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Exposing American Banks' Multi-Trillion Umbilical Cord With Europe
One of the reports making the rounds today is a previously little-known academic presentation by Princeton University economist Hyun Song Shin, given in November, titled "Global Banking Glut and Loan Risk Premium" whose conclusion as recently reported by the Washington Post is that "European banks have played a much bigger role in the U.S. economy than has been generally thought — and could do a lot more damage than expected as they pull back." Apparently the fact that in an age of peak globalization where every bank's assets are every other banks liabilities and so forth in what is an infinite daisy chain of counterparty exposure, something we have been warning about for years, it is news that the US is not immune to Europe's banks crashing and burning. The same Europe which as Bridgewater described yesterday as follows: "You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks." In other words, trillions (about $3 trillion to be exact) in exposure to Europe hangs in the balance on the insolvency continent's perpetuation of a ponzi by a set of insolvent nations, backstopping their insolvent banks. If this is not enough reason to buy XLF nothing is. Yet while CNBC's surprise at this finding is to be expected, one person whom we did not expect to be caught offguard by this was one of the only economists out there worth listening to: Ken Rogoff. Here is what he said: "Shin’s paper has orders of magnitude that I didn’t know"...Rogoff said it’s hard to calculate the impact that the unfolding European banking crisis could have on the United States. “If we saw a meltdown, it’s hard to be too hyperbolic about how grave the effects would be” he said. Actually not that hard - complete collapse sounds about right. Which is why the central banks will never let Europe fail - first they will print, then they will print, and lastly they will print some more. But we all knew that. Although the take home is the finally the talking heads who claim that financial decoupling is here will shut up once and for all.
More from the WaPo's take on Shin's paper:
Shin says European banks grew not only by making direct loans to U.S. businesses but also by sucking up vast U.S. money-market deposits and purchasing U.S. mortgage securities. During the previous decade, “European banks may have played a pivotal role in influencing credit conditions in the United States,” and that helped fuel the U.S. housing and financial bubble, Shin argued in a recent paper.
But now it could hurt the U.S. recovery as European banks shrink and bolster their capital reserves. “The European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the eurozone, but also for credit supply conditions in the United States and capital flows to the emerging economies,” Shin wrote in a paper presented at an International Monetary Fund conference in November and which has been widely read among economists.
The vast extent of those European bank obligations to U.S. institutions, or counter-parties, helps explain U.S. policymakers’ anxiety as they watch European leaders try to head off a crisis like the one that followed the Lehman Brothers failure in the United States in 2008.
At the end of the day we always go back to the fundamental question: how is counterparty exposure hedged and what happens to European-exposed assets if and when more and more banks implode? Because while assets get written down, the only way to do the same with liabilities is to file for bankruptcy. Of course, there is the equity raise route, which we wish the best of luck to all US (and European) banks that choose to pursue this particular strategy.
Full Shin report (pdf):
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"...insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks." That seems to sum up the situation nicely, on a global scale as well as in the Euro-zone.
Just lean these cards against each other and you can build a house!
As Tyler says above:
« ... first they will print, then they will print, and lastly they will print some more ... »
Following what Jim Sinclair said years ago:
« ... QE to infinity ... inevitable ... »
Of course. A one world government needs a one..... WORLD BANK. Check.
"Private" banks, oxymoron again....cannot be allowed to exist too much longer. And at a fractal level, what they have done to the plebs (stuffed people full of toxic crap), same thing they've done to the Banks, the Rivers, Nature. Toxic entities make easy pusch-overs.
In-toxicating stuff eh?
ori
/2012-the-year-of-anomaly/
In the end we'll be left with one giant bank and these assholes are going to pretend it was a coincidence of events.
Stop with the regurgitating of tylers sentiments.
There will not be QE to infinity, I firmly believe that one more massive round of QE will set off the bomb so to speak due to the prices of crude and food.
With that said, a full scale world war is just what the doctor ordered and aparently what we are going to get.
While tylers endgame (as I understand it, dow zero, riots and violence coupled with USD zero then an awakening) I do agree with, the steps to get there are unrealistic with crude holding at 102 during a recession.
