Europe: "The Flaw"
We have posted various extracts from this piece from Credit Suisse previously. We will post from it again, because, to loosely paraphrase Lewis Black, it bears reposting... especially in the context of the latest and greatest Greek "bailout" (of Europe's bankers), which incidentally, will achieve nothing and merely bring the country one step closer to a military coup and/or civil war.
The flaw
The market is essentially proceeding on the assumption, as we see it, that banks’ capital requirements can be met organically, through earnings and deleveraging. We want to be very careful about leaning too hard on this; we have insisted for a long time that the banking system needs to shrink, and that the capital markets would grow to match. But this is not a short-term process and cannot be, if it is to remain orderly.
The 2011 consensus range of bank capital requirements was € 100bn to €400bn; the log. average, €200bn, always seemed like a sensible estimate to us. The market is proceeding on the assumption that the need has all but gone away; many estimates now centre on €50bn. Such numbers strike us as ridiculous; the Greek banks alone are absorbing that (see above) and Anglo-Irish absorbed €30bn. This is (yet) another of those cases where a number is small until it is needed, at which point it grows.
But the market has made these moves in thinking despite our long asserting the premise that liquidity cannot cure a solvency issue, and it is liquidity that has been the big change.
What’s happened?
Partly, “the paradox of thrift”. Each bank individually can credibly plan to delever, but collectively the system cannot. But even if the inherent contradiction is recognised, it is hard to act on immediately.
Debt is no cure for debt. What it can do is prevent a self-fuelling Fisher-style debt-deflation and it is clear that the LTRO has at least to some extent achieved that. And it can buy time such that, if the basic business model is restored, solvency can be earned. But we are not sure the business model has been restored; far from it. Here again, our caution and outright mistrust needs to be tempered, and at least patient. But the apparent widespread notion that the LTRO is a game-changer simply does not wash in our view, because of our premise. Game-saver (no Fisher); yes. Game-extender, which makes it a potential gamechanger [Let’s torture a football analogy. If you are down at full time, injury time at least give you a chance, but cannot guarantee a win, unless for a potentially infinite period of your choice. Not every game can be France England 13 June 2004; 0-1 at full time, 2-1 after injury time as Zinedane Zidane proved that football is a game of two halves and two minutes. But every game has an exante chance to do this; even Germany-England, 1 September 2001, which is the rough equivalent of the situation facing the European banking system, in our view; 5-1 at full time with approximately four minutes added.]; yes. Outright game-changer; no.
So what’s the flaw?
The flaw is that, even in 2012, we retain respect for markets. Unfettered, they are not the tool of choice for resolving the current situation but we see it as essential to work with them and harness their power, rather than against them, as we discussed in Twelve Steps.
In Greece it is now clear that the process of avoiding a credit event for the past 21 months has been ruinously expensive. Frustrate the markets (again, individuals making rational, fiduciary decisions, not some conspiracy pursuing an agenda) and they will find a way around the frustration, in our view; in the meantime, costs will increase due to the inefficiencies created, as has happened in Greece.
The result that we now expect in the European banking system is in our view rather beautiful.
The Basel Accords have a patchy track record – to put it at its most generous – and the EBA has almost no track record at all and as we see it, even less credibility in the eyes of the market. The market is fickle (and in this situation self-fuelling, so it must be tempered; indeed it has been by the LTRO), so it cannot even trust its own estimates (as stated above, they are all over the map). But it cannot be frustrated in seeking comfort on such an important issue as restoring trust in the biggest banking system in the world, in our view.
