The European Death Spiral
Recently, we presented and discussed one of the biggest issues for European banks: the urgent need to delever substantially (to the tune of over €2.5 trillion) by selling assets, in order to placate various regulatory entities that banks are solvent, and, far more importantly, the market, which has so far proceeded not to short banks into oblivion only due to the ongoing short selling ban, and to the explicit backstop from the ECB (and, indirectly, the Fed). However, since deleveraging into an deflationary environment will certainly require bank bailouts due to collapsing asset prices, the question is what the impact of bailouts on banks will be. And here Bloomberg's Yalman Onaran explains all too vividly how not even in ponzinomic finance is there ever a free lunch... even if bought with free money. "If the Southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.” And therein lies the rub, and the problem at the core of it all: when one is dealing with a continent and its insolvent financial system whose banks have underwater assets that amount to the size of the host nation's GDP, "It’s hard to know which one to stabilize first, the sovereign bonds or the banks." Recall that killing both birds with one silver bullet is what the failure that is the EFSF was supposed to do, by allowing sovereign debt rolls and fund bank nationalizations at the same time. Now that that hope is gone, all we have is the inevitable "death spiral."
The size of potential losses at European banks has scared away short-term creditors, squeezing the region’s lenders. The European Central Bank has stepped in to replace funds being withdrawn, providing unlimited cash and lowering requirements on the quality of collateral it will accept.
“We’re in a death spiral,” said Andy Brough, a fund manager at Schroders Plc in London. “As the yields on the peripheral bonds increase, value of the bonds decreases and the amount of capital the bank has to raise increases.”
And there you have it: a "bailout" of the insolvent banks by insolvent countries only shifts the balance, and redirects vigilante attention from either sovereigns to banks, and vice versa. Naturally, the longer there is no solution, absent wholesale defaults and massive losses by the status quo which is the only solution, the wider spreads for both entities will drift until finally neither Italy will be able to refinance, nor its banks, leading to an "out of control" freefall bankruptcy, that will have the most devastating consequences out of all possible options.
In the meantime, the only Hail Mary pass left is that someone will step in and buy the assets that are about to hit the market with the biggest Blue Light special since the winter of 2008, as suddenly every single bank rushes to market to catch the best bids into what will soon thereafter be a bidless market:
European banks have already announced 1.2 trillion euros of asset sales as they try to reach a 9 percent capital ratio by June, according to data compiled by Nomura Holdings Inc. The shrinking of bank balance sheets in the region may reach 3 trillion euros, Barclays Plc (BARC) estimates.
One European bank executive who requested anonymity because plans weren’t public said his company intended to comply with requirements of the stress tests by lending less in 2012. By giving the banks six months to comply, the EBA has provided a go-ahead for deleveraging, an EU official said, asking not to be identified to avoid interagency conflict.
The EU leaders’ agreement for tougher budgetary discipline coupled with banks cutting lending will cause a “huge recession” in Europe, AEI’s Lachman said. The result of the stress tests will be constrained lending, especially in the Southern countries, which will make their economic rut even worse, Lannoo said.
“North has fared well so far, but if the South derails further, then the North will trip too,” Lannoo said.
Needless to say, this one "death spiral" response leaves us quite skeptical, because try as hard as we may, we fail to see how one will find even a fraction of the €2.5 trillion in cash needed to purchase Eurobank assets without said banks, most of which are leveraged 30-40x, being forced to write down their entire equity tranche (very much the same way Dexia was one of the most successful banks in the most recent European stress test).
For those curious about the specifics of the upcoming devaluation, deleveraging, disposition and default wave, here is Morgan Stanley's recent analysis on just this topic.
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bullish??
Ah yes, the dreaded "DEATH SPIRAL" ... aka ARMAGEDDON ...
But I would love to know how long this DEATH SPIRAL will take before the end arrives ...
Tomorrow. I will see you in Hell Mr Thorne
Delever and sell....to WHOM? The Fed? There's nobody with any fucking money to buy this shit and even if they did, why the hell would they buy the paper of bankrupt sovereigns??@!?!
There's always someone to sell to, if the price is low enough...