One more QE and all of the kings horses wont be able to put this together again.
That was the perfect analogy! How funny.... how sad and how true!
"You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks." ......... and now we have insolvent sovereigns supporting insolvent sovereigns and insolvent banks supporting insolvent banks! With the 50% of tax payers, who still actually pay taxes, on the hook for ALL of it!
tarsubil: "Just lean cards against each other and you can build a house!" tarsubil, You got me to thinking. When I was a kid I remember building one to four stories once... it took me a long time to build before it crashed and when it did, it crashed in a nano second. But then again, I was having to deal with the "REAL' world, not magic (money)out of a hat stuff!
Did Madoff model his business plan after the federal reserve? ....... but forget that he wasn't a magician and couldn't create money out of thin air?
I was speaking with an x-president of a small privately owned bank recently and he was telling me about how he actually went to repossess cars etc. It gave him a completely different perspective on loaning money. I've been thinking, maybe that is what ALL bank presidents need to do..... especially the president of the federal reserve! It seems the further these banksters get from reality the more it cost the tax payer!
So, Europe holds about 3 Trillion net in US "paper" and China 1 Trillion plus.... hummmm, wonder if any of those presidents have repossessed a car?
I think I need to take a walk...
RUN RON RUN!
In November, you will have a choice to vote for Mr. Romney, the Republican Goldman Sachs candidate for President of the United States, or Mr. Obama, the Democrat Goldman Sachs candidate for President of the United States.
Forget politics, just follow the money. Your world as you knew it is GONE. So now what are you going to do to SURVIVE? Wake up and smell the mud you have boiling on the stove, where you once had a coffee pot!
The banks are going to quietly go to sleep one by one. Slow and very very drawn out. I would not be surprised that month after month employees of these banks are let go.
but don't worry, the banker cabal will fix everything with one huge world bank and a global digital currency. /s
At what point does Bernanke actually start to admit that he's printing? Or more subtely: At what point does Bernanke begin to suggest that "just a little" printing might actually represent a valid strategy. At some point he's going to spin his only option as if it's a good one.
...at which point the shit-show is officially on.
fwiw...I think Operation Twist was just a cover story for replacing Chinese and other foreign buyers of longer term USTs...as the maturity date of foreign owned debt gets lower and lower the closer the point you are looking for gets.
International fore-play!
I made myself some popcorn this morning.
I used the same pyrex bowl, in the same microwave, that I have been using for just this purpose, for many years. After it popped (well, most of it), I took it out, took the cover off, poured on real melted butter and salt, put the cover back on, shook it, took the cover off again, and picked up the bowl to carry it over to the table. I was using a cloth towel as the bowl was still too hot to handle.
Suddenly, the whole thing just exploded. Glass, popcorn, kernels and salt went flying every which way. I was quite surprised.
No popcorn today, folks ...
Jeez dude...
Finally a BLACK SWAN occurs & to watch it, you have to pick up your popcorn up off the floor and eat it with glass shards...
STBU
Cloth towel had to be wet, wasn't it? They try not to piss on towel!
Interesting metaphor for the inevitable implosion of the regular QE cookathon.
Everything works fine until one day it doesn't work fine. Today is the day (2012).
Princeton econ dept. Now where have I heard that one before? Oh yea, isn't that were .....? Naahhhhh, can't be.
Something having to do with Einstein?
"At the end of the day we always go back to the fundamental question: how is counterparty exposure hegded and what happens to European-exposed assets if and when more and more banks implode?"
A bottom line question everyone in power (and nearly everyone on the sidelines who is still hopelessly captured by the financial system {including me and you}) hopes to ignore until it can be swept away by time and/or inflation.
Here's to ignorance is bliss.
The above title made me think of this.
Hospital Birth Trauma:
http://www.redicecreations.com/radio/2011/12/RIR-111225.php
Been a paying subscriber to Red Ice for several years.
Even if we don't 'believe' most of what is presented on Red Ice and many other alternative information sources, we must at least seriously consider it...........if for no other reason than to expand our mind.
