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The Scramble For US Safety, As Europe Imploded, Offset The $357 Billion Plunge In Q3 Shadow Banking

Tyler Durden's picture


In continuing our exclusive analysis of the periodic variations in the by now all important shadow banking system, we next look at the change in third quarter (3 Months ended 9/30) shadow liabilities as disclosed by the just released Flow of Funds (Z.1) report by the Fed. As by now should have been made all too clear, if there is one threat above all to the monetary regime, primarily of the US but by extension, global, it is the ongoing collapse in shadow banking, which is simply an unregulated pass-thru funding conduit for all the non-traditional banks and bank holding company firms which perform one or all of the three banking functions: maturity, credit and liquidity transformations. As such these are critical because having peaked at $21 trillion, the shadow banking system was always substantially larger than the traditional banking system since Q4 of 1990 when it finally overtook in terms of total notional, and provided far more broad "credit-money" liquidity to the global financial system than regulated (and we emphasize this word with bold and underline) entities. And since the burst of the credit bubble, the liquidity is now evaporating on a quarterly basis. So cutting to the chase, in Q3, US shadow banking declined by $357 billion to $15.2 trillion in liabilities, a decline of $654 billion in 2011 YTD, and a drop of $5.7 trillion from the $20.9 trillion peak in March of 2008. Such an uncontrolled ongoing collapse, primarily brought by the disappearance of dumb incremental (marginal) money originating in Germany (Landesbanks) and Spain (Cajas), as well as various Asian sources of dumb money, is beyond a shadow of a doubt the biggest deleveraging threat to the global monetary system bar none. And here is where the central banks step in.

As it turns out, and as was discussed previously, Q1 ended up being the first quarter which saw a sizable increase in consolidated shadow and traditional liabilities, primarily due to the impact of QE2 which culminated in Q1 of 2011. Afterwards, we saw a quarter in which there was no net consolidated change, courtesy of a rebound in traditional banking and now we analyze Q3, in which the abovementioned plunge in shadow liabilities was once again more than offset by a $388.5 billion jump in traditional liabilities. Yet what caused this spike in offsetting liquidity? Why none other than the Fed, via its latest preferred conduit: foreign banks, a topic discussed extensively first by Zero Hedge back in June. Because of the $624 billion increase in traditional liabilities in Q2 and Q3, the bulk, or $415 billion is courtesy of "Foreign Banking Offices in U.S." aka table L.111 in the Z.1. Said otherwise, in the most ingenious scheme to date, the Fed managed to pump reserves into foreign banks (or rather their US-based offices), and hence back into the US system, as these intermediaries promptly turned around and used said reserves as source of precious liquidity even as the rest of the shadow world was collapsing around them, courtesy of lack of demand for unregulated paper out of Europe. Ironically, it turns out that a collapsing European continent does as good a job, if not better at offsetting shadow leverage as quantitative easing.

Unfortunately, for the Fed, reserve reallocation is only a stop gap measure, which in the absence of incremental liquidity will merely shuffle the chairs on the deck of the Titanic, while at the same time non-shadow European banking is caught in the "Death Spiral" discussed previously. Needless to say, should Europe collapse, the bulk if not all of shadow banking will go up in smoke with it due to the unregulated yet explicit daisy-chaining of Euro-facing transactions, and thus transatlantic counterparty risk.

At that point not even the Fed will be able to offset the momentous collapse in nearly $15 trillion in gross shadow liabilities, or $7.5 trillion excluding GSE liabilities currently held with an implicit guarantee of the US itself. Because should the Fed have to ramp up its balance sheet from the current $2.7 trillion to $$10 trillion overnight, the resulting hyperinflation will be the least of everyone's worries. Yet that is precisely what the Fed has to do each and every time there is a collapse in shadow liabilities! Forget anything else you may hear about the justification for "printing money" and remember this: the Fed's one and only directive is to offset the massively deflationary and increasingly more rapid deleveraging of shadow liabilities, which incidentally consist of money markets, GSEs, Agency Mortgage Pools, ABS Issuers, Funding Corporations, Repos and Open Market Paper: these are the various components that can be tracked via the Z.1, and which cause sleepless nights for the 10 voting members of the FOMC committee.

One key component that can not be tracked, primarily since it is domiciled in the UK due to an enabling regulatory regime, are the liabilities generated by hypo/rehypo and hyper-hypothecation, courtesy of lax UK supervision standards allowing up to infinite rehypothecation of the same asset in what could become the daisy-chain from hell of linked serial counterparty exposure. According to IMF estimates, this vehicle, which does not exist anywhere in the Z.1, accounts for an additional $4-6 trillion in shadow liabilities. Yet it is the marginal rate of change that interests us, and as such it relies almost primarily on the $9 trillion in levered hedge fund assets which subsequently are (re)hypothecated by Prime Brokers.  In other words, should the hedge fund industry be decimated in 2011, as it likley will be, and if the $3 trillion or so in HF AUM collapses by a third, there goes another $3 trillion in hypo-associated shadow liabilities... with who knows how much real assets pledged as collateral. But that is a tangent to this story, which is that regardless of what is happening in the hypothecation vertical, a fascinating story in its own right, the "traditional" shadow liabilities (pardon the pun) continue to collapse and collapse. And unfortunately, in Q4 domestic offices of foreign banks will not help the US as any minute now, these same banks will be forced to commence an epic wave of deleveraging to the tune of up to €2.5 trillion... Which means that once again without halting the shadow banking collapse, it is QE (and we mean hardcore LSAP monetization - none of this sterilized amateur stuff) or bust.