"There's a sucker born every minute"
-P.T Barnum
The US taxpayers will fricking take on the debt. Fed is probably already warming up the keypads.
Europe will take a while to implode as more and more money leaves.
Nazi moles deep inside british politics:
http://www.dailymail.co.uk/news/article-2072639/Tory-MP-Aiden-Burley-Naz...
http://www.thesun.co.uk/sol/homepage/news/3991724/MP-sorry-over-Nazi-sta...
http://www.irishtimes.com/newspaper/breaking/2011/1211/breaking27.html?v...
A Conservative MP apologised today after reports he attended a stag party with Nazi overtones.
Aidan Burley used Twitter to reveal his “deep regret” at the “inappropriate behaviour” at last weekend’s bash in a French ski resort.
The Cannock Chase MP was eating and drinking with 12 friends, some of whom chanted “Hitler, Hitler, Hitler”, according to the Mail on Sunday.
One toasted the “Third Reich” and another allegedly taunted a waiter for being French, the paper said.
Mr Burley tweeted today: “Deeply regret inappropriate behaviour by some guests at stag party I attended and I am extremely sorry for any offence that was caused.”
Today’s article claimed that rising star Mr Burley, a senior aide to transport secretary Justine Greening, was filmed at a restaurant in Val Thorens, sitting next to another party goer dressed in a black SS uniform and cap.
The newspaper quoted a French police spokesman as saying an investigation could be launched.
“Anti-Semitic and pro-Nazi crimes are taken extremely seriously in France. Anyone suspected of breaking the law in this respect can and will be prosecuted," the spokesman added.
Somebody ought to send Mr. Burley and his buddies to prison for the rest of their sad pathetic lives. That pic of David CommieRon is priceless. What a turd.
No offense. – None taken.
it would help if you used headlines on you articles so i knew what they were about.
Headline:
Article
That´s corporate funded democracy for you. The more shitbags you get ekected the more attention you have to pay to them to keep them in line. Accidents will happen.
Yeah, the accidents in this case where their parents didn't use a fucking condom.
*Unintended irony alert* Throw someone in jail for life because one of their friends exhibited poor taste on a stag night? Wow, bud, you need to take a deep breath. I doubt even the actual Nazis were that hardcore.
That bunch of idiots are Oxford educated british power elite. You are right, the guillotine suits them better. They are thankful people like you find them harmless while they rape the sheeple in broad daylight. You didn't read the note. It was not just one moron dressed up as nazi dragqueen Himmler. They all cheered and toasted the beast. The fact that they openly display their true colors is a reminder for all to see what kind of sociopaths these morons are.
Given the fact that Cameron had just officially told the Germans & the French to fuck off then it seems a very appropriate theme for a private stag party.
Unless of course you are strictly PC.
@ahmeexnal
in every post it seems you never fail to let the tongue slip on ur criticsm of Merkel, Germany, the Euro, the Deutsche Mark or anything else that may relate to the German dominate financial system that represents broad backbone of the European Union . I have to ask, are you Jewish and/ or continually bitter over the outcome of WWII???... Some of your commentary is very intelligent but other times you don't make sense with your responses
all this bullshit analysis is a waste. fundamentals dont matter anymore. the market is dominated by HFT algos following textbook patterns and strategies. just learn how to chart and think like an algo. thats all that counts now
great comment and i agree about charting but fundamentals will have the last laugh
Think of the EU *and U.S. banking systems as enormous, leaking hot air balloons.
The Merry Fractional Reserve Banksters keep supplying more and more hot air (fiat) to try and keep the balloons alift, but the holes in the fabric are extemely large, and getting larger for a variety of factors (tossed all about, whipped this and that way, passing through hailstorms, striking trees and barns and telephone poles and skyscrapers, etc).
The organic, private side economy is of no help in creating any 'lift,' because it's undergoing radical deleveraging thanks in part to the extreme recklessness of consumers, governments, central banks and the financial services sector over the past 40 years.