In the banking system just as in Greece, the rescue funds are coming in at a senior level. There are therefore two kinds of bank; those with the market’s full confidence, which will be able to fund at a “senior” but partially subordinated level, and which can repay everything without question [Or, are seen as being able to even at sub level. Either they take advantage of the very attractive ECB funding on offer or issue covered bonds, for example, with no risk or entering the self-fuelling subordination loop.] and those who cannot. The price of time to the latter is ever-further subordination in a self-fuelling circle. Over time, the market will empirically, and with efficient pricing, weigh the liability side of the balance sheet versus the asset side, less haircuts (so haircuts become the de-facto capital requirement), tranche by tranche, maturity by maturity, and see what happens. If there is any insolvency in the European banking system, it will eventually appear, independent of Basel or EBA requirements (which may still becoming binding, of course). But it is hard to see how it appears before some time has elapsed. In this environment, competition for retail deposits, of which the European banking system is chronically short, largely because of its size, will become ever more intense.
Inevitably, due to the mark-to-market nature of repo, the banking system is now even more sensitive to mark-to-market, further baking volatility into the cake. This reinforces our idea that the ultimate arbiter of bank capitalization is the senior unsecured market.
We suspect that organic earnings retention cannot be the solution. According to ECB data, the aggregate post-tax profits of the banks of all EU27 countries were €46.8bn in H1 2011, more than 100% accounted for by large banks (medium-sized banks lost $1.8bn). This pattern has been persistent since the unusual 2008 year (see Exhibit 2).
It is impossible to extract trends from this table, but it clearly does not invalidate a hypothesis that weaker banks (where by definition capital needs are concentrated) might take a long time to earn the requisite capital. Even if capital needs were heterogeneously distributed, which they are not, a period of weak profitability and capital needs at the upper end of the spectrum would suggest a long period. And during that period, we salami-slice balance sheets. Watch your fingers.
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inflate it away.. bonds still pricing worry - http://hedge.ly/wLJT3k
What isn't pricing worry. Gold at all time (nominal) highs (good enough to trick people into thinking it is in a bubble) silver testing its nominal high just a short year ago, oil back at highs but on limited US demand, mass curruption at city, county, state, and federal levels, the human race more concerned with dying hollywood stars than they are with the real heavens and more interested in faux presidential races instead of understanding the Dialectic they have been boxed into.
Even those who are not ignorant shhrug off the fact the the word fiat by definition means "not real". We will pretend our way into the future and let bygones be bygones! Who needs history!
What's on the tube?
http://www.youtube.com/watch?v=uJSgZYUnQn0
There's a sale at Pennys!!!
Or SHLD. Should we buy SLHD? It's a recovery afterall!
I am surprised that one of our faux trolls haven't caught on that bulls are touting a recovery beyond imagine. You would think Robo or Hamy would be writing such. I guess even the trolls aren't as stupid as Liz Ann Sonders.
Off TOPIC! FYI for the Family.
So far this year, at least 180 drugs that are crucial for treating childhood leukemia, breast and colon cancer, infections and other diseases have been declared in short supply — a record number.
http://www.msnbc.msn.com/id/46351047/ns/health-the_new_york_times/
How much money will Wall Street save if they can rid America of these Genetically Inferior or Genetically Defective Children?
If they are not cured? They don’t grow up and have children and spread the disease. And long term, Exponential Growth of the Genetically Defective.. that would need to be treated.. in inflated dollars! Instead of a straight drop down profit!
WAIT!!!
You think that there could Never be a concerted effort against We the People.. to that scope and scale? LOL!! FOOL(s)!!! http://en.wikipedia.org/wiki/Compulsory_sterilization
180 Drugs to keep alive.. Genetically Defective People who would then Procreate! To spread these expensive diseases too!
NOOOOOOOOOOOOOOOOOOOOOOO! That would never happen! Just like the We the People would NEVER! Pay Wall Street to keep us enslaved in debt.. and then pay them the interest.. to keep us that much more enslaved!! We the People are FARRRRRRRRRRRRRRRRRR! To aware of what’s going on to allow anything like these things to happen!
Bill gates promotes population control on CNN
http://www.youtube.com/watch?v=syHdzFVaSz8
and for all of you that said he slipped that one time he said Population Control @ TED! Are Fucking Stupid! Not Ignorant!!
Only the Genetically Weak or defective will die from the Vaccines’! LOL!!