So for our visual readers, here is what all of the above means graphically.

First, total Shadow liabilities on a quarterly basis, ex-rehypothecated. Note the peak and subsequent slide.

Next, we present a breakdown by key shadow components.

The sequential change shows that the attempt to arrest the decline failed in Q1 of 2011 and has since picked up speed once again.

Yet "shadow" is only half the battle. Don't forget the traditional stuff (aka U.S.-Chartered Commercial Banks, Foreign Banking Offices in U.S. and Bank Holding Companies). This area is the primary beneficiary of Fed QE largesse, typically via reserve accumulation. As can be seen while shadow liabilities collapse, it is the forced deployment of reserves into US and foreign banks that has done miracles to offset a consolidated crunch via the traditional banking pathway.

And the kicker: even without QE, the Fed has managed to sequester liquidity in the US via foreign banks (which accounted for $291 billion of the $389 billion in total traditional liability expansion) courtesy of the sovereign and financial crisis in the Europe which has peaked in 2011.

So will the Fed, and global central banks, be able to continue to offset the evaporation in shadow liquidity: certainly not, at least not without another massive large scale asset purchasing episode. Which, once Europe-based deleveraging picks up, is guaranteed. After all, there is nothing easier for the Fed than to push a button, and to add a zero to every banknote in circulation, or every checking account in the continental (and offshore) US.

But that, like every other thing, will take the market some time before it is fully processed.


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Tue, 12/13/2011 - 01:52 | 1972905 macholatte
macholatte's picture

Imploded? Really? Maybe not quite yet.

Tue, 12/13/2011 - 02:07 | 1972929 macholatte
macholatte's picture

Why is the Fed so anxious to throw the American tax payer under the bus in order to save the Euro? Is that some kind of obligation that has been delegated to the reserve currency? Seriously. Because I cannot see the Europeans lifting a finger to save the USA (or China) in the event the shoe was on the other foot.

Tue, 12/13/2011 - 02:10 | 1972934 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

thus why the shoe is not on the other foot

Tue, 12/13/2011 - 08:07 | 1973190 max2205
max2205's picture

As long as they don't cross beams Ben should be ok.....NEVER cross beams.

Tue, 12/13/2011 - 08:56 | 1973286 Chief KnocAHoma
Chief KnocAHoma's picture

You mean "cross streams".

"Never cross the streams... it woulb be very bad!"

"Could you explain that a little more. I'm kinda fuzzy on the whole good bad thing."

Tue, 12/13/2011 - 02:18 | 1972941 LeBalance
LeBalance's picture

someone is seriously in illusion land.

"Why is the Fed so anxious to throw the American tax payer under the bus in order to save the Euro?"

you are kidding right?"

"Because I cannot see the Europeans lifting a finger to save the USA (or China) in the event the shoe was on the other foot."

There are no Europeans involved here, no Americans either.  The folks that are involved here have left the Foolish divide and conquer nationalistic masturbation "mine bigger than yours" horseshit at the door.  Its just 3 guys in a room in Geneva.  Or NY. Or wherever.

The so-called Europeans are j6p just like the so-called Americans.  And neither of those groups is doing and Lifting in these matters.

Lifting as in Theft.

Seriously you must be waving the flag chanting USA USA USA and watching miracle on ice on a loop tape.

Tue, 12/13/2011 - 02:38 | 1972969 anonnn
anonnn's picture

There are modern peer-to-peer barter systems that could be established so all productive efforts would participate in the benefits...  without any need for biased "money" forms. Switzerland's WIR  is one form.

WIR=Wirtschaftungsring--search it for details. It's a realtime working example.

Tue, 12/13/2011 - 06:05 | 1973083 RichyRoo
RichyRoo's picture

Barter is to currency as windmills are to coal power plants.

Just because the elite want to take the world backwards into 'simpler times' (i.e neo feudalism) doesnt mean its a good idea.

Tue, 12/13/2011 - 08:08 | 1973191 guiriduro
guiriduro's picture

What?  Cleaner and sustainable?  Doesn't sound so bad to me.

Tue, 12/13/2011 - 09:50 | 1973422 New_Meat
New_Meat's picture

" Doesn't sound so bad to me."

But you have to have your computer turned off ~60% of the time.  A random 60% as well.

- Ned

Tue, 12/13/2011 - 17:44 | 1975963 Mauibrad
Mauibrad's picture

These guys pretty much got it

Tue, 12/13/2011 - 07:45 | 1973163 Snidley Whipsnae
Snidley Whipsnae's picture

"There are modern peer-to-peer barter systems that could be established so all productive efforts would participate in the benefits... "


Even more modern is the proposal to use the Higgs - Bosun as money. Of course, we are not certain that this particle exists but ongoing efforts at CERN might find the particle in future. It would be impossible to inflate Higgs - Bosun money, for it only exists for nanoseconds. The concern among some at BIS is that Higgs - Bosun currency might be deflationary, difficult to lever, and difficult to hypothecate. Some members of the BIS point out that Higgs - Bosun money would be no more difficult to use than fiats now in use, for they are all simply computer key strokes... these same members claim that we can go ahead and begin using the Higgs - Bosun and it doesn't matter a whit if we find the particle or not since no one can prove it doesn't exist.

