Dexia's Belgian Bank To Be 100% Nationalized

Tyler Durden's picture

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Motley Fool's picture

The end game cometh.

GeneMarchbanks's picture

Turd in the punch bowl repeat: Turd inside the punch!

flacon's picture

Can someone explain why this Dexia is THE domino effect? Is it because it sets a pecident of nationalizing derivative debt? 

Hulk's picture

As did Bear and Lehman...

Popo's picture

But the million dollar question is this:   What happens to Dexia's shareholders?

The US had the unbelievable gaul to not only bail out its banks -- but bail out the bank's shareholders.  (The reason for this?  Because Hank Paulson said it would be 'best').

Let's hope Europe at least has the common sense to recognize that Dexia's shareholders made a bad investment and should have their equity set to zero on condition of the bailout.

 

redpill's picture

Does this mean Dexia's Luxembourg retail banking operations are going to adhere to Islamic Banking rules?

RSloane's picture

Yes. Women will have to wear head scarves while utilizing banking services lest Allah cleave their skulls in half with one disapproving glance.

Manthong's picture

Time to be concerned with the branch manager on the floor is sporting a scimitar.

Drag Racer's picture

maybe not...

Hopes may be disappointed for an influx of money from Qatar and other rich Gulf states into battered European banks, since Gulf investors are likely to see many of the banks as too risky and out of line with their investment strategies.

http://www.reuters.com/article/2011/10/09/us-banks-qatar-idUSTRE79818G20...

jez's picture

Yep. Permanent ZIRP. Closed on Fridays. Prayers five times a day. And bouncing a check becomes a criminal offence.

I'd be a bit worried by all this nationalization business if I were a Dexia shareholder, were it not for the fact that the bank so easily passed that stress test just last July. Very comforting, that.

nope-1004's picture

 

And bouncing a check becomes a criminal offence.

LOL.  There was a time when signing your name to a note representing that you were good for the amount on that note actually was considered fraud if found that the document was falsified (check bounced).  It appears even ZH'ers now think bouncing a check is no big deal.  LMFAO.

 I see little difference between bouncing a check or using counterfeit currency.  If y'aint got the funds, don't pretend ya do.

 

 

jez's picture

"It appears even ZH'ers now think bouncing a check is no big deal."

That there's the code of the West, son.

RSloane's picture

I do. I think bouncing a check is a big deal. I never have and could never consciously do it.

trav7777's picture

there's no telling what type of side bets were made on the preferred shares.  Common equity did get wiped, but the preferreds were taken care of to an extent.

ZeroPower's picture

This is immediate term bullish in the sense that markets will rise on hopes of systemic risk being OFF the table (i.e. nationalization of an entity - as like started with Bear) but somewhat longer term this will just spill over into the next zombie entity needing a cash infusion which will inevitably lead to a collapse or another nationalization (a la Lehman) in which case systemic risk is back ON the table.

Before you know it, EU-TARP is on the table, but we still have a few hundred SPX handles to go to the bottom as really, we didnt fix anything, as was learned in 2009 despite the near 100% increase in equity px.

Rememeber to watch credit carefully these coming weeks - less attracted to short injections of hopium versus your average joe equity jockey.

DormRoom's picture

I think it has to do with the shadow banking industry, opaque cds trades, and counterparty risk.

 

I'm assuming now that Dexia is being nationalized, it is considered a default event, so parties will have to pay up, which may be huge, putting more bank(s) balance sheets at risk, tipping others into default, and so you have contagion, and a possible domino effect.

 

No one know how many credit default contracts are out there, and what parties are at risk.  So you're setting off a mine, and hoping it's isolated, and not located in a minefield, less you get a clusterfuck.

 

It's like someone taking a fire insurance against your house.  Your house is burning.  How many people took insurance against your house? 10, 100, 1000?  Now that the insurance company has to pay off 1000 claims, they are now broke.  How many people took insurance against the insurance company default. 10, 100, 1000 ?  Now bigger insurance companies fail.

 

*This is the fatal flaw in the system.  You shouldn't be able to insure against an asset you don't own.  It can incentivize people to burn down your house.