The above interview is believable, but I listen to a lot of the interviews for creative purposes, and yes, with an open mind.
Sorry....I didn't intend to lecture you, but rather to plug Red Ice. The free content is a great resource and the paid section just adds to the overall experience.
We were both plugging.
I hope you're doing well, and may 2012 be the best yet.
When the post-mortem is written on this clusterfuck, we will have a historic redefinition of the word "asset." Promises to pay will no longer be considered "assets." We will also reveal as a falsehood (actually, we're doing this now) this notion of "risk-free rate of return." There is no risk-free rate of return.
"You cannot hedge debt risk by owning more debt." - Antal Fekete.
Baked potatoes contain a lot of residual heat, careful when juggling them...
Lots of fancy theories and explanations.
Most of which are totally unecessary.
All you have to do is follow the charts.
NY Composite clearing to new highs, well above both the 21-day and 50-day.
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosetti...
Can't fight the bullish trend forever. Eventually you have to accept the facts.
Most funds are way over invested in bonds and way under invested in stocks.
The market has been fighting off bad news and recovering after each selloff time and time again, even when most guys are abandoning equities in droves.
The charts....like oil right, like that chart.
That's another way of saying, "they will print". Debasing the currency lifts all boats in nominal terms, including stocks. Owning some stocks is important for that reason.
The problem is that Deleveraging will cause real problems for some time to come. Stocks will suffer in real terms. PMs, which fewer than 1% of America owns, will become very popular and rise in real terms.
RoboTarder youre STILL underwater from your last all-in calls around DOW 12,700 over half a year ago....whats your trading platform, an Etch'a'Sketch?
"All you have to do is follow the charts.". RobotTrader, you are amazing (in a bad way).
RT: You are better off saying "don't underestimate the ability of these determined central banks to keep the current, flawed party going." I undertand your purely empirical outlook. It has been remarkable since March 2009. But as far as stocks making some big run in 2012 that is triggered by actual, solid growth and the emergence of new economic drivers that also enable the employment rate problem to be tackled, as opposed to the PPT playing around with free money, I just don't see it. Party tricks (especially those which enable the "appearance" of a healthy equities market) entertain for only so long, and at some point, real growth has to show up. I think the funds are wise to stick to bonds and stay away from the equities until further notice, and the belief that Euroland will somehow get its act together is strictly faith-based. The allocation of investment monies you seem to think is coming, perhaps as an example of empirical "reversion to the mean" type thinking, is one I believe represents a paradigm borne of years' of debt fueled growth and low energy prices, and those days are coming to a close. 2012 will be "muddle through," at best, and pray no black swans show up.
For some reason, a combustion engine made out of paper does not last very long...
'Yet while CNBC's surprise at this finding is to be expected, one person whom we did not expect to be caught offguard by this was one of the only economists out there worth listening to: Ken Rogoff. Here is what he said: "Shin’s paper has orders of magnitude that I didn’t know"...Rogoff said it’s hard to calculate the impact that the unfolding European banking crisis could have on the United States. “If we saw a meltdown, it’s hard to be too hyperbolic about how grave the effects would be” he said. Actually not that hard - complete collapse sounds about right. Which is why the central banks will never let Europe fail - first they will print, then they will print, and lastly they will print some more.'
Rogoff? Seriously? Try Ha-Joon Chang or Michael Hudson.
Meanwhile Atonement cometh as Bass has repeatedly pointed out. 'Printing' doesn't mask the looting spree and is now even a poor psy-ops operation so you can forget any cover-up. Empire collapses at the periphery first.
I read in "Boomerang" how Kyle Bass approached Rogoff years ago about the enormity of the soveriegn debt situation. Bass explained how caught off guard Rogoff was by the numbers. He (Rogoff) seems caught off guard again.He may need to go to the doctor regarding his memory loss issues.
An academic with some semblance for 'independent' economic thought, which really says nothing in a world where herding is not only the norm but a basis for verified truth. That is how it is nowadays. Academics play with theory, practitioners quietly go unnoticed.
BAC *somehow* just moving away from the $5 per share mark at break-neck speed.
Wierd.