Another slight problem... France would be in control of the newly discovered money and the last Frenchman (Corsican) to establish a sound money, free of fiat, was Napolean... His currency worked well for France, but it aparently made him unpopular with other European/British soverigns, who favored proto-Keynes money.

More details here at The Spoof...

Tue, 12/13/2011 - 08:57 | 1973289 Sziget
Sziget's picture

Silvio Gesell's freigeld is what the world needs right now.

Keynes said "I believe that the future will learn more from Gesell’s than from Marx’s spirit."

Keynes and Marx got their time, Gesell would deserve some too.

Tue, 12/13/2011 - 03:09 | 1972992 macholatte
macholatte's picture

Put your blather on the coffee table for a few minutes and grasp a different perspective just for fun. We (U and Me) R not at odds regarding your comment because I, myself, do see that it is possible that the dealer in this game is looking at the cards before the spread and Jokers are abundant. Nevertheless, there is the delusion that exists which might require some kind of either moral or legal justification for the actions of the Fed. And that is the crux of my question. In the shadow of all the talk about replacing the USD as the reserve with either China or the EU, there remains the void as to what the responsibilities, if any, of the reserve currency are. So, if China became the reserve, would it be obliged to bail out the European banks while the USA was merely an observer, or not?


Tue, 12/13/2011 - 03:55 | 1973021 Western
Western's picture

It has something to do with the Zionists not wanting an amalgamated currency to collapse, the Euro. It would look bad to any future endeavour that would want to fuse countries into fiscal and economic integration. If the Euro does collapse, then when the Amero (future Canada-USA-Mexico currency) comes along anyone can just point to the failed Euro as reason to not partake.

That's what some people think, I don't see many other reasons other than this is the theft of wealth of every fucking person on the planet.

Tue, 12/13/2011 - 04:05 | 1973024 Michael
Michael's picture

Our federal government turned our republic into a crony capitolist fascist state.

Happy Now?

Tue, 12/13/2011 - 07:55 | 1973176 Snidley Whipsnae
Snidley Whipsnae's picture

"If the Euro does collapse, then when the Amero (future Canada-USA-Mexico currency) comes along anyone can just point to the failed Euro as reason to not partake."


The Amero??? Uh Oh... Does this mean the US and Canada will be dependent on those lazy Mexicans for continuing US Gov transfer programs like SS, Medicare, etc? Or, are the social programs in the US and Canada going to be implemented in Mexico?

Inquiring minds want to know...


Tue, 12/13/2011 - 04:23 | 1973033 zhandax
zhandax's picture

I think you can draw a similar comparison when J.P. Morgan (the live version) bailed out the banking system in 1907.  It was for no love of the American taxpayer, or for that matter for any altruistic sentiments whatsoever.  It was simply bad for business to allow a nationwide bank run to develop because JPM's interests could get sucked into the downdraft.  Let a fire get too hot, and your fur can get singed.  Motivated self interest never gets put on the back burner in this crowd.  The chair of the reserve currency (whose position was created to take J.P.'s place in the inevitable next crisis) is simply making those efforts required to remain the reserve currency because of the benefits thus inured.  They are sure to make painfully obvious the suffering their 'subjects' have to endure to convince China they do not want the role.  Like they have 'subjects' other than in their minds or that they give a fuck if they did.

Tue, 12/13/2011 - 04:34 | 1973036 Michael
Michael's picture

Ron Paul said he'd accept $39,000 for his pay, the median American income. I think he should take the difference, like $360,000 and have a gold statue for the Whitehouse commissioned.

It would be like 100 ounces of gold, and it could be a plaque of the Bill of Rights or something like that, and put it in The Green Room as a gift to the house.

Tue, 12/13/2011 - 04:57 | 1973044 Michael
Tue, 12/13/2011 - 05:04 | 1973046 zhandax
zhandax's picture

Short memory?  You expected something else?

Tue, 12/13/2011 - 05:20 | 1973055 Michael
Michael's picture

Featuring Homey Clause, in keeping with the festive season, enjoy.

Homey D. Clown Don't Play That Police State Shit Thus Revolution

Tue, 12/13/2011 - 05:11 | 1973050 zhandax
zhandax's picture

I think he should take the difference, like $360,000 and have a gold statue for the Whitehouse commissioned.

I would far prefer that he simply insure that the gold we think we have, is actually there.  Put 100oz gold anything in the white house and you just insure Hillary, or her next counterpart, takes that home as a souvenir instead of the dinnerware silver.

Tue, 12/13/2011 - 05:38 | 1973069 Michael
Michael's picture

Too funny.

Tue, 12/13/2011 - 06:26 | 1973103 Michael
Michael's picture

It's money bomb Friday for Dr Ron Paul this coming Friday. I hope ZH makes an honorable mention of this event. And I say event because the last time we raised a record $6 million for Dr Paul. Maybe this time we can raise $25 million.

The day of the original event in 2007 was the birth date of the modern day Tea Party movement.

It's nice to know what your original roots were.

 This whole thing was pulled off by armatures, and I'm glad I was a part of that group of amateurs participating. 

Tue, 12/13/2011 - 07:38 | 1973157 grey7beard
grey7beard's picture

>> the original event in 2007 was the birth date of the modern day Tea Party movement.

I hope he does well and I'll make a point of donating.  I would hope he'd firewall his candidacy from the Tea Party movement.

Tue, 12/13/2011 - 07:56 | 1973177 Bobbyrib
Bobbyrib's picture

I agree, the Tea Party has become the Repbulican Party. Herman Cain was once their leading candidate..

