A House of Cards aka Un Castillo de Naipes

Tyler Durden's picture

From Mark Grant author of Out of the Box

A House of Cards (Un Castillo de Naipes)

“Fraud and falsehood only dread examination. Truth invites it.”

                                  -Samuel Johnson

I wrote a piece over the weekend explaining how Europe had closed the circle  on its finances by gaming the system. This involved the non recognition of contingent liabilities, the printing of money, the use of the money by the European banks to lower the yields on the European sovereign debts and to shore up their balance sheets and finally to have the central banks buy the Euro so as to sustain its price, the best they could, which lowers their cost of Oil/Energy as they trade in Dollars. At current levels this gives Europe a 32% discount on Oil and a 32% discount when buying American goods and services. Europe has, in fact, done something which has never been attained before and that is to control the relative value of their entire monetary system. The piece was titled, “Leaving Ponzi in the Dust” and was sent out on Saturday at 9:16 A.M.

“Whoever is detected in a shameful fraud is ever after not believed even if they speak the truth.”


The largest problem with Europe, in my view, is what we do not know and what is purposefully hidden from us. There are so many examples of this that it sometimes makes my head spin but if their philosophy is “what we don’t know can’t hurt us” or that “ignorance is bliss” let me assure you that while our ignorance might be their bliss that the consequences from making investment decisions based upon incorrect or incomplete financial statements will cause a tremendous amount of pain as the truth ekes out. The most recent example of this kind of deceipt is to be found in the Spanish proposal to create a special purpose vehicle for the Real Estate obligations of their banks.

The proposal is to take the bad loans and to put them in some type of SPV which will be the responsibility of the banks and not the public. It all sounds fine on its face doesn’t it? Well it is not and I will explain. Let us suppose that the real marks-to-market on these loans are 40% of face value and that the Spanish banks are carrying them on their books at 80% of face value. If the Spanish banks gave an accurate accounting they would be bankrupt and so they have created a gigantic charade. Now the European Statistics office wants to examine the books and so the Spanish banks are in panic mode. Their economy has also degenerated so severly that the country cannot afford to back-stop these loans without going to the EU/IMF for help which they are trying to avoid at all cost so that they do not become another ward of Berlin. Germany and the IMF, at the same time, recognizing the size of the Spanish problem have also entered panic mode because the German economy cannot withstand supporting Spain without ratings agency downgrades and quite real financial stress. So Europe concocts a solution and hopes no one recognizes what they are doing but I can differentiate the forest from the trees; thank you.

“Fraud is the ready minister of injustice.”

                                  -Edmund Burke

The bad loans are put into the SPV and never heard from again. The banks do not have to take the mark-down as they are put in at 80% of book value. The loans are off the balance sheets of the Spanish banks so that their financials do not cause bankruptcy. The loans in the SPV have become “contingent liabilities” and so are no longer counted by the banks or the nation as part of anyone’s debts. The liabilities have vanished into thin air and while trumpeted as obligations of the banks and not the public; they have become Zombie Liabilities that are the obligations of no one as no one will count them any longer. Deceit? Yes! Fraud? Yes and exactly the reason why I continue to counsel to avoid European credits as there is just no truth in the financials that they give us and the Fraud is purposeful, carefully planned and surreptitiously orchestrated.

“A conception not reducible to the small change of daily experience is like a currency not exchangeable for articles of consumption; it is not a symbol, but a fraud.”

                                                 -George Santayana

May had arrived in Spain. It was not, however, the May of years’ past but a Spring that was somehow devoid of warmth and of joy. The flowers had begun to blossom but they were gnarled, deformed, as if the land was reflecting the mood of the people. It seemed as if the Devil had arrived in Spain and, having conducted his Inquisition, was loosening various punishments upon the country based upon the confessions that he had witnessed.  The Cathedrals appeared to have been defaced, the bones of the Saints were pocked with mildew and the once dazzling Crosses in the churches were inlaid with some type of worm that had not been seen before. Sadness, like a thick band of fog, had descended upon the coastline and it moved inward untouched by any wind or plea to God for Salvation. The malfeasance of what Spain had brought upon herself was about to be bourne and the hope of any other conclusion was now but a faint prayer remembered in our winter memories. The Piper has arrived from Hamelin; and Spain, like so many before her, will be forced to pay.

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GetZeeGold's picture



The devil went down to Barcelona, he was looking for a soul to steal.
He was in a bind 'cos he was way behind and he was willin' to make a deal.




Oh regional Indian's picture

To really understand the spanish situation, google Banco Santander and LaRouche PAC.

What is presented is Un-deniable and brings into the spotlight, that through said Banco, spain has a massive funnel into South America, starting with Brazil I think and Argentina of course and now Bolivia and on-going. Spreading the liquidity love, Santander has bought itself into South America with European funny money.

So Spain, un-fortunately for Spaniards, is actually half the Spanish speaking world hanging by a thread called Santander.


i-dog's picture

Tell the piper to fuck off!!

SheepDog-One's picture

'Special Purpose Vehicle'....like those dune buggies. COOL!

l1b3rty's picture

Just wait for international workers day! Riots all over Europe again I bet!


WestVillageIdiot's picture

Everybody is hiding behind their favorite group, whether it is a union, political party or some brain-dead -ism.  Nobody can think for themselves or be an individual.  It is collectivism as far as the eye can see.

Can we all please quit using that fucking word "austerity".  It is just another way to distract people.  It reminds me of quantitative easing.  It is just a bullshit slip of the tongue to try to get herds of sheep confused and dazed.

