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Reservations Please: Merkel, Party Of "Nein"
Via Mark J. Grant, author of Our of the Box,
"Ah, nowadays we are all of us so hard up, that the only pleasant things to pay are compliments. They're the only things we can pay."
-Oscar Wilde
There are those that wait and hope and pray that there will be Divine Intervention. They cling to the belief that Germany, in the end, will back down and retreat and agree to bail everyone out. Germany’s GDP is only $3.2 trillion and this expectation, believed in by more than a few, is not only ridiculous in my opinion but a mathematical impossibility. If you just take the example of Spain where $125 billion has been pledged to fix its banks and you put it in perspective the situation becomes clearer. As with many things, if they are discussed in the platitude it seems reasonable but when taken down to the hard numbers; a different opinion emerges. If you take just this $125 billion for Spain and consider that the United States has a GDP twelve times that of Spain and that the equivalent number would be $1.27 trillion which is $577 billion more than that was authorized by Congress for our TARP program then you begin to see the enormity of what is taking place in Europe. Next consider that Germany’s GDP is 22.3% of America’s and try to imagine what the troubled nations on the Continent are asking of Germany and why they keep saying “No.” They refuse for a very simple reason; they can’t afford it. They do not have the amount of capital that is necessary to keep bailing out the troubled nations of Europe. Then if you consider the current EFSF program and that $300 billion has already been used for Greece, Ireland and Portugal and that this new assistance program for Spain will take it up to $425 billion you begin to get some sense of the enormity of the problem. The U.S. equivalent then for the total EFSF would be $4.318 trillion or 30.4% of America’s total GDP which would swamp our nation. This is why when I listen to Frau Merkel say “Nein;” I believe her!
“Hope is itself a species of happiness, and, perhaps, the chief happiness which this world affords: but, like all other pleasures immoderately enjoyed, the excesses of hope must be expiated by pain; and expectations improperly indulged, must end in disappointment. If it be asked, what is the improper expectation which it is dangerous to indulge, experience will quickly answer, that it is such expectation as is dictated not by reason, but by desire; expectation raised, not by the common occurrences of life, but by the wants of the expectant; an expectation that requires the common course of things to be changed, and the general rules of action to be broken.”
-Samuel Johnson
It seems, some days, that the markets are waiting for a “Lehman Moment.” The arrival of some Black Swan to commemorate the fact that the financial system has fallen off the cliff or perhaps they are waiting for the ECB, which already has a balance sheet of $4 trillion, to raise it to $15 trillion to save the arrogant of the world and rescue the debtors from the prison that they have built for themselves. The fact that the ECB can print money will not save it from investors who are fleeing their charge. These would be “real money” institutions and not the hedge funds and various speculators intoned as the evil denizens of the Devil himself. There is no firewall that is high enough or barricade that is strong enough to stop people from fleeing when it is obvious that those corralled in the castle have the Plague.
“He knew quite well that it was plague and, needless to say, he also knew that, were this to be officially admitted, the authorities would be compelled to take very drastic steps. This was, of course, the explanation of his colleagues' reluctance to face the facts.”
-The Plague, Albert Camus
The Spanish Bank Stress Tests
GUINDOS SAYS STRESS TESTS HAD VERY CONSERVATIVE ASSUMPTIONS
-The Economy Minister of Spain
Please allow me to elucidate this situation for you. The two consulting firms that performed the Spanish bank stress tests did nothing, not one thing, but take the information provided by the Central Bank of Spain. There was no bank examination, there was no outside assumptions made about the Spanish Real Estate markets, there was no examination of how loans or mortgages or securitizations were carried on the books of any Spanish bank. It was the normal European Union trick which we have witnessed a number of times now where conclusions are made and paraded around in the public which are based upon highly suspicious data and I am being kind here. One thing that can be absolutely be said with 100% accuracy is that if no independent examination was made of the actual numbers and of the value of Real Estate and the loans appended to them then the value of the stress tests has all of the worth and reality of Maria del Sol, the flying pig attired in Prada sunglasses and carrying a Chanel purse. She may be the new friend of Don Quixote and of Prime Minister Rajoy but let’s not use this pig as the basis for our investment decisions.