Tue, 12/13/2011 - 06:38 | 1973109 falak pema
falak pema's picture

Hey, your expose is based on one historical fallacy : 1971; "Our money your problem. Exorbitant privilege for us and monetary debasement for you every time our reserve currency moves". SO, since those days the US has NOT been protecting the value of other people's money; they have been the main architects of fiat devaluation, that got ratcheted up BIG TIME when Reaganomics were invented to transfer the inflation mecanism to risk assets, not people's salaries. Thatcher and Volcker made sure THEY were decoupled from inflation in 1979.

So its this FAILED system that is now causing all the trouble. Don't quibble about the RESPONSIBILITIES about the new money for the world. As the OLD money, the good aulde USD + Petrodollar fractional reserve production, notably in CITY via offshore PDs since the 70s, was NOT a responsible way to run the financial world. The shadow banking pile up  today and the Eurozone debt hole are eloquent demonstrations of "fat cat" first world living on borrowed money. They, the new inventors of eventual reserve currency, can't do any worse in IMO. Its only the first step, the second will be to wipe out debt and reset to a world of responsible living; Dream on! 

Tue, 12/13/2011 - 19:54 | 1976540 StychoKiller
StychoKiller's picture

"The Gamesters of Triskelion", enthusiastically wagering "quatloos" on which Thrall will defeat the other...

Tue, 12/13/2011 - 02:25 | 1972948 Milestones
Milestones's picture

Without a "homoonized" Europe, the world empire is not possible. The dream has come apart and we are going to be left with the rubble.

This next year is going to be a real rip snorter.         Milestones

Tue, 12/13/2011 - 02:27 | 1972955 topcallingtroll
topcallingtroll's picture

Thus why the world grumbles about usa hegemony but voluntarily gave us the duty.

Everyone knows only the usa would try to rescue the world. Everyone else is too tribal.

Tue, 12/13/2011 - 08:54 | 1973281 ndotken
ndotken's picture

The Americans wanted to be the world's reserve currency ... and with those responsibillities come the obligations of saving the world's financial system from collapse (no matter how futile the efforts will be).  

Tue, 12/13/2011 - 01:54 | 1972907 Moon Pie
Moon Pie's picture

Just another day in the life of the fraudster, fookers, no allegiance banksters assault on anything and everything just and right. 

Work+sweat+sales=good.  Fraud+bribery+sales=shite.  Simple. 

What a farce.  Aesop or Plato could not concoct what is unfolding before us.


Tue, 12/13/2011 - 01:57 | 1972912 Moon Pie
Moon Pie's picture

Altho Solomon might have something to say....

Tue, 12/13/2011 - 01:58 | 1972913 Legolas
Legolas's picture

Thanks Tyler.  I haven't been the same since the rehypothecation article. 

I'm taking all the Christmas presents back to the store now and exchanging them for beans and rice (the new gold).

Knowledge is power.

Tue, 12/13/2011 - 02:08 | 1972933 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

if you want to go all the way buy seeds

Tue, 12/13/2011 - 02:38 | 1972967 RafterManFMJ
RafterManFMJ's picture



Non hybrid, btw. Heirloom, we calls them, my precious.

Tue, 12/13/2011 - 02:40 | 1972973 topcallingtroll
topcallingtroll's picture


Dont make fun of the recently paranoid. They are still fragile you know. Their previous world view crumbling around them.

By the way do not buy vacuum packed seeds such as emergency essentials. Seeds need air to survive. Store sealed in a cool dry place, but do not allow dessication either. Need to maintain a stable moisture vontent.

However a year supply of food is more practical. And dont forget the coffee. Man does not live by hard red wheat alone, but by every cup flowing from his automatic drip.

Hard core survival tip. Ilex vomitoria is the only temperate climate source of caffeine that will grow in america. If someone knows another i would appreciate it. Southerners poured hot water over loose roasted leaves during the civil war.

Tue, 12/13/2011 - 02:43 | 1972976 topcallingtroll
topcallingtroll's picture

You know a hard core survivalist because of the yaupon holly (I vomitoria) is his main landscaping plant along with daylillies. Both are sources of food and drink most people wont notice.

Tue, 12/13/2011 - 05:31 | 1973063 Chain Gun Smoke
Chain Gun Smoke's picture

If you are planting flowers for SHTF you are already fucking dead. I bet you are also stocking up on tampons preparing to trade them in the barter town of 2012.

Tue, 12/13/2011 - 03:11 | 1972994 Capt Tripps
Capt Tripps's picture

Caffeine is what got us in this mess in the first place.

Tue, 12/13/2011 - 03:31 | 1973007 topcallingtroll
topcallingtroll's picture

I think it was prozac.

People became too exuberant and lost their sex drive. All their time, new found energy, and optimism went into excessive credit expansion these last twenty five years.

Tue, 12/13/2011 - 09:23 | 1973345 El Viejo
El Viejo's picture

Agreed, we should embargo the entire Middle East and only let em have decaf. We would have world peace inside of a month.

Tue, 12/13/2011 - 04:22 | 1973032 Cyrano de Bivouac
Cyrano de Bivouac's picture

Not true. In a hermetically sealed container, such as a Kilner Jar, seeds will last forever.

Tue, 12/13/2011 - 04:39 | 1973038 EverythingEviL
EverythingEviL's picture

Whoa guy! A year supply of food? What are you? A fucking terrorist???? Aaaaagh!