 

It's a network cascade  failure that will reach the largest nodes in the financial system: central banks, and sovereigns.  central banks print, you get hyperinflation/hyper stagflation.  sovereigns absorb the losses, you get the possibilty of sovereign defaults.  Do nothing, you get a great depression. Either way, it's a giant clusterfuck.

 

Jack Burton's picture

CDS = Weapons of Mass Financial Destruction!

trav7777's picture

no...CDS=only way to grow credit when the organic economy won't do it

GOSPLAN HERO's picture

Do not confuse weapons of mass destruction with weapons of mass effects.

RSloane's picture

I remember a story of a large bank, I believe, that took out life insurance policies on people who worked at their building - janitors, security guards, clerks, etc. I have to do some research on which bank or corporation did that. It was appalling.

max2205's picture

Bear market=buy the news?

been there done that's picture

So the stock goes to zero I guess??? Rally in Bank stocks next week LOL.

Motorhead's picture

LOL, yeah, I'm waiting for the pundits to say that this event was already "priced in".

RSloane's picture

At this juncture, if some random countries declared world war tomorrow Bob Pissanti would say 'its priced in'.

AbelCatalyst's picture

The reason this is an issue is due to the "fingers of instability" that are threaded throughout this sand pile we call the global economy. Any single grain of sand can set off a cascading collapse. The issue is not any single event, it is the risk that is hardwired into this market. The risk cannot be removed because each grain of sand is already in place, the risk cannot be removed without systemic crash. Then, and only then, can we begin the rebuilding process. This is one of the most important ideas to understand: the cause of a collapse is NOT a single event but rather the instability that is already present. The collapse will happen, and this may or may not be what triggers the collapse, but there is far too much instability for this sand castle to remain standing.... It's ready to pancake. It's ready to collapse. This could very well be the seemingly "small" event that triggers the cascade...

StychoKiller's picture

Non-linear, multi-dimensional, differential equations -- get you some!

Zero Govt's picture

Here's the (political) equation: if you're going to fuck up big time buying out 20% of Dexia is the same mistake as buying 70% of Dexia is the same mistake at 100% ...so why quibble with a few Tens of Billions you're pissing down the toilet ....all in at 100% it is then  

ISEEIT's picture

Sure. The end game for EUR shorts. In this rabbithole such news = EUR/USD 1.40 by weeks end.

I'm short (1.3180). Seriously these fucks are likely to abandon the helicopter approach and just decree that "all material matter shall henceforth be deemed as legal tender". Followed shortly by "U.N declares reality void, new reality agreed to by unanimous vote".

Markets closed for the day.

Update at 5:00.

 

Subprime JD's picture

Why would you enter a short position at 1.31??? The move was already made back in the high 1.40s bro. New lesson never ever enter a short position after a 1600 pip move on a currency pair unless it's on a spike. U went short in the selling.

Good luck with that

Mike2756's picture

End of a move? Looks like it's headed to the mid 110's on a monthly chart.

Subprime JD's picture

The euro could definitely fall to 1.10s but I wouldn't initiate a short position at a trend low such as 1.31. And let's not forget that the USA isn't a bastion of fiscal prudence either. Given the circumstances the eur is holding up rather well.

LookingWithAmazement's picture

No end game - the start of a new beginning. Tomorrow market rally.

StychoKiller's picture

"That's no moon, it's a space station!"

So Pollyanna, how many skittles have you collected today?

PhD's picture

Indeed! The great reset is upon us!

Do not underestimate the peril we are facing, for 20 years and more our growth has been the result of the transfers of wealth from the future to the current through debt. We are now at the point where there is no more future, we have spent is all, winter is upon us and we are sitting naked and unprepared.

In the future this period will not be known as the greatest depression, rather they will name it "the great folly", never has a crisis been more predictable and the people more unprepared.

Prepare yourself, but do not underestimate the complexity of this task.