The EU Summit
It is the twentieth Summit. I predict it will be the twentieth time that almost nothing is accomplished. The beggars want to be the choosers and Germany and the richer nations will hardly allow for that. The bureaucrats and the residents of Brussels are calling for all manner of schemes to harmonize the European Union. The people in Berlin are not, under any circumstances, going to allow their cost of funding to be the blended cost of all of Europe nor will they allow for their standard of living to be equivalent to those in Athens, Lisbon and Madrid. The German gesture towards this envisions absolute control of all of the budgets of each nation and the Dutch and Finland have already replied “No” to this very polite offer made by the Holstein Empress. The Germans surely know that this will not happen either but it is a convenient political ploy to toss out to their struggling cousins. So the begging will continue, the pleas for more alms will intensify and then the Troika will inspect Greece and find so many promises broken and so many fantasies created that Germany will say “Nein” to continued funding and then the next phase of the crisis will begin and the Great Greek Moment will begin as the country defaults on $1.3 Trillion of its obligations as the intended and unintended consequences resonate with the Big Bang that so many have waited on.
The Greeks, as part of their tradition, like to take plates and smash them on the floor. The famous Greek movie, “Chitty-Chitty Bang-Bang” was written about this of course. The sequel, “Lie-Lie Explode-Explode” is expected out any day. Athens predicts a rousing success but critics who have previewed the spectacle expect a Bomb.
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Germany run Mother Fucker, Run....
In the end the golden rule applies: "S/he who has the gold, makes the rules."
Like many of you out there, I am truly appreciative of all Tyler does here!
When goods and services stop crossing borders, troops will. Nothing changes until then. Same as it ever was.
Nothing better when ZH queus up and publishes the first articles of the day in pre-market. Love this place.
Here here!
I was going to remark as well how much I love this place. Thank you Tyler(s) for your endless efforts.
Thanks,
A
FYI: Mark J. GrantBorn: 11/10/50
Resides: Fort Lauderdale, Florida or on his boat, "Wishes Granted"
Mr. Grant is a graduate of Occidental College and has been on Wall Street for thirty-seven years in various senior management positions. He has run Capital Markets for four Investment Banks and been on the Board of Directors of four Investment Banks. Mr. Grant was also the President of a public company in the telecommunications field and on its Board of Directors for several years while he continued his work on Wall Street. He currently works at a publically traded Investment Bank and is a Managing Director of the firm. He runs the Corporate Syndicate Department and also the Structured Finance Department. Mr. Grant also writes a commentary on the financial markets, "Out of the Box," that is only distributed to large institutions in money management and is published each day by MTN-I, a very respected operation geared towards structured finance out of London. Mr. Grant is the only market commentator for MTN-I. Mr. Grant is also quoted often in a number of prominent business publications and he can be found, with some regularity, on various TV and radio shows concerning the financial markets. The total distribution of Mr. Grant's commentary is approximately 5,500 financial institutions in forty-eight countries. Mr. Grant runs a team whose associations include a number of Sovereign Wealth Funds, Central Banks, Mutual Funds, Bank Trust Departments, major Insurance Companies and other money managers of various sizes.
http://www.amazon.com/Mark-J.-Grant/e/B001JXFKPM
It's not Germany who calls the shots, it's a pawn like all other countries
The banks are the rulers. Just wondering what happened to them if they had to write off those four trillions in bad debt. Or at least mark part of it to market.
Donuts anyone?
agreed, and whoever holds most of the gold
Germany has also had a hardon for ruling Europe for the last 100 years
... as apposed to the tribe that has been ruling banking for the last 2000 years.
Greece is not the big bang. it's the warm up act.
When Germany finallly says "I'm outta here", you'll know the fat lady has taken the stage.
there are "two Europe's" it should be noted. "The other one respects national boundaries." The fact that the one that "knows no bounds"...let alone boundaries...is collapsing should come as no surprise.
"that Germany will say “Nein” to continued funding and then the next phase of the crisis will begin..."
The German taxpayers, along with a few other hard-working servants, are condemned to pay for all, here a dozen billions, there a dozen billions. As long as the German export machinery profits, the common toilers can be shafted a bit longer, a bit deeper. After all they seemed to have enjoyed their treatment so far.
Correct. My only questionis this; If the world needs to follow the german model and all become producers, who will we all be selling to? Mars? Moreover, how much oil does Germany have?
Good one, fully agree. If everybody exports, who will import? War is the only solution then.
However the German model is not just racking up giant export surpluses, but letting the (own) populace pay for them. This works only with a re-educated mass of busy sheeple which don't want to understand that they are being fleeced over and over again.
Germany has no own oil; the energy reserves are found around the waist of her politicians.
Are German taxpayers familiar with Thatcher's comments regarding other peoples' monies?