Tue, 12/13/2011 - 05:01 | 1973039 New World Chaos
New World Chaos's picture

In the desert you can find Mormon tea, which contains small amounts of ephedrine- good for a boost, plus it stops you from giving away your position by sneezing.  I can vouch for the plant working as well as coffee if you chew a big wad of it.

Tue, 12/13/2011 - 07:57 | 1973180 TuesdayBen
TuesdayBen's picture

Don't forget the coffee? Um. Er. I guess you must be shorting SBUX?

Tue, 12/13/2011 - 11:26 | 1973971 bonderøven-farm ass
bonderøven-farm ass's picture

I suggest you store your seeds unsealed, in glass jars with sand covering them in an unheated outbuilding that will allow the seeds to stratify before next years planting.  NEVER store your seeds 'sealed'......

Tue, 12/13/2011 - 02:24 | 1972945 Teamtc321
Teamtc321's picture

"Forget anything else you may hear about the justification for "printing money" and remember this: the Fed's one and only directive is to offset the massively deflationary and increasingly more rapid deleveraging of shadow liabilities, which incidentally consist of money markets, GSEs, Agency Mortgage Pools, ABS Issuers, Funding Corporations, Repos and Open Market Paper: these are the various components that can be tracked via the Z.1, and which cause sleepless nights for the 10 voting members of the FOMC committee."


Z.1? Please share a link or explain, curious mind's would like to follow as well. 

Tue, 12/13/2011 - 03:11 | 1972993 Jones79
Jones79's picture

z.1 is hyperlinked to a fed pdf in the second paragraph.  it's a fed analysis of data.

Tue, 12/13/2011 - 09:20 | 1973341 El Viejo
El Viejo's picture

Hey, I'm way ahead of you. I got some really nice hydroponic huskless better than basmati rice and my own hybrid artisian fartless beans. They come with some really nice tulip bulbs too!

Tue, 12/13/2011 - 02:01 | 1972918 Mauibrad
Mauibrad's picture

Looks to me like it was worse in 2010 rather than 2011?  Maybe Europe is imploding, but explain again how that translates to the U.S.?

Tue, 12/13/2011 - 02:37 | 1972944 AldoHux_IV
AldoHux_IV's picture

In a politically hostile environment or where more citizens are privy to the fraud that is the current financial system, it will be interesting to see if the fed can pull off more cons via QE or some other way of offsetting the shadow banking deleveraging because if it doesn't then you'll see the mother of all reversions to the mean in asset prices (deflationary spiral kick in).

Oh and that mathematically it will become impossible the more they try to prop the ponzi.

Thus, if you have to rob peter to pay paul and peter's broke, paul's next.

Shrink the fraud and shrink the ability of central planners.

Tue, 12/13/2011 - 06:28 | 1973089 BorisTheBlade
BorisTheBlade's picture

In short, US and EU are cross-collaterized to the extent that when one thing goes down, the next one should follow shortly. Even if with the short period of the last man standing glory in between. In 2011 it took almost whole MENA to blow up for US to stand out as 'safe haven', what will it take in 2012 only Fed knows.

Tue, 12/13/2011 - 06:13 | 1973090 RichyRoo
RichyRoo's picture

Because everyones assets are someones liability, if the debtor cant pay, then the creditor has to write of the assets (except mark to unicorn) and so need to raise capital to maintain margins, otherwise they themselves default, and their creditors are in trouble.

The chain of asset/liability does not respect asset class, doesnt respect ownership (hyper-rehypthecation) and certainly does not respect national boundaries, these are transnationals we are talking about.

So if EU debtors cant pay their debts, then US creditors suffer.

Thats how it translates to the USA, in simple terms.

Sun, 12/25/2011 - 13:26 | 2010448 ucsbcanuck
ucsbcanuck's picture

Think about it this way - in 1931, Creditanstalt, an Austrian bank, collapsed. This triggered off phase 2 of the Great Depression in the US and really put the Great in Great Depression.

Fast forward to 2011. Financial institutions are even larger and more inter-linked than before. If an Italian or an Austrian bank goes down (possible since Hungary is imploding) - this sends shockwaves around the world.

Remember, you may not be exposed to something bad. But your counterparties might be exposed, which then come back to kill you.

Tue, 12/13/2011 - 02:11 | 1972931 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

so what you mean is Bernanke is in charge of the Death Star and he has it set on full blast

Tue, 12/13/2011 - 02:13 | 1972937 chump666
chump666's picture

lol...yeah a f*cking madman has that much power.

Tue, 12/13/2011 - 02:13 | 1972936 pleseus
pleseus's picture

My guess is QE3 in March.

Tue, 12/13/2011 - 02:15 | 1972939 Milton Waddams
Milton Waddams's picture

This is heresay!  Complete garbage based on supposition and innuendo.  


What did he say again?

Tue, 12/13/2011 - 02:24 | 1972946 Milton Waddams
Milton Waddams's picture

where zh will get it wrong is that there will be no more, hmm, publicized bail outs.  the fed is dead.

Tue, 12/13/2011 - 02:40 | 1972952 anonnn
anonnn's picture

"...courtesy of lax UK supervision standards allowing up to infinite rehypothecation of the same asset in what could become the daisy-chain from hell of linked serial counterparty exposure..."

The buccaneers of finance. All neatly justified by deliberately misreading "social" Darwinism.

As Tyler noted recently, "...not NY, but London is true hub of financial engineering and infinite leverage..."