Bill Gates EXPOSED Progressive?! Wants Population Control Through Vaccines "something I love"
http://www.youtube.com/watch?v=ZNyo0Gu7064
here is the obligatory Rockefeller clip. http://www.youtube.com/watch?v=ClqUcScwnn8
but far more important.. here is the MAN! Telling you why.. and the math that you can back check yourself.. You can repeat the outcome with very simple numbers that NO ONE CAN REASONABLY doubt.
Dr Albert Barlett Clip on The Exponential Function
http://www.youtube.com/watch?v=1uec0F_onVA
you sheep should kill each other.. and “We the Rich and Ubber Entitled Lucky Sperm Club Blue Bloods” can come in and strip you of your gun rights.. because all you do is kill each other..
it would be for your own protection!
And then rule you.. peacefully and profitably.. as possible!
“We the Rich and Ubber Entitled Lucky Sperm Club Blue Bloods” of course reserve the right to kill you off.. I mean allow you to kill each other off and then save you again from yourselves.. the whole time being the hero’s that we have programmed you to need!
Please stay tuned to the heavy rotation of ugly facts and how it was ALL the Jews Fault! As the will be the catalyst!
Once again, “We the Rich and Ubber Entitled Lucky Sperm Club Blue Bloods” could Not! do it without your consistent ignorance!
Now get out there and Kill each other!
The whole global financial system is "FLAWED!".
-John
Teaser
http://www.youtube.com/watch?v=vYdWz1WjzYI&feature=player_embedded
This seems like an awfully long winded way of saying that the flaw in Europes plan is that the banks are insolvent. Like we didn't know that.
I'm sure it's come as a revelation to many that smaller banks will have more difficulty in 'earning' their way back to solvency than bigger banks that have access to taxpayer cash.
Whoopy shit, I feel enlightened already, or did I miss something...
So, they need to do what we do here. Give the banks ZERO interest dollars (theoretically to keep the system liquid).
The banks buy govt. bonds with interest.
The banks make that money, the govt. gets it's debt bought.....badda bing, badda boom, everybodys happy.....well, at least, everyone that counts.
Too Broke To Bank
The system's not broken, it's "FIXED!".
Was just researching on the possibility of a military coup in Greece and decided to take a peak at ZH for a news update. Low and behold, this post is at the top. Go figure.
Here's some articles on the topic:
http://www.guardian.co.uk/world/2012/feb/12/greece-cant-take-any-more?newsfeed=true
http://www.forbes.com/sites/timworstall/2011/10/26/the-real-greek-solution-a-military-coup/
http://www.ibtimes.com/articles/241915/20111102/greece-papandreou-eu-bailout-military-officers-coup.htm
http://en.wikipedia.org/wiki/Greek_military_junta_of_1967%E2%80%931974
I'm sorta counting on Turkey moving in some troops, just to maintain order, of course.
Off topic
That's what I was going to say.
But Whiteny Houston just died. Show some respect.
IIII-EE-IIIIIIIIIIIIII...WI-HIL...AH-UH-ALWAYS.... LUH-UHVE... YAH-OOOOOOOOOOOOOOOOOOOO!
Really? Was it Bobby B or the cocaine that got her?
And to think Keith Richards chronologically could have been her father. Party on Whitney. Party on Warren. http://www.youtube.com/watch?v=3Ibe85f_Tqw&feature=g-vrec&context=G2de33...
Long live Keith Richards.
SHe really did take the big dirt nap. Looks like drugs and alcohol, what a waste...
Needs updating, or is perhaps timeless.
http://www.youtube.com/watch?v=k2cijNKu9qceed
Those that can get pass mouthing tabloid headlines should read the following. Scroll down about half way and read about Houston's programming.
http://mindcontrolblackassassins.wordpress.com/2010/12/28/mind-rape-of-t...
whatever
Crack is whack!