I almost feel bad for people trying to short the EUR at $1.30-$1.35....almost.
Bank of America is demanding that some small-business customers pay off their credit line balances all at once instead of making monthly payments.
Gotta get yer funbux from someone, I guess.
Tyler and Fam....
i think this is welll worth a view particularly because of the assesment of "O'Sellout", and the crumblig empire which is - well u know of who i speak...off this topic slightly but not really....
just sharing.....
http://www.oilfreefun.com/2012/01/brace-yourself-american-empire-is-over...
blablabla, empires end when the legions come back home or are left stranded
Been saying this for many months. Euro collapses = Wall St collapses next day = dollar collapses. The web of debt will take everyone down.
Ben isn't handing trillions to Europe because he likes them.
"Ben isn't handing trillions to Europe because he likes them"
how true
But... but the market is up today! Isn't everything all right now?
"Illusions, Mr. Anderson. Vagaries of perception." - Agent Smith, The Matrix-Revolutions.
What are you guys going to do if we have a Weimar rally and stocks go completely vertical from here?
Like they did after the December 1994 lows?
Keep trying to knife-catch TZA and FAZ???
That would mean the dollar has lost its nominal value, which would mean stocks are worthless. That would also likely mean physical would have been the best way to play the market :)
What will 'you guys' do if we have a Weimar rally?
Well, same as I have been doing, buying and holding PM's and commodities, which have far outperformed everything else but just gets no media attention so no one knows. Its all paper obsession to the media monkeys.
BTW....after the 'Weimar rally'....didnt something kinda bad happen?
I think what Robo is trying to say is it's pretty scary to try and short something, no matter how much value it's going to lose, when measured in a currency which is set to plummet even more.
TheSilverJournal.com
& that would be why many around here (including myself) question the sanity of trading little pieces of FIAT for 'supposed' profit (in either direction)...
Maybe it's just me, but it doesn't feel anything like 1994 anymore.
Let's try to avoid Limit( dollar --> 0 ) = 1984.
That is why this time will be much worse. Too many players involved. Any number of European banks, nations, etc can light this fuse.
And Iceland has shown that you CAN say no more and win.
Just a matter of time.
pods
Good call on Iceland. A bank collapse is bad news for a few banksters, and perhaps for some government pensions. The free market desperately needs a reset.
Nothing wrong with blood in the streets, as long as it's the right blood.
$3 trillion? Pfffft....chump change. The FED just did a 'secret' $9 trillion in under the table bailouts a few months ago... wait until the quadrillions start tumbling down.
"MSNBC anchors like Ed Schultz and Andrea Mitchell have started to disclose parent company NBC Universal's ties to Bain Capital, the private investment firm co-founded by GOP candidate Mitt Romney."
http://www.huffingtonpost.com/2011/12/30/nbcu-bain-capital-msnbc-anchors...
Ed Schultz et al better watch what they say against their parent NBC company....where would all those ass hat clowns draw down big paychecks if lame MSNBC dismisses them?
Not new news, but certainly good to see it getting more publicity. Thanks ZH.
More secret FED bailouts of europe coming.
Waiting for the plausible deniability by the Same Stream Media.
Euro is Ripe for a Short Sqeeze.
Since either Spain or Italy going bust will bring down the world's monetary system, neither will be allowed to default. The reason the Euro is getting hammered is because of the fear of a Euro break up and not because of the Euro printing. When the Euro makes it clear that Spain and Italy will be protected from default, the Euro will rise.
At the same time, hedge funds have record bets against the Euro, setting up a scene for a short squeeze. According to the FT, "the number of short positions in the euro - where investors benefit from a declie in prices - outweighed long positions by a record 127,900 contracts by December 27, up from 113,700 contracts the previous week. The value of the contracts is not disclosed."
TheSilverJournal.com
"The reason the Euro is getting hammered" ?? oh, yes, that's the reason...
Are you aware that this "fear of a Euro break up" is a predominantly UK/US idea?
Look at Greece and how they are clinging to the bloody thing...
It's the market idea that I care about. The Euro going under is only a matter of time. The dollar is in worse shape than the Euro and will probably drag the Euro to its grave when dollar goes under.