Recall the financial engineering that produced buccaneer, whereby the UK created legalized piracy on the high seas to acquire gold/silver from the Spanish traesure ships enroute from the New World.

The buccaneers operated by Queen's agreement to divide the takings between the Crown and the merchants. This also funded the construction of the British fleet that later destroyed the Spanish Armada.

A financial engineering classic. 

Speaking of antisocial cleverstrokes...

Does anyone here still believe Tony Blair was GWBush' lap-dog?

Tue, 12/13/2011 - 08:17 | 1973210 guiriduro
guiriduro's picture

...and those pesky europeans dared to prevent UK PM Cameron from winning a definite moratorium on increased City (Mammon) regulation, so important that he need to veto something vague-but-well-intentioned about european fiscal responsibility.

Tue, 12/13/2011 - 02:27 | 1972954 chump666
chump666's picture

Spanish bond auction up in a few hrs.  Lets see if the crafty a-holes from the ECB are able to buy bonds yet push yields up again...yeah they are geniuses. re: Italian debt auction last session.

Tue, 12/13/2011 - 02:37 | 1972966 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

the banks will buy the bonds and be recapitalized by the CBs

Tue, 12/13/2011 - 02:30 | 1972961 AUD
AUD's picture

the Fed's one and only directive is to offset the massively deflationary and increasingly more rapid deleveraging of shadow liabilities

Not just offset, it was the Fed that monetised these 'shadows' in the first place. Believe it or not central banks are currently engaged in having it both ways, monetising as much as is needed to prevent a total collapse but not enough to monetise the entire gamut.

Tue, 12/13/2011 - 03:24 | 1973001 topcallingtroll
topcallingtroll's picture


They are aiming for a muddle through stagflation these next twenty years. Debt and credit levels today make previous credit excesses look small. Losses to the working people, particularly unfunded liabilities and previous low marginal tax rates in the usa are a thing of the past.

We will be taxed more and get less bennies. But we will muddle through. Your social security and medicare will be means tested ( a hidden tax increase or loss of benefits however you wanna look at it).

But there will be blowback. It will be a world of malaise and no initiative nor energy, at least in the first world. People will realize that all they do by working hard is lose their bennies. The lucky among us (me!) will and have spent our time in non productive zero sum game activities such as financial planning to look poor on paper, so we get our share of bennies too. It is wrong for only the non productive to be rewarded with government money.

In effect we will go galt on all your asses. The few attempting to carry the load for all the rest will eventually go galt. Just like in the roman empire when work and taxes became so unbearable the masses returned to subsistence farming and left their careers, in spite of laws against it.

Nonetheless I think we muddle through. Since productivity will be excessively taxed we will all lead leisure filled lives with a much lower living standard. Fuck it. When or if the shit goes down the rest of you will not be taking my marginal income. There wont be any. I will be sitting on my ass too. Governments have yet to figure out how to tax non productivity.

Tue, 12/13/2011 - 04:31 | 1973034 dolph9
dolph9's picture

Yeah the Fed can create money, but they can't print oil, they can't make anybody trust them, they can't make people love them.  That much is clear.

In fact, every step they take to preserve the rotten system merely makes the whole thing stink a bit more.  Best to drop out and not participate!  This is the only logical conclusion one can really come to.

All those obese people eating food stamp Cheetos on the couch in their section 8 apartments while surfing through 500 channels and playing Xbox...there is definitely something to that.  I don't want to be them, but I can't argue with them anymore.

Governments, though, always have one last solution to nonproductivity - it's called the wartime draft.  But they better be willing to take any slob who can barely hold up a rifle.

The rest of us, well, we'll become draft dodgers.  All you "patriotic" Amerikkkans can get your brains blown out for Israel and Halliburton if you so choose.

Tue, 12/13/2011 - 08:09 | 1973192 grey7beard
grey7beard's picture

That sounds like my plan.  A friend of mine, many years ago, told me something wise, "There is power in poverty".  Most people seem to miss the jist of it, but the poverty only has to be in perception.

I got fed up about eight years ago now.  It took awhile to unwind from the web of society, but we did it.  We sold three city properties and moved to the sticks.  One of my main goals was to get an initial purchase price on my redoubt as cheaply as possible as that's how the tax folks set the value.  If you use contractors to make improvements, the value goes up. If you make improvements yourself, without the permit process, the value is unaffected.  I bought a ramshackle abandoned trailer on 10 acres for $40K.  I put another $20K into renovations.  From all appearances, both on paper and exterior physical visual, it's an old run down shack.  Interior wise, it's clean, modern, and as nice as any city apartment.  Drywall interior, thermo-pane doors, new kitchen, bathrooms, appliances, fixtures, etc.  Updated plumbing, wiring, insulation.  New well and pump.  Our county assessed value is $36K.  My tax bill for this year was $250.  The guy that bought my city home is paying $7K+ in property tax. 

This lifestyle isn't for everyone, but it suits me very well.  My wife seems to be just fine with it.  My business has been closed long enough, and I've been out here long enough, that I don't dread every phone call, every mail delivery, every knock at the door.  I'm sure some handle it better than I, but it's amazing the strain the chains of being a small businessman have on one.

I've got a ways to go before I totally disappear, but my goal is to be under the radar, out of sight, out of mind.  No need to fuck that poor old white guy living in that shack as he's got nothing for us.

Tue, 12/13/2011 - 09:58 | 1973458 tarsubil
tarsubil's picture

The New American Dream.