GOODBYE BRITTANY HOUSTON WE WILL ALWAYS MISS YOU THANK YOU FOR YOUR WORK WITH THE ORPHANS
http://i.imgur.com/6Ygyz.jpg
Great picture of her. I will always remember her when she had straight blonde hair and she and Bobby were still in love. I bet Bobby is taking it hard.
http://bit.ly/yMuTWe
Here is a great picture of her and Bobby. I will never forget.
http://fc05.deviantart.net/fs50/i/2009/271/b/c/Michael_Jackson_by_Hongmi...
http://www.math.osu.edu/~conrad.44/lang/lvfieri.html
"fiat lux", MLH...as they say in Latin.
3 rd year on the Fed bull market going for 4.... Higher highs and lower lows
Get over it. Next leg up will be awesome but be nimble
What a pile of gibberish this was! The football analogies are terrible too, anything to do with the French deserves to be beaten with a stick!
OK, here's the fucking deal: I'll give anyone, who can place me in suspended animation and then wake me the fuck up when this shit is said and done,one million post apocaliptic bucks...
This shit is like watching "lost" or having a lifetime of sex with no orgasm ...
I'll pay two million!
We're all waiting for the Great Pumpkin. http://www.youtube.com/watch?v=xiSIQzwIPzQ
having a lifetime of sex with no orgasm ... In the future you will wake up in that is not an issue: 2 min video.
http://www.youtube.com/watch?v=Isrd7E5nzIQ
I appreciate you bringing my nightmares into semi reality...
Heh! Just think of sex with no orgasm like running on the treadmill. You don't get anywhere but it's still cardio...
"I think we should have had sex, but there weren't enough people"
I hate when that happens.
Thats why I rototill my garden with a shovel (after burning it off) I get a workout with something to show...
Tyler, here is something I found on ekathimerini comments, although I can vouch for all the data. Its a good read from a Greek citizen perspective.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_10/02/2012_427197
the future is tantric
"The result that we now expect in the European banking system is in our view rather beautiful."
Eh?
Watch your fingers.
I want that cake recipie...
It is indeed a lot like "Lost". Shit keeps getting wierder and wierder, and we're finally going to learn that all the characters are, in fact, dead. I suppose, however, a cross between "Lost" and a zombie flick would be closer to the mark.
Is that how LOST ended? They were dead the whole time! Shit....
Thats why they never had no orgasms. Dead folks don't have orgasms...
Noted
Unfortunatly, Lost being a bunch of people in purgatory is like a dream episode in a series. Totally worthless and manipulative, Here viewers are trying to figure it all out and it turns out, after YEARS, there really is NO STORY! But, TV is a waste of time anyways.
.There's a time when the operation of the machine becomes so odious—makes you so sick at heart—that you can't take part. You can't even passively take part. And you've got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus, and you've got to make it stop. And you've got to indicate to the people who run it, to the people who own it, that unless you're free, the machine will be prevented from working at all."
Who dat say dat?
Mario Savio -- 1964
How gentlemanly to think this is a matter of bankers just needing some advice or more regulation on capital requirements and other prudent banking practices. Not a thought to the possibility that moral hazard, fraud, and criminality are rampant in the banking system. And that maybe, just maybe, we need balls-to-the-walls prosecutions of the bankstas and their aiders and abettors in government.
http://www.youtube.com/watch?v=_nPEgV1oqX0
Criminality would apply in an arena governed by the Rule of Law. Since there are 2 sets of law books (minimum), one for you and for the elites, there is no criminality since business-as-usual defines the event. Can you really expect to be saved from disaster if the bureaucrats, politicians, Royals, Wall Streeters and other Fascists are held to the same level of accountability as little people? How could they do God's Work and save the world in such a confined environment?
Besides, at the end of the day it's all YOUR fault. You trusted people you shouldn't have trusted. You elected people you shouldn't have elected. You tried to live your own life when you should have been vigilant and become a Community Organizer. Just because hindsight is 20-20 and you now know of the crimes YOU committed and can clearly admit that your ignorance is no excuse it won't get you any mercy. You have been condemned to a life sentence and will have to obtain a lobotomy immdiately if you want any relief.
