG was bailed out (/sarc/).

It's not what you know when we're speaking of interactions among criminals and kleptocrats, but who you know (and who you may owe).

Wed, 10/26/2011 - 12:04 | Link to Comment clones2
clones2's picture

This article from Forbes...

http://www.forbes.com/sites/steveschaefer/2011/10/26/so-much-for-orderly...

"analysts at Nomura are out with a note Wednesday warning that a disorderly default is now the most likely scenario, and will trigger payouts on credit default swaps (CDS)."

Wont this scenario create a huge spike in CDS for Spain, Italy, Portugal and totally screw them as well?

Wed, 10/26/2011 - 13:18 | Link to Comment NDXTrader
NDXTrader's picture

You would think. But if the Greek situation isn't considered a credit event then why would anyone ever by CDS on a sovereign when you will NEVER get paid. So CDS may fail to mean anything anymore

Wed, 10/26/2011 - 12:08 | Link to Comment onlooker
onlooker's picture

“”I like banks and it is their job to make money for their shareholders but it is sad the IMF and EU can't see that and deal with it properly.””

 

You may be in a minority with the love of banks. As far as the IMF and EU properly dealing with their banks, the US and the rest of the World need to address that also.

 

Figuratively speaking (non-violent), good rope and a tree is the only solution. Send them to jail or hang them by the sensitive body parts. The World must see real law and order justice.

 

The crimes are way to big to ignore and ignore and accept bribes to ignore. Or mostly ignore and girly slap on occation.

Wed, 10/26/2011 - 12:22 | Link to Comment loveyajimbo
loveyajimbo's picture

Big Bankers beware:  If you liked the justice Gadaffi received, keep doing what you are doing... scummy politicians too... talk about a bad hair day!  Blankfein, I mean YOU.

Wed, 10/26/2011 - 12:40 | Link to Comment Debtless
Debtless's picture

Repost:

Occupy Oakland pays a visit to a local JPMorgan branch.

Many are upset believing they have no voice in govt or media.

The longer they are ignored by both, the louder they will become.

Then the shooting will start.

See 1776.

 

http://www.youtube.com/watch?v=dVIhOtxdA5A&feature=related

Wed, 10/26/2011 - 13:57 | Link to Comment glepo
glepo's picture

I read somwhere

Recent data from the BIS suggests U.S. banks have $41B inexposure to Greece, mostly in the form of CDS contracts sold to European banks who own Greek paper. 

Anyone knows more?

Wed, 10/26/2011 - 16:57 | Link to Comment Iwanttoknow
Iwanttoknow's picture

Libertarianism gets a bloody nose by association with an unsovory character like Ayn Rand.

Wed, 10/26/2011 - 16:58 | Link to Comment Iwanttoknow
Iwanttoknow's picture

Sorry about the typo.

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