Are the German taxpayers beginning to realize that they are now the other people to whom Thatcher referred?
Guess Thatcher ain't that popular in Germany. Having sold out the national assets to her cronies for pennies on the pound, that creature can't serve as a beacon of wisdom to a healthy mind.
That said, the German taxpayers are led to believe their money is landing in lush Club Med ressorts, while it just takes a short turn right at the border to find its way into the accounts of some international banks.
Truth is scarce these days.
But Herman Von Rumpoy says it's better if we all jump together
Or, as Obama might say, FORWARD! So what if we're standing at the edge of the precipice?
lets see here,germany does all the work so others can rake in the benifits, sounds like obama is in charge!
Obama's just one in a string. The last guy wasn't any different, the next guy won't be either.
I wish I could remember who said it here on ZH, but you need to understand that it's not democrat versus republican, it's liberty versus the state. Go ahead and take off your jersey.
Correct, one party for the banks and financial houses, by the banks and financial houses. I'll vote for Ron Paul and sleep well. All paper is burning, get physical, get to know your neighbors and hedge accordingly. History shows us how this all turns out.
Is this the same Germany with socialized medicine, taxes at 50% for essentially anyone employed, and a great education system that you can use for 25 years of your life without going in debt. Comparing Obama and Bush's America to Germany is beyond stupid. Please, pull your head out of your ass, people are noticing.
Hollande: "Frau Merkel, does that mean that we are all fucked?"
“Chitty-Chitty Bang-Bang” by Ian Fleming?
"Please allow me to elucidate this situation for you. The two consulting firms that performed the Spanish bank stress tests did nothing, not one thing, but take the information provided by the Central Bank of Spain. There was no bank examination, there was no outside assumptions made about the Spanish Real Estate markets, there was no examination of how loans or mortgages or securitizations were carried on the books of any Spanish bank."
Another stupid Yank talking about things he knows nothing about it. Did you even bother to check what kind of criterias they used for these stress tests?! No, of course not. That would have been too much trouble and against this "Spain is Greece" bullshit snakeoil fire sales speech by Yanks and Brits.
First, they used for unsold land very strict 80 percent depreciation criteria. So if a bank owns land worth of 100 000 euros as collateral, it was valued at 20 000. The criterias were very tough for all real estate loans and that 60 billion euro losses are probably very close to worst case scenario.
Do your homework, Yanks, before opening your stupid mouths.
Friday humor comes early this week. Good point: Yanks need to check how the Uganda stress tests fared first before they open their mouths. Perhaps Bankia failed that one....
Even if the Spanish banks take losses whopping 100 000 euro per all those unsold condos and villas of one million, it would be still only 100 billion euros. Even in Ireland or USA, the price drop in real estate has been about 50 percent, so I doubt Spanish banks will take such hits, especially when we are talking about construction loans.
Getting a loan in Spain has been and is much more difficult than it was in the US during last decade. They actually demand collateral and own savings.
Spain: "Most banks offer mortgages of up to 80 per cent, although non-residents can usually borrow a maximum of 60 per cent only. To obtain a mortgage from a Spanish bank, you must usually provide proof of your monthly income and major outgoings (e.g. loans or commitments). There are no self-assessment mortgages such as in the UK and mortgages without proof of income (although advertised in the expatriate press) are difficult to find and virtually non-existent. If you want a Spanish mortgage to buy a property for commercial purposes, you must provide a detailed business plan in Spanish. Note that a mortgage can be assumed by the new owner (called subrogación) when a property is sold, which is a common practice in Spain."
Mortgages are granted on a percentage of the valuation, which itself is usually below the market value. The maximum mortgage in Spain is usually 80 per cent of the purchase price for a principal home ( vivienda habitual) and 50 to 60 per cent for a second home (segunda residencía). The normal term is 10 to 15 years, although mortgages can be repaid over 10 to 50 years.
Yes, but the housing crisis in Spain was caused by developers... how much could they borrow to build a housing complex? The problem was that too many developers built too many houses with not enough elegible customers to purchase. The banks backed these building schemes to pad their assets so that they could provide new loans... etc..
Again, you are seeing a false dichotemy of European vs "Yank". This is about banker theives vs the rest of us...
Then it is max of 80 percent of construction costs which were considerably less than the market prices. They built condos for 100 000 and sell it for 200 000. Bank risk is 80 000 for the construction loan but I doubt it was that high in most cases.