AUSTERITY = Shrinkage of government

That is why it is being fought from every angle.  Everybody has grown to love big government.  I say bring on austerity throughout the world.  Shrink these fucking monstrous state run machines and give people back their freedom.  If they don't know how to handle their freedom that is their own fucking fault. 

Nobody For President's picture

AUSTERITY = Deleveraging

Paying down debt is bad for banks.

shutupnsing's picture

We need more village idiots like you!

bigdumbnugly's picture

“Fraud and falsehood only dread examination. Truth invites it.”

                                  -Samuel Johnson


"Oh, man. I will never forgive your ass for this shit. This is some fucked-up repugnant shit."

                                            -Samuel Jackson

GMadScientist's picture

+1 "The car didn't hit no motherfuckin' bump!"

GetZeeGold's picture



No one throws someone off a building for a foot rub!


supafuckinmingster's picture

"I wouldn't go so far as to call a brother fat..."

LFMayor's picture

"the market is pretty fucking far from okay right now"

Imminent Collapse's picture

I sense a real grassroots backlash coming.  Vitriol against the system is exponentially growing on the web.  And that is in the US where is isn't nearly as bad (yet) as it is in Spain. 

Look out Cleveland, storm is coming through, and its coming right over you!  (courtesy of The Band)

WestVillageIdiot's picture

I disagree.  People love the system.  They are wholly and completely immersed in it.  What they are fighting is any attempt to take what they extract from the system. 

I have had multiple conversations in the last week with people.  All I can say is that the vast majority love the state, love big government and despise any attempt to shrink it down.

They are against austerity because austerity means the shrinking of their beloved government. 

WestVillageIdiot's picture

Double.  Sorry. 

I accidentally clicked a Squawk ad while posting.  Just think of the horror of that mistake. 

Up yours, Becky.

Oh regional Indian's picture

Not sure of the Cleaveland reference but it looks like the epic-center this time around is Chicago and the NATO meeting.

Chicago........ when it really hits the fan, Chicago has to be innit.


LFMayor's picture

well if the mother fucker burned once then it can burn again.

monopoly's picture

" Deceit? Yes! Fraud? Yes and exactly the reason why I continue to counsel to avoid European credits as there is just no truth in the financials that they give us and the Fraud is purposeful, carefully planned and surreptitiously orchestrated."

And it is exactly the same in this broken, corrupt country.

q99x2's picture

Our problem is that we can't prosecute the M'fers. Let them lie as long as they can be convicted of crimes. Phaedrus better hope they didn't bury any gold along with him.

“Whoever is detected in a shameful fraud is ever after not believed even if they speak the truth.”


firstdivision's picture

Did Schiller just promote deflation as a good thing?

“The general presumption is that home prices are going down and that’s good — it’ll make them more affordable.”


GMadScientist's picture

It's good for me...the 20% I'm ready to put down gets more house every day and I'll gladly take a 5% loan on 85% of the principal over a 4% loan on 100% (~$100 less per mo and $60k less in interest over 30 years).

Do you want the market to clear or not? I'm very patient.

King_Julian's picture

So what we have here is a self-licking ice cream cone with "Hope" flavored sprinkles and unicorn poop chips mixed in. Yum.

Why are the people who designed this fucking nightmare still alive? How does one not wake up with a growing rage that the whole NWO douchebag crowd are allowed to keep banging away on our ass every minute of the day?


carbonmutant's picture

"The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp"


flacorps's picture

The PIIGS need to get together. They need to do a complete forensic rundown on their economies and their banking systems and their respective demographics and commercial opportunities.

Then (whether by their own decisions, or imposed from outside) they need to present a united front to the rest of the EU, and they need to be out of the Euro and into a temporary "Euro with training wheels" joint currency (predicated on a fiscal union, but only among the PIIGS) that they can jointly inflate until their economies are rebuilt and they can again have seats at the grown-ups' table and rejoin the Euro.

The rest of Europe could facilitate this by refusing to deal with them separately. In short, tell them they're all PIIGS and unless they get together and start behaving they can all forget it. Let them police each other's financial behavior.

In other words, if they were treated as a whole, they could not play the more developed EU economies off against one another, and they would be in a position to avoid having the developed economies do the converse to them.

It might seem odd that the fiscal union would start in the nations that have acted least responsibly, but that is also where the pain is greatest.

If they are obliged to concoct their own medicine, it will be better for them and for the EU than if it is mixed in Berlin and Paris. Let the debtors' club work out their own solutions, or break faith with each other and sink into the quicksand separately.

ebworthen's picture

This must mean that the FED will be buying Spanish bonds...

vh070's picture

Take the toxic assets off the banks; seize the properties too;

Take a shareholding in the bank (yes, temporary nationalization, if you will);

Shareholders lose a cojón (too bad).

Rent the properties out for what you can get (yes, a form of aid: zero if necessary; 10% of income if any)...

...under some maintenance agreement (you're out if you treat it like shit).

Wait ten years then start undoing it slowly.

Seems the world doesn't have the cojones to take any concrete steps (no pun intended).

malek's picture

 At current levels this gives Europe a 32% discount on Oil and a 32% discount when buying American goods and services.

May the author give us a more detailed derivation how he acheived that figure?
I can't be because 1 US Dollar currently equals 1.32 Euro??

earleflorida's picture

Excellent analysis, and besides that, a terrific read! Thankyou :-))