Tue, 12/13/2011 - 08:48 | 1973222 Zero Govt
Zero Govt's picture

"Governments have yet to figure out how to tax non productivity."

Govts can tax both the productive and unproductive people but all tax value is ultimately sourced (extracted) from productive people

The key in history has always been how much the parasites behind Govt suck out of the productive economy, wealth they destroy and at what point the productive economy is overloaded by the burden of these parasites

The tipping point where productive people say, "Fuck You" and walk away leaving the stinkers of humanity (Govt, Royalty, Emperors etc) to sink in their rotting regime

the fastest way to that tipping point and bring this rotten regime (the Era of Monopoly Govt) to the end is for citizens to stop paying their taxes revolts have recurred dozens of times in 4-5 Centuries of English history as well as your mention of 2,000yrs ago during Roman times

Stop Paying Your Taxes Boys

Tue, 12/13/2011 - 08:43 | 1973255 Snidley Whipsnae
Snidley Whipsnae's picture

"Governments have yet to figure out how to tax non productivity."


Ingenious plan topcallingtroll... With but one little flaw. Govs have figured out how to 'tax non productivity'.

The non productive and marginally productive will be relocated to 'Productivity Camps', where they will grow their own food and sell the excess to the still productive. Cash crops will also be grown to support the 'Productivity Camp Staff'...which will be armed and dangerous.

The US is full of shuttered plants that used to make furniture, steel, shoes, cement, tires, autos, etc. All this half worn out equipment can be moved to 'Productivity Camps' and put back into service.

If you don't believe that a model exixts for 'productivity camps', then wiki Angola, Louisiana State Prison. Add to this possibility the fact that FEMA camps are numerous, widespread and currently sitting idle.

Anecdotal info: Last Sunday I drove down a 2.5 mile stretch of a two lane US Hwy and saw 5 men walking along this nearly deserted stretch of road and two of them were pushing shopping carts, with their belongings, along the grassy road shoulder. I saw two more men with cartons of beer heading across the RR tracks into a wooded area that I assume is a sort of hobo camp. A total of 7 men in 2.5 miles! I have lived in the same home for a long time and have never seen homeless people wandering around aimlessly in this area. Just sayin'...

Tue, 12/13/2011 - 09:54 | 1973374 flattrader
flattrader's picture

The Prison Farm System started after the Civil War.

Instead of enslaved black men working farms, they used convicted black men to work farms.  You could be picked up, convicted and jailed for almost any minor infraction of county or state law.

Many prison inmate workers were "leased-out" on behalf of the state to private farmers and companies.

Yep.  They have a model that works.

Here's a modern day version out of China that's global...and I don't mean the traditioal slave away in a prison factory making clothing.  Prisoners are forced to do that too during the day and then at night, they do this--

Farmville credits are the new currency.

Tue, 12/13/2011 - 02:46 | 1972978 indio007
indio007's picture

MUST .... GET ... GOV'T.... GUARANTEE.........

But how Do I Get it back on the balance sheet???? ARRGGGGHhhhhh!!!........

Tue, 12/13/2011 - 03:15 | 1973000 bob_dabolina
bob_dabolina's picture

#4 fell 

It's sick so many people will die.


Tue, 12/13/2011 - 06:19 | 1973096 falak pema
falak pema's picture

how come you are the only one who says it? Are the others blind?

Tue, 12/13/2011 - 03:32 | 1973008 lolmao500
lolmao500's picture

The article doesn't say how it affects concretly banks. Who cares if the shadow banking goes to 0$?? It's not on the books. Banks will just ignore it. Problem solved.

And what are those shadow liabilities? Houses? What?

Tue, 12/13/2011 - 06:34 | 1973108 RichyRoo
RichyRoo's picture

They cant ignore the sudden dearth of liquidty

Tue, 12/13/2011 - 03:51 | 1973018 Cast Iron Skillet
Cast Iron Skillet's picture

ok, so I understand rehypothecation like this: I take out a loan of $1B from Bob, pledging all of the money in my pocket as collateral. Bob uses my collateral to get a $2B loan from Ann. Ann uses the collateral to get a $3B loan from Tim. etc. etc.

Then, I go buy a coffee, spending all of the money in my pocket ...

Is it sort of like this?

Tue, 12/13/2011 - 05:21 | 1973056 slackrabbit
slackrabbit's picture

Yep, and then you move to banking .........where failure is never an option ....

Tue, 12/13/2011 - 06:33 | 1973107 RichyRoo
RichyRoo's picture

not quite... instead of you spending your money, Bob fails his payment to Ann, and then Ann owns the money in your pocket.

Fri, 12/16/2011 - 18:22 | 1988472 Cast Iron Skillet
Cast Iron Skillet's picture

Thanks for your comment. sounds like loads of trouble.

Tue, 12/13/2011 - 15:31 | 1975150 Cadavre
Cadavre's picture

Could be that. Noodling it down to something to wrap the brain around is hard.

The first hypothecation look to be akin to buying a deep in the money call at a discount then rehypothecating (pawn cycling?) subsequent discounted iterations of the first call at deeper in the money strikes (to make look tasty) with more than an expectation the market for the underlying CAN only go higher. It's "g*d's will for fucking chrzt's sake!

ZH reported back in August the JP Morgan pegged gold to be 2500 by year end.