Bullshit new mark7 or should we call you Pedro? When Spain finally implodes, they will find dogs and cats and dead people on the deeds of some real estate in Spain, at least in the US they gave you a loan if you had a pulse and could sign your own name!
It has already imploded and there should be by now big zombie banks all around if Spaniards were as careless as Irish or American banks with loans...
Mark7, please educate yourself by reading page 6 of the Roland Berger report to see what the 'stress test' was all about. In short: the test was a complete and utter joke.
So if a foreigner bought a Spanish condo for 200 000 euros back in 2005 he or she must have come up almost half of that before going to any Spanish bank for a loan. So the risk for a bank is considerably smaller than with 125 LTV bullshit loans in the US!
Mark, partly you may be right. Just, the US banks flipped the loans originated and bundled them into toxic waste which got immeditaley exported to the crap-loving Euro banks, plus into cash-rich Asia.
So the US banks had nearly no skins in the game, while the Spanish banks may hold more real estate than most big developers ever did. In a market where prices keep crashing, in an economy where unemployment rises by about a percentage point a month, in a market where confidence is rarer than a fist-sized nugget of gold.
You forgot most condos were bought by retirees with fixed income. So if they came up with half the sum in Spain, unlike in Florida with crazy flip-flopping, the chances are they are quite capable of paying the rest, regardless of market price. So there a lot of money coming in every month to Spanish banks.
Agree about the retirees, just not sure whether it's "most of the condos..." or "many condos..." I happened to be in Spain some four years ago, and what I saw along the Mediterranean coast shocked me. Can't imagine so many retirees can exist on the entire planet as they built condos for.
As the Spanish condo speculation was such a sure thing, guess there were quite a few clever minds who got an extra one to flip it after some years to shore up the own asset base. Seems not all went according to plan there, though.
I'm presuming that the Spanish mortgage securisation model was taken from the
US and transplanted there.
If so,those stress tests aren't worth the phoney paper they are written on.
Unsecured junk.
Actually, no. The originator does not wipe his hand off the original loans:
"An investor in a “standard” MBS holds a dircet claim on the issuer of the security, and not on the mortgagee, even if he buys securities directly from the originator of the mortgages. However in the Spanish case at least one link in the investor chain has a stake in the original loans. This is because, in order to securitize mortgages, Spanish banks first issue participations, which are shares in each of the mortgages included in a pool. A holder of participations receives a percentage of the interest and principal of the mortgages from the originator, who in turn receives the payments from the mortgagees who obtained the mortgage loans. The participation holder has thus a claim on both the originator and the mortgagee. More importantly, the originator retains a certain fraction — 100 minus the percentage of the aggregate participation — of each and every mortgage created, turning both originator and participation holder into co-creditors. In a second step, the holders of the participations may form pools and then issue securities that represent stakes in those pools of participations.
Such a structure constitutes a form of risk-sharing between originators and participation holders, and this risk-sharing is normally thought to be conducive to higher lending standards (especially when contrasted with off balance sheet SIVs). Originators do not simply get themselves off the hook when they sell the participations, because they keep a share of each mortgage. This may well make them more careful when assessing the creditworthiness of mortgage applicants, and may reduce the chance of overly loose credit standards. And participation holders have a stronger incentive to keep an eye on individual mortgagees than if their sole claim was on the originating institution.
The second source of mortgage funding for originators is the so-called covered bond (in the Spanish variant of the cedula hipotecaria). These bonds are debt instrument issued by a credit institution and secured by a pool of mortgage loans or public debt or even MBS themselves. Such bonds pay coupons and principal, just like any other bond. The investor has a claim on the issuer of the bond and, if the latter defaults, on the pool of loans (not on individual loans). In most European countries, where covered bonds are popular, a set of cover assets is set aside for each bond issue. In Spain, however, all mortgages of the issuer constitute collateral for the bond.
One important reason why many observers felt the institutions which form the core of the Spanish financial system were unlikely to suffer the fate of their US counterparts was the virtual absence of Special Investment Vehicles (SIV) and conduits in Spain. Such entities make it possible for banks to move mortgage-backed securities off their balance sheets, thus obscuring the exposure of individual institutions and escaping the normal capital requirements. But this did not happen in Spain..."
http://spaineconomy.blogspot.com/2008/07/spanish-mortgage-backed-securit...
Thanks for that answer, but it begs a further question.
What about bankruptcy remoteness of the mortgagee from that originator ?
It's strange how we drift in and out of seeing situations through sovereign lenses, e.g. "the Germans" and what they want or need, "the Greeks" likewise, so on and so forth.