So, just to keep the seriously torn balloon from causing the basket to crash land, the central banks have to try and compensate for the massive leak of what was formerly provided lift from organic consumption via the use of massive amounts of credit that used to be provided by the private sector or quasi-public sector actors (such as pensions, etc -e.g. teachers buying MBS through their pension plans so NINJAs could be issued and homes built in Spain or Nevada - this went way beyond MBS, and worked the exact same way in every element of the economy varying only be degrees).
So, the central banks are now trying to float a system, and compensate for deleveraging on a massively historic scale, by merely pumping what they hope will be enough fiat into the balloon, to keep it from crash landing and in a lame and tepid state of suspended animation, when the very issue that is leading to the crisis is the very system that fractional reserve banking, with its massive use of leverage of fiat currency (which is the hole in the balloon), has created.
While the central banks can float the wounded, balloons having gaping holes for a while, they can't control the economic weather (and they admit this) happening all around, which only contributes to a growing hole in the canvass that is the balloon's fabric.
At this point, it's no exaggeration to say that the central banks are trying to offset what is now underway; a deleveraging of 40 years of steroid and methamphetamine induced credit/debt leverage fueling consumption that they encouraged and assisted, with the private sector years (and maybe a decade) away from deleveraging enough (via savings or defaulting) to get back to the point where the weak are flushed out, and real demand has a solid foundation again.
It'd be better to let the damn balloon crash again, take the pain, treat the casualties on site, repair the balloon the right way (get rid of the fractional reserve bankers and their distributor network of crack cocaine, ala the Goldmans & JPMs), and get underway again with a rational group of actors who understand and embrace truly free market, capitalistic principles; this world be so far different, but vastly better, that few who would be able to recognize it, although almost everyone would be far better off in it.
And this entire process, folks, could have been foreseen with 100% certainty, from the inception of our economic system, or any economic system which uses fractional reserve banking principles as its foundation. No fact, twist (pun?), design 'tweak', or any other mutation of what is an inherently flawed and necessarily expiration date-stamped economic system will ever change this basic fact based on simple rationality.
I gave you a greenie w/o even having to read your post, cause you got common sense.
I forgot one critical point:
The more hot air (i.e. fiat) the Merry Central Banksters pump into the partially torn-all-to-ass apart balloon, the worse they actually compound the problems/crises of whatever is left of the organic, private economy, as they increase volatility, increase the propensity of more and more of those who are solvent to white knuckle their savings (due to uncertainty and lack of clarity), and because they're artificially mangling the price/demand curve and massively distorting capital flows and increasing malinvestment - in other words, they're just making the inevitable crash landing that much more spectacularly disastrous.
Given enough PSI (Pounds/Square inch), even a pinhole leak can cut off limbs!
not always. i call it the "turn your nose up" moment. don't forget to add a hearty "ewwwwwww" and "how icky."
Right. There´s not enough money in this world to bail this mess out and if it folds - short selling bans notwithstanding - major US institutions will go down the drain with it. Remember, the system insures itself against losses and failure with massive insurance contracts. This is leveraged out of the freaking universe. Greek haircut? This will affect huge insurance contracts. Italy? Now we´re talking real leveraged money, Spain big too and then there´s the rest of the PIIGS. It´s a very difficult situation and export-dependent Germany is in the middle of it. Of course they want a falling Euro.
thee problm w/ the short ban is that if there are enough shorts on one side of a trade it can not only find fair price but trigger a breakout. europe is dead to me now
Is that Lurch? Cuz if it is that would have been a great name as well instead of Mr. Wonderful. Not that i'm complaining about the name Mr. Wonderful of course.
That particular "Lurch" was Ted Cassidy, a very tall guy.
Soros is buying for pennies on the Euro. When its over, he'll forclose and own most of the continent. He is he new Mr. Potter.
EUROGEDDON BitcheZ
"Mistah Kurtz, he dead."
Definetely bullish...
Europe and the West in general are in a deadly death spiral. Hang on to your Gold and Silver.
http://silverliberationarmy.blogspot.com/
no!
No worries. Bernanke will solve it.
I wonder if he is behind all of these dumb things: http://www.mysteryshoppingguide.com/
Probably directing people to buy Chevy Volts and funding etrade equity accounts that only have a BUY button.