Gold and silver will help, but not in the short run. When the banking crisis strikes, cash is what you need. Banks will be closed, net-banks as well. Shops will no more take card and ATMs will be closed. Do NOT underestimate the effects of this. Prices on everything but food and necessities will plummet! In this period, you need cash and buy whatever you can, because as the prices explodes, governments will take action, setting price roofs and other silly measures. The effect of the measures will of course be horrible, this as the producers will start losing money from producing; retailers lose money from resupplying and so forth. Shops will run out of food and such and in the end people will be trading their gold, silver and valuables for scraps of food. With the collapse in production, hyperinflation will show its ugly head and the currency collapse will soon be a fact.

From this point onwards the PM will start to show their value, not before. This as the lack of credibility will force governments to adopt a gold standard or similar. Only issue here will be confiscation, and how to deal with that problem I'm still in the dark. Confiscationable coins may be a false hope I fear.

Last word: I’m often wrong

 

 

DormRoom's picture

last greatest depression:  End of the Roman Empire, and decent into the Dark Ages.

 

#occupywallstreet

 

p.s.  after the great reset, the economy will collapse to a barter economy (like in Austria-Hungary after Armistice).  health and medical supplies will be highly valued.  Gold may be in demand, but government, or neighbourhood militias may confiscate it.

 

There'll be a high degree of violence around gold & silver.  Stick to medical supply bartering.

 

Motley Fool's picture

"p.s. after the great reset, the economy will collapse to a barter economy"

 

No.

DormRoom's picture

The US has the highest gun per capita of any nation.  You think when shit gets real, ppl are going to stay calm & collected?

Motley Fool's picture

Knowing most of your neighbours have guns is in fact a great incentive to remain civilized, lest you get shot. It will be worse in countries with less guns per capita.

 

That being said, we are not going back to barter. There are contingencies in place for when the system fails. All in all it should work out quite well, if being a somewhat spectacular transition.

DormRoom's picture

municipal governments are already slashing services, like the police force.  If they cant' sell bonds, they'll slash to the bone.

 

Meredith Whitney may be right, her timing was off, and underestimated Fed intervention.

 

What are you going to do when a gang/other neighbourhood militia  knows you have gold/silver in your house?  call the understaffed police dpt?

 

you think you're more civilized to act out the way folks did in New Orleans?

 

shit is going to get real.

Idiot Savant's picture

There are contingencies in place for when the system fails.

Care to expand on your statement? What type of contingencies, and drawn up by whom? How did you obtain knowledge of said contingencies?

I wasn't very impressed with the contingencies when hurricane Katrina knocked New Orleans off the grid. Granted a natural disaster is much different than a financial one, but there are an awful lot of variables to consider.

Motley Fool's picture

I could, but I'll simply go with : go read some FOFOA.

trav7777's picture

yeah, or else their neighbors will cap them

PhD's picture

""p.s. after the great reset, the economy will collapse to a barter economy"

No."

I agree. Even though a collapse to a barter economy must be considered a possible outcome within a probabilistic context, the likelihood of the economy settling at that state at this stage is hopefully small. For a barter economy to appear while the banks are closed, yes, this is likely on a temporary basis, but for this to become the permanent state the collapse would have to become epic and cataclysmic.

Even if all the banks were to fail the systems are still there and ready for the government to run. What is to stop the government from nationalize everything and reopen the banks with basis on printed money? In a state as depicted above, people would accept any money, regardless of their origin. Printed or not, given scarcity people will accept them regardless of the questionable long term sustainability.

So, as I see it, it is the scarcity that will save the system, for a while (so I hope).

However, even if this were to work perfectly it will not save the system over time. The printing of money will destroy the role of the dollar as a reserve currency, bringing global trade to a standstill. Thus, even after the banks open, inflation will persist, and most likely accelerate. Hence, the collapse of the current currency regime is unavoidable.

 

UgglyBetty's picture

I agree with you, but let me tell you what happened here in Argentina 2001-2002 for what it's worth.

All of what you mention was implemented to a degree. Barter was a means of survival, no money on the streets so the barter clubs resorted to a currency of their own.

This survived for quite a while, a couple of years indeed, and it could continue like that but guess what? fake certificates appeared... (you can imagine who was behind that, knowing that Govt does not collect taxes from bartering...)