Crime and bad lives are the measure of a State's failure, all crime in the end is the crime of the community.
H. G. Wells
weak
I'm just going to wait for that March 20th bond payment to come due. As it stands now, March 20th is the only hard deadline that exists. Everything else is just bullshit.
On March 20th they will get a bridge loan.
yada yada yada
Probably. But as it stands, 20 March is the only hard deadline. Everything else is just BS. Either they come to a solution to pay for those bonds or they don't. That's the end of the story.
"...which incidentally, will achieve nothing and merely bring the country one step closer to a military coup and/or civil war..."
Finally it's being understood. Greece's importance has got nothing to do with finance. If what ZH finally uttered above comes true, the MILITARY DEFENCE of Europe will get weaker.
If ones read a short version of greek history as of 2nd world war, it gets really clear that USA and Europe literally PAY Greece to use its territory for defence purpose.
- Civil war 1949 - USA/UK vs USSR
- Military Junta - USA/Europe fully backed
- End of Junta and start of democracy FULLY FINANCED by USA/Europe up until now.
People, Greece is too important for European Defence. Just chekc Google maps as to the very important geographical location. Check island of Crete where one of the most important military bases in the world is located.
http://en.wikipedia.org/wiki/Souda_Bay
Gents, Banks vs Greece. Banks will lose. No chance. And that's right. Screw the banks.
Full disclosure: I am not greek, nor am I of greek descent.
Turkey looks more strategically significant to me...
Correct. But people are not reliable, particularly now.
If Greece collapses and decides to rebuild on its own Turkey will DEFINATELY question the wisdom of trying to cozy up to the dying empire that is the EU/USSA and may decide to try and build alliances with Russians and or Persians.
https://en.wikipedia.org/wiki/Buffer_state
Theoretically it could happen. Quite a long shot.
Just keep the Russians out. Have you noticed what's happening in Chechnya?
What I'm talking about is CURRENT PRACTICAL PROBABILITY. This where Greece wins over bankers. And they've known that all along. That's why they've wasted all monies they received on pensions at 55 and government work.
There is an implicit guarantee of bailing out the banks? Yes.
But, there is an implicit guarantee of financially keeping greece afloat in exchange for territorial military control that US, UK and others have over Greece.
Greece could never have afforded all goodies since after the civil war in 1949 unless given by US, UK and Europe for so many years.
REMINDER: EUROSTAT KNEW GREECE COOKED THE BOOKS.
There is bail out and there is BAIL OUT.
I'm not predicting anything, I am pointing out the importance of Greece to Europe UK and the USSA.
United Socialist States of America????
Nyet...Soviet haha
Greece may be as important as you say. Turkey has cooled its jets and has told the UN to not sanction Iran. Both are major chokepoints.
Yet so are Iran and Israel. The chokepoints are getting the most pressure from abroad, which tells me something big is cooking.
Now that we have considered the geo-politicvs, the PM charts look ripe for a breakout. I like the charts, and think the breakout will happen in 2-3 weeks.
They aren't important yet but maybe could be if they engineer the situation. Greece has long lived of subsidy by powers with an agenda, be it the British boxing in the Ottomans or the Americans keeping the commies out. As it is they aren't important enough any more to anybody.
If they were smart the Greeks would make moves to become a Chinese satellite state, allowing the Chinese to put naval and air bases in the Mediterranean. This would move Greece up the priority list for the Americans and Europeans, either that or they could just actually take the Chinese cash after all.
Nice idea. Chinese bases on the Med.
However, if you look at history, any time the Russkies
tried to get a foothold in the Med, the US or UK stepped in.
On Cyprus, it led to the assassination attempt on Makarios
that gave Turkey the green light to invade.
Cyprus put Russian S300 missiles in the silo and the US got them moved.
That's why the EU has no choice but to allow the UK to keep 2 bases on Cyprus.
That's one reason why the mnimonio specifically states (if you agree to follow its dictates)
that Greece cannot seek help from any other country. Greece has been 'protected'
by its pimp, the EU.