Unbelieveable Testimony form Greek SuperShopper Testicleclese
I joined right away when I saw this tremendous offer. The very first thing I did in 2010 was go to the local MickieyD's and stuff my ass full of Bacon and Greese Burgers with Extra Cheese and Vegitable All Natural Ketsup. Feeling real good about myself I opened my E-Trade Account with the buy only button you mentioned and immediately set forth hitting it as fast as I could with the 120% margin option buying unlimited amounts of PHYS. Which got me enough money to buy a brand new Chevy Volt which I drove for over 120,000 miles and then turned it back in for my full money back when I said to them that I was afraid of it catching on fire. Let alone having an immeasurable amount of serious fucking quality defects and just being plain buttfuck ugly. Now that I'm short the Euro out the wazoo with a 10X reverse ETWhatever all on the free margin again, I figure my next purchase will be the Royal Albert Hall, Holes and All along with a historical home in Belgravia.
I couldn't be happier.
Does this mean I can buy that vacation home I've been wanting on the coast in Spain?
Only if you don't plan to live there.
Maybe he enjoys mowing down those zombiefied spaniards with a gatling gun.
KISS ARMY would kick NATO's ass anytime!
Time for the ECB to double down on lottery tickets.
Go ahead, just keep in mind I am buying Spain.. All your taxes go to me..
Greek SuperShopper Testicleclese is going to get a serious case of gout and elephantiasis of the saks & ass if he keeps marching down the path of the 'buy, eat and drink first, think later if at all' stream of consciousness that's been imbedded into U.S. and U,K, Pavlovian Marketing, PLLC bred consumers.
That's right, Fed- keep throwing gas on this fire by issuing record amounts of nil-interest debt- brilliant......
They stopped throwing gas a long time ago. Now they're throwing rocket fuel.
Yes, but if the flammable expectations increase, the rocket fuel can be withdrawn from the flames within 15 minutes.
and liquid oxygen.
burn, baby, burn
Depressing for the financial community that "wildly partied" on this premise that the sun would never set; heart breaking for the plebes who will pay in blood the greed of their bankers and politicians. Now is the time for hand wringing recrimination; "it wasn't me, no, it was their fault; they the bureaucrats did it not I the banker. I only believed what they told me." If you believe that you are butter on their toast.
it is almost as if the credit bubble were starting to...deflate...
the soverign countries have a massive imbalance in promises vs. ability to pay them (otherwise known as bankrupt). the sovereign debt is worthless. the banks holding the sovereign debt are remarkably undercapitalized to handle a sovereign debt crisis. the bankrupt sovereign countries guarantee the deposits on the bank.
que abbott & costello to explain the point of this article.
Will it bring down Golman Sacks??????........thats all i care about
You forget the Morque!
The Morque? I knew those fuckers were French! Take your french fries and go back to Canada, Franch!
Money printing is the final solution.
Yea but thats now a 4 year old final solution, tried many times and here we sit still failed, so whats next?
Paul Krugman says that it hasn't worked because we haven't done enough of it, yet.
And Hunter S. Thompson said that it just wasn't weird enought, yet.
Which one do you think is the fucking psycho now?
Gonzo, bitchez!
Tee heh...
loved your comment the other day about awaking from a 20 year nap :)
Such a genteele way of putting it. You delicate little flower, you.
You people keep forgetting about all that money on the sidelines.
... any minute now ...
That would be your money. From Effen Global. The good news is you're only guaranteed 250 grand when the bank implodes. NOW YOU'RE A FORMER BILLIONAIRE!
Europe's not down and out yet. The Europa-dope plan is wearing down their opponents.
I think we kind of know the anwser: banks first as always.
Monetize.
So then keep doing what we have been doing for 4 years to no avail?
Why sure, SD1, it'll be different this time. Trust me.
It'll be different this time...Hmm...I've heard that before...Okay! Let's do it!
Austerity today will cause massive civil unrest. Bombs, wars, etc...
I'm not advocating it, I just think its what they will do.