On the other hand, as the Government was broke at all levels (Federal, Provinces, Municipalities) they decided to print "bonds" with the same face value as the pesos but non-convertibles to dollars so that they could control currency devaluation and prevent further dollar shortages. Public employees, suppliers etc were paid with those bonds.

People were desperate so it's absolutely true what you say, anything exchangable is used as currency. But back then we had deflation and now we suffer a 25%-30% inflation which only God knows the exact figure as the official statistics are fake. I guess now that the time comes to face a huge stagflation and people are not as resigned as 10 years ago, I dont really know what the outcome will be...

PhD's picture

Hey, thx for the feedback :)

The lessons from Argentina are indeed relevant in evaluating the state of the global finance. It never stops amazing me how economists blatantly ignores the lessons from Argentina and just pretends what happened there never really happened.

With regard to your comment I think the key word in your post is "dollar". In the collapse of Argentina there still existed a reference point for trade given by the dollar, hence in all trades and transactions there existed a benchmark towards which agents would assess the risks and possible rewards of using the different vessels of transaction, this being bartering, certificates or "bonds".

What worries me about the current situation is that when the crisis hits the American banking sector, the dollar is bound to lose its role as a benchmark. If this happens we may face the situation where there are no such reference points at all. Neither gold, silver nor any other currency will work as storage of wealth as people in desperation dumps any wealth they have in order to get hold of necessities. While this has happened before and there are many examples of such temporary collapse of value, what makes this unique is that it likely to happen in multiple economies at the same time. Sure the government will get the situation under control, but then what? After the situation has been stabilized, how will we trade internationally? Will you in Argentina accept euros if you expect the value of these to be 10% less next month? Will we in Europe accept dollars if we expect the same development for the dollar?

Because of this I would be anything but surprised if we see a similar development in the coming years as we saw after the collapse of the gold standard in 1932. Hence, a collapse in global trade due to a lack of a stable vessel of transactions.

Conclusion:

The best storage of wealth in the short run is necessities and IMPORT goods. Personally I have begun storing cash, rice, gold and silver. Cash for the short run, rice for the medium run and gold/silver for the long run.

Time Will tell :)

 

UgglyBetty's picture

You're welcome, happy to have something (useful?) to add to this great site and better ZHers.

Your thoughts are very relevant. Think that here today people are buying dollars as if there's no tomorrow. Buying dollars here means only "paper dollars" which are from now on kept under the mattress. Why? We have elections in two weeks time and it's certain that the same people are going to stay. And after 60+ years and maaaaaaaaaany devaluations and currency changes the common people think that once again a HUGE devaluation is coming and have to get rid of the pesos soon (I'm not so sure about it though).

Why dollars? "Tradition" as you say, the only reference that ordinary people have. It's also accepted worldwide. And it used to be a reserve of value. No one has any idea that the dollar is being debased and that it's no longer the reserve of value that used to be.

During our hyperinflation of late '80, people used to buy dollars at the beginning of the month and sell them at month end, otherwise the HUGE monthly inflation destroyed the salary. And buying all you can as soon as you have some currency on hand. The velocity of money gets really high...

I'm 38 and I've already seen 3 different Argentine currencies in my lifetime, and that's because the peso-dollar convertibility gave us several years of stability.

Imported goods are an issue, but in this country we are blessed with resources so at least we dont have to buy food with dollars or whatever... however that will be a great concern for many countries when the dollar is no longer used for comex and/or fuel prices soar (not happy at all with this).

There are lots of things to say on how to "survive", but the only reality is that with each currency change there are more poor people and what is really debased is the middle class.

One last thing (to cut this comment short...): as you say, keep cash (to avoid bank runs and deposit confiscation), food (prices rise and there's shortage because of fuel prices, strikes, looting, etc) and that's about it, there's not much more that ordinary people can do during hard times of inflation and social unrest, apart from caring for your family and try to do whatever you can for yourself instead of buying.

Thanks for your thoughts and we will see what happens... I've seen this picture so many times before it's very sad to extrapolate our ugly experience to the rest of the world...

PhD's picture

Likewise!

Wish you the best of luck my friend, we live in interesting times indeed where luck may very well be of essence.

Smooth be your journey!