Look at what happens: Italy's yields go up and the Euro tanks. Draghi says no to Eurobonds and the Euro tanks. ECB pumps in $640B in 3 year loans at 1% and the Euro slide stops. Not rescuing means Euro goes down and rescuing means Euro rises.
Of course Greece is clinging to the Euro because Greece keeps getting free money. All the Euro cares about is if the banks can handle taking the hit of writing off Greece's debt, which it appears they would like to postpone.
TheSilverJournal.com
Great post
This is all games. Banks and banks and banks. Games and games and games. They're all owned by the same corporations, interests, "money." Who owns who? Should be easy to find out, eh? Transparency, and all that. Absorb what you own. Horrors of horrors! Crisis! End of the world! I now own you, who am I?
Create a crisis. Terrible! End of the world! Must be saved by--another bank owned by the same failed bank. Scam! Who ownes who? It's all consolidation. Fewer and fewer banks. Not in the "program?" We're gonna Borg ya!
Damn! Where have I heard that before. Damn, can't stand competition.
Iran, how are your summers?
Too much "money" in too few hands.
Now there's a recipe for success!
"You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks."
Well, to endlessly repeat myself, that's what one ends up with at the end of an ultra-leveraged bankster run (whether back in the 1920s or today).
Peddling hundreds of trillions of dollars of worthless credit derivatives.
Back in 1907, there came into being the first securitization in America: a mortgage bond with a senior tranche, created by Samuel W. Straus in NYC.
Next came 1913, when their tools were passed into law:
(1) Federal Reserve System, establishing the credit and money-creation monopoly;
(2) the Federal Income Tax (16th Amendment), then going directly to the Federal Reserve Bank as it was created to pay them the interest on that money created and loaned to the government;
(3) the oil depletion allowance, further giveaway by subsidizing the bank/oil cartel (basically merged or were always one); and,
(4) legislation restructuring foundations, awarding them tax exemptions, so the plutocrats could shelter (hide) their wealth untaxed, and use it as a cutout to hider ownership of other corporations and financial entities.
Fait accompli!
people, listen to what i am writing here! the ECB is a front for the globalists! when the ECB buys bonds, it is the globalists buying all air printed money, in which they will demand taxes paid back with real monies! the bernank is transfering trillions of our debts to the globalists! did y'all listen up? the stock markets churned by the HFT's is just a sideshow!
"...paid back with real monies!"
Gold, land, sweat off the brow. Real monies.
Somewhere I read that British Banks alone were lending the equivalent ofd 10% US GDP in the peak phase. I also read that RBS and HBOS were the two biggest lenders in Australia. Just a pity they weren't recycling British Savings as in the 1890s but simply intermediating Asian surpluses into consumer credit
I FIND THIS DOUBLE-SPEAK COMING OUT OF ANGLOSAXONIA DESPICABLE !
WHY NOT CALL A SPADE FOR A SPADE ?
And the SPADE is .. that the US ows 2.3 TRILLION US DOLLAR NET .. to EUROPEAN BANKS
I have previously presented the DOCUMENTATION ( CURRENT BIS DATA , October 2011)
I now want to put an END to the endles BULLSHIT coming out of Anglosaxonia incl Zerohedge... and I will continue to comment with this whereever i find these LIES REPEATED on THESE PAGES ( it will from now on just be a matter of Copy and paste ..for me ! )
Take a look for Yourself ... if You dont believe me .. and the data combined with the propaganda now presented on these pages for a long time should put ZEROHEDGE THRUSTWORTHYNESS in DOUBT !
http://www.bis.org/
Here You have to CLICK " Publications&Research " , CLICK "Quarterly Report "
and go to the pages 9B .. Here You will find most of the DEBT of the world in NUMBERS .
The COLUMN at the LEFT denotes the Nation which OWS the NUMBERS in the ROW corresponding to various other Nations. The remainder is a simple matter of preschool arithmetics .