You see, the Greeks have already thought of it, but are not allowed, ever!
BTW, Chinese governments don't think like the US. They don't want their soldiers
scaring or occupying. They buy ports and such things. Business. They've already bought into Greece.
Correct. All correct.
you forgot Fascist
didn't russia already loan cyprus a large sum? if greece loses cyprus, turkey, is first in line.(covert military action, just like iran, been goin on, and then there is the offshore oil and gas discoveries, in adjacent waters.)
Greece doesn't own Cyprus. It would be nice if those
two could cooperate more, but they don't. They'll
defend each other, militarily, but what's that worth?
lemme clarify two things.
Bailing out the government of Greece doesn't mean that the people will
not starve. Unless you think that will bring a revolution, which IMO it won't.
Turkey is also important but has recently shown itself hard to control.
I think the lock has been put on Greece so that any an all oil found under
the sea will go to US and UK oil companies. I'll bet they're waiting for Greece
to sign it over and then they'll let Greece out of jail.
has it been that long already?
LTRO = Long Term Rectal Ordeal
"Inevitably, due to the mark-to-market nature of repo, the banking system is now even more sensitive to mark-to-market, further baking volatility into the cake. This reinforces our idea that the ultimate arbiter of bank capitalization is the senior unsecured market."
As soon as mark-to-market panic sets in, Lehman will look just triffle.
Blah, Blah, Blah.
Greece is gunna get the boot, but only after having served as a very public example of what can happen to those who fail to capitulate. Capiche? You will not want to be "like greece".
Portugal will be fine.
Italy is the real bitch. Italy will be the next Greece. It will be very bad and eventually, you will not want to be "like Italy".
Ireland will fuck the whole thing up and end the game.
On to Japan.
Greece is gunna get the boot, but only after having served as a very public example of what can happen to those who fail to capitulate. Capiche? You will not want to be "like greece".
It's all about teamwork and enthusiasms...
http://www.youtube.com/watch?v=d-sV-O2-jCY
EDIT: Warning, Graphic Violence - scene from The Untouchables
i liked this one:
Each bank individually can credibly plan to delever, but collectively the system cannot.
so you can flush, but it's just gonna end up in the garage...?
or if you're lucky, the yard or the street, or maybe the school playground?
call now for our free brochure: "12 Steps To Harnessing The Power Of Utter Bullshit"
here comes belushi w/ a slamiSlicer, BiCheZ!
The grass is always greener over the septic tank...but the ground is always mushy...
here's one from the "learn from the mistake!" file, hulk:
don't forget to tell the guy driving the cement mixer where the septic tank is!
LOL !!! Problem is, thats the only place without trees !!!
here's to another hand-mixed bunker!
"The Flaw" - coming soon to a theater near you.
What? There might eventually be an end to taxpayer funding of these criminal institutions and their central banker funds? Sacre bleu, and say it aint so.
How do the German people put up with the destruction of what they have built up over so many years to keep the banks solvent?
And how do the Greek people allow their govt. to rape them, destroy all they have left so the bankers get paid? I just do not get it. Where are the people.
What am I saying. We have the same problems here and not one "march of millions" on Washington. We are just as bad. The only difference, The Insane Asylum run by the Bernank keeps firing weapons of mass destruction, more debt.
"The flaw" (long story short) privatizing the profits for the banking cartel is no problem when things are good. When things turn south...how do you socialize the losses for taxpayers in 17 different countries with 17 different political systems? (I think it's 17 right?)
The banks have no problem lapping the gravy from the punch bowl, but when that gravy turns to piss, how do you get taxpayers in 17 different countries to line up and swallow their "fair" portion of the piss. So the punch bowl is ready to be filled with gravy (the toil and product of human labor) again?
At least that's the way I see it.
Very fun/educational article to read Tyler. plus 4 minutes and cheers mate
Slow news day huh?
The system is presently in "Groundhog day" mode. Whats a Durden to do ???
keep drinking tyler!
L0L!!!