While the various international gangsters fronting for the bankster cabal find it deeply moving to shape their arguments in these terms, it is clear that they have no genuine investment in "their country" or any country for that matter beyond the cash they can extract. When they slip into such language it's merely to hustle and manipulate popular sentiment and arouse "their" nations' populations to pointing the finger at others ostensibly to blame for the banksters' problems, which, of course, are always dressed as "our" problems.
We really ought to pay greater attention to this inspired manipulation via conveniently "collectivist" exhortations to protect bankers. There is no "we" in banking . . . until bankers start feeling pangs of fear. Then it's all about "we."
Until bonus season, of course.
Most of us recognize the truth of this . . . yet we return to the suspension of disbelief that the banksters depend upon the next time they ring that bell of nationalism.
Getting a Ger-man crush on Merkel. Merkel to Lagarde--eat the Nutella from my corn hole.
+1 for new terminology
I"m begging you. Let it end.
They got to push it beyond the next election.
Seriously, why dont they change the rules, let the ECB buy all that toxic paper and stash it in cellar no. 13 forever? Then everybody vows to behave better in the future. Whats the point of letting pisspoor taxpayers pay for the banks market bets gone wrong?
Of course they fell into the bankers trap by believing that all banks are system relevant. Many institutions should have gone to hell a long time ago. Every depositer could have been made good up to a million or all his positive balance and no moral hazard would have occured. Now reverse engineer everything from 2008-on to this effect.
'Whats the point of letting pisspoor taxpayers pay for the banks market bets gone wrong?'
The point is that there is a group of people in the world who have been working towards the domination and enslavement of the remaining vast majority for centuries. And, this is the point of the banks market bets going wrong (they were supposed to). It's all going to plan.
Thank You. Your numbers help to put things into perspective.
I take some issue with the following excerpt:
"It seems, some days, that the markets are waiting for a “Lehman Moment.” The arrival of some Black Swan to commemorate the fact that the financial system has fallen off the cliff or perhaps they are waiting for the ECB, which already has a balance sheet of $4 trillion, to raise it to $15 trillion to save the arrogant of the world and rescue the debtors from the prison that they have built for themselves. The fact that the ECB can print money will not save it from investors who are fleeing their charge. These would be “real money” institutions and not the hedge funds and various speculators intoned as the evil denizens of the Devil himself. There is no firewall that is high enough or barricade that is strong enough to stop people from fleeing when it is obvious that those corralled in the castle have the Plague."
What is a "real money" institution and where are they "fleeing" too? In addition to those questions, this paragraph implies that the ECB would be left intact along with German banks, ect., should they choose not to print. From what I understand of how these banks and institutions are positioned, none of them would survive the unwind. No banks or countries are in a position to survive a cascading cross default of securities and derivatives that are many multiples of any underlying reserves.
The resultant bank holiday would freeze everyone in whatever financial positions they had on as the crash started. The question is how is the crisis resolved that allows at a minimum for each countries gov't to function? If they don't restart with that result at a minimum, then we are talking widespread civil unrest/revolution. If that happens then what really maintains value other than physical goods? Cash would probably increase in value in the short term but there isn't enough in circulation to allow folks to conduct the basic purchases necessary for survival. That means back to a barter society, which isn't going to work in any modern society and means widespread starvation/looting.
My point is these investors who are "fleeing the charge" of the ECB aren't going to end up much better off if their big plan is to move it to another country but leave it in cash equivalents in a bank.
Also, the failure to print indicates a rapid devolution of society after the crash to the point all gov'ts would lose their mandate to govern as well as their tax revenue. Are the various gov't entities in charge doing the math on this outcome?
I know that as soon as the crash hits I'm personally done paying any taxes until it is resolved to the point of a functioning society. The sudden stop of the economy, which is implied by this idea that they won't print, will strip all gov'ts of their ability to govern, IMO. Which means that this idea that printing serves only to "save the arrogant of the world and resue debtors from the prison they have built for themselves" is a bit of an understatement.
Are the German people making this decision? The oligarchs would be happy to make debt slaves of the Germans as they have the Irish and Greeks.
Kudos for the title, Tylers. Clever.
What more can be said. Can meets wall.
I feel a wall street tingaling.
a rothschild rhythm a rockafella writhing, a soros beating a benanke humpy rumba...
Gotta dance!
Gotta sing!
I feel like dancin' down the street
Gotta dance!
Gotta dance!
http://www.youtube.com/watch?v=KEF63hPDukA