US BANKS OWE 3,776,858 Million US Dollar to EUROPEAN BANKS ( 3.776 TRILLION USD )
EUREOPE OWES 1,439,844 Million US Dollar to the USA ( 1.439 TRILLION USD )
NET :
USA OWS NET 2,337,014 Million US Dollar to EUROPE = 2.337 TRILLION US DOLLAR TO EUROPE !
So why is it apparantly necesary for ANGLOSAXONIA to describe this DEBT with all kind of EUPHEMISMS like " ASSETS " . COUNTER - PARTY RISK " - "EXPOSURE TO EUROPE ... and so on and so forth ... ...... ..... BULLSHIT !!!
The ORWELLIAN ARTICLES being presented by ZEROHEDGE on the subject do NOT SPEAK WELL about the HONESTY of ZEROHEDGE ! Rather demasks Zerohedge as one ADDITIONAL ANGLOSAXON PROPAGANDA TOOL ... not to be trusted ... as there appears to be an AGENDA !
WHAT A SHAME !
Our Yankee Cousins don't understand Anglosaxon ( they might think you are talking race ) use Anglophone instead.
And now let us look at the individual Net balances of various EUROPEAN Countires vis a vis the USA
GERMANY DEBT to the USA : 234,725 million USD / USA DEBT to GERMANY : 558,631 million USD NET USA DEBT TO GERMANY : 234,725 Million USD = 234 BILLION USD
FRANCE DEBT to the USA : 271,660 million USD / USA DEBT to FRANCE : 593,190 Million USD NET USA DEBT to FRANCE : 321,530 Million USD = 321 BILLION USD
SPAIN DEBT to the USA : 66,773 Million USD / USA DEBT to SPAIN : 229,770 Million USD NET USA DEBT to SPAIN : 162,997 Million USD = 163 BILLION USD
ITALY DEBT to the USA : 46,899 Million USD / USA DEBT to ITALY : 43,742 Million USD NET ITALY DEBT to the USA : 3,157 Million USD = 3 BILLION USD
PORTUGAL DEBT to the USA : 5,250 Million USD / USA DEBT to PORTUGAL : 5,765 Million USD NET USA DEBT to PORTUGAL: 515 Million USD = 0.5 BILLION USD
GREECE DEBT to the USA : 8,355 Million USD / USA DEBT to GREECE : 5,256 Million USD NET GREEK DEBT to the USA ; 3099 Million USD = 3 BILLION USD
IRELAND DEBT to the USA : 53,588 Million USD / USA DEBT to IRELAND : 42,451 Million USD NET IRELAND DEBT to the USA : 11,137 Million USD = 11 BILLION USD
One could SPECULATE if the SMALLL but UNUSUAL positive DEBT Balances of the USA vis avis ITALY and IRELAND can be attributed to Italian MAFFIA and IRISH Organized Criminal Gang ACTIVITY ... the small negative GREEK Balance could be understood as a mediatory payment from Goldman Sachs for GREEK contribution to the anglosaxon effort of attempting to RUIN ....EUROPE
or ... may be italians , irish ..and greek are just SMARTER than those DUMB EUROPEANS who have lent the USA enourmous sums of money ... debts for which there is no other outcome ..than RUNNING AWAY FROM IT ! ... and ..THAT ... is what is being PREPARED... in ANGLOSAXON MEDIA !
Nice rant, though a bit late for this article...
According to Joe Stiglitz 40 percent of Wall Sreet's crap
subprime 'investment' paper was sold (primarily) in
Europe. We already know this right? What are the losses
on all that paper? How many billions? Who talks about it?
Who writes about it?
Makes sense. I always found the anglo-american media (including Zerohedge) very biased against Europe when it comes to financial matters. Like the US media bashing a bailout of Europe by the Fed. And about the EU not getting its act together while the Europeans countries lent all this money to the US in order to get toxic mortgages and CDS for it in return. The Anglo-Americans have power over Europe but just that much. If they were to walk away from their debts to Europe than would most certainly destroy the European economy but if would come back to them. The Anglo-Americans just gives back enough to keep the power balance in place. What you write also puts Cameron backing out of the European countries' recent pack in another light.
Btw, can you check that link to the report on bis? I couldn't find the info.
Thanks