Did JP Morgan's well documented divinng rod point at a pile of "strong euro" bull shit and snag the JPM in a bull trap of it's own making [and] then game to cover, through a  not-too-unexpected under the counter acquisition of assets in the custody of MF Global just to overstate and engineer a short squeeze (for a just little while - err until JPs expirations pass) COMEX's physical inventory.

Doesn't all this stuff - even in the UK - have to print through the TRAX II Custodial System?

On the hypno tube a "fully in the pocket of the witnesses" Senate panel is attempting to mine nonexistent "unobtanium" from MF Global suits. "Where did the money go?" followed by the queue carded "I don't know!" (over and over and over). Someone - some clerk or staffer had to transfer customer assets to JP Morgan. That means a wire transfer and document coding. Maybe the outsourced IBM SAP Indian database administrators servicing JP Morgan and MF Global in New Delhi know how this happened. IBM stock is up - so maybe - just this time - the Indians did a top line adjustment with the promise authorizations would be forthcoming.

The Senators on the panel wasting battery power asking the same question over and over should have enough video clips for their campaigns by now - shouldn't they be moving on to really import subjects - like the mistreatment of gerbils Chinese ship to overseas pet store markets - oooh the humanity!

Tue, 12/13/2011 - 03:51 | 1973019 HankPaulson
HankPaulson's picture

Shadow banking system = ocean of funny money. Mix with real wealth. Redistribute portions of diluted wealth. Evaporate off funny money = real wealth redistribution to bankers. <-- You are here.

Tue, 12/13/2011 - 04:40 | 1973035 Cadavre
Cadavre's picture

Have we entered the era of the "inverse sovereign credit ratings downgrade carry"? Possible timing play?

Sure looks like the rating agencies have fully synced with the game plan and will execute a calibrated "bleed off" of all sovereigns under control of our dearest Global Usury Exchange.  The rating agency rounds will vent, in turn, each sovereign's worth "just enough" to float the indexes a tad longer while involved insiders desperately seek that promised by the market g*d whimsical arc to avoid their exceptional hides being skinned alive, This cycle of downgrades will continue until rating designations have bottomed and every f*cking sovereign is worthless. That must the game cause that be where the game be taking us.

There be noway to delay that trouble coming everyday.

Of course, without fail, a grandiose metaphor implying a horrible "tsunami of overly complex" closed form assays (like that wonderfully crafted, yet starkly obvious and most laughable "Madoffian Split Call Spread" carrot on a stick shtick) will, yet again and not too unexpectedly, be anointed as the demon du jour whispering evil distractions into the virgin ears of hapless victims of circumstance dong g*d's work rinsing blood off the loot they extorted in the Usury's counting rooms.

Will our "over their heads" tsunami victims working the counting rooms offer, as always, apologies and then relieved of all liability by a panel of judges working at the pleasure of the Global Usury Exchange? Will they do the expected and ask for mercy with the old  "guilty but with an explanation" excuse, as though their behavior was no more criminal than a jay walker that mistimed the crossing light?

Then what? Will the gentry will fire up the blubber vats, one more time, and render a little home grown "fuel" from the flanks of the Global Usury's courtiers just because this whole business was "too complex" to understand? Will the tipping point breach and rouse the sleeping giant Goyishe Kup to stampede the golden ghettos and give the special "tenders" a brand new understanding of the phrase: "begging for the mercy of hell"? That is what the kup have always done - it is hard coded in Kup genes - never forget - the Kup are the spawn of baby killers and king disembowelers (and not very polite when riled).

Who dey think dey be f*cking with - a politician man, some girlie attorney - a hired Xe sissy? Maybe they think the Kup is as managable as a shell shocked Iraqi grandmother? Is dat what dey tink?.  Dey gotz another thing coming - and it be riding a fast horse dat be for sure!

As the Frank might say: Flies all green and buzzing in their dungeon of despair while grumbling bankers and politicians piss their pants and scratch their matted hair.

The off stream MF Global Story keeps getting scaier and scarier. Celente trusted futures and collateral to MFG custody - as did the Bransionish Fleckstein.  ZH headlined  this stuff recently. A liitle more context from Sherrie Questioning All:

JP Morgan covered their butts by letting MF Global fail, and in the process stealing 140,000 accounts.  Its not just MF Global accounts, its stealing many accounts that used MF Global for their clearing!

.. and ..

JP Morgan averted both a COMEX default and a European sovereign debt implosion, and notice that JP Morgan increased the amount of silver in their registered vaults by precisely the amount that was supposed to be delivered.

It seems to be getting to the point that the only option that offers a momementary reprieve from the inevitable "right down your throat and believe me baby it hurts" unstoppable cresting wave of retribution be the wagged tail of a World War III. The hapless fools won't find any protection there - they should just go home - write a confession - list names dates amounts and drop times - wrap themselves and their families in uninsulated copper wire and plug the ends of it into high amp 240 volt outlets. The determination as to whether their families ancestral headstones are designated as pilgrimage urinals for future July 4th celebrations will be based on the accuracy of their post mortem tell alls - sorry lads and lassies - but that be the best lenience you can expect. Beleive: THis time really don't want to force the hand that has tired of feeding you. Pretend the Kup just want new pets. Pretend the Kup hate you cause you are better than they are - pretend anything you want - you don't want to know what "begging for the mercy of hell" means - you don't.

There just seems to be an implied timing play in the credit mark down schedule. Anybody got a copy of that guy?

Tue, 12/13/2011 - 04:43 | 1973040 Pike Bishop
Pike Bishop's