TPTB think it too, which is why the NDAA was passed. Martin Armstrong has an extremely compelling take on the indefinate incarceration provision of NDAA, as one would expect.
You mean print and austerity measures.
M. Bernakowacko, set coordinates to go where no Modern Central Bank has gone before.
Print Ludicrous Speed.
Engage.
In space no one can hear you fart.
Tell that to my mother-in-law's rippers.
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig Von Mises, Chapter XX: Interest, Credit Expansion, The Trade Cycle, § 8 : The Monetary or Circulation Theory of the Trade Cycle
I'll take final and total catastrophe for 200, Alex.
Don't worry, you'll get it. Just hang around a bit.
The ECB will continue to expand its balance sheet by lending to the TBTF European banks at 0.50%, who will then turn around and buy PIIGS bonds with yields of 6%+. The ECB will eventually accept ANYTHING as collateral. This is the most lucrative "carry trade" of all time and is how they intend to gradually re-capitalize the TBTF European banks.
Sounds familiar...
Bingo. An Extend and Pretend twofer:
1. "carry trade" profits to infinity
2. run out the statue of limitations for financial fraud
Bankers will again.
I'm thinking Bernie Madoff will get a Presidential pardon to help fix the economic crisis
Problem is, that isn't what is happening. And for good reason; the Piigs will default sooner rather than later, and then everything blows up.
Things that can’t go on forever, don’t - but they can sure take a long time about it.
The thing is, we - in this instance, "we" means "Amerikkkans" - believe 200 years is a long time. When in fact, 200 years is a pimple on a gnat's ass compared to other societies. Not to mention, the history of the universe.
So TPTB have been able to stave off the reality of complete and utter financial collapse for three years now.
Three years may be a significant amount of time to a creature that may only survive for 60-80 years, but it's nothing in the grand scheme of things.
We humans are merely doing what we humans do best - destroy things, and ourselves.
i approve this message
So this is what the ancient Mayan societies were anticipating thousands of years ago.
Does Maya calendar predict 2012 apocalypse?
After I read that...I read up on what was happening with Snookie and her iPad. GAWD it WAZ TOTALLY AMZIN!!!!
Don't ever post USA today...it's like getting spat at technicolour. Can't even use it for fish wrap.
I heard she lost weight, she's so hot right now...
I have made a minor study of this Mayan business and have concluded that they never predicted an apolalypse. This is just modern sensationalism. They predicted that there would be a change of "thinking" which would be a vast improvement of current affairs. In particular, a recent deeply respected interpreter of the prediction stated that there would soon be a "major financial paradigm shift." That seems very dramatic to me but there is no talk of "the dead rising from the grave, dogs and cats living together" and such.
Follow me for I have seen these signs of which you speak...... dead rising from the grave....Newt Gintard..... dogs and cats living together...Eurozone - {though I expect this will turn into an episode of the itchy n Scratchy show soon}
When they started comparing Y2K to the Mayan Calendar, I got lost. Really really lost.
Must have been one of those had to have been there in both time spaces at once things.
well... after we saw zombie banks, why not ?
Hello, I am writing again about considering owning physical dollars because I think people on this site need to discuss it rather than dismiss it as it is only fiat so worthless.
I am a believer in an honest money system, be it backed by gold or otherwise.
I think most people here have been laughting to hear about the rediculous rehypothication and the upcoming scrabble to claim the assest at the end of the rainbow. In my layman knowledge of the matter I think this is smilar to the fractional banking system. The rehypothicating of assests only a few times has brought out the deriding finger pointing. The banks are leavered anywhere between 10 to 30 times for every dollar they claim to have. And, think of the reset of the finanical system that maybe leavered 50 to 100 times. If you really do believe things are going to have to be squared up at some day then I think that person should be estatic holding physical USD bills in their hand as the ultimate investment. People in Latvia these days sure wish they had their money in their hands.
I think the saying "If your money is not in your hands, then it isn't your money" will be once again well recognized and understood.
Normally I overlook grammar/spelling because I am guilty of making mistakes.
But god damn, this is just atrocious. If you're a foreigner I can understand that but if you're American this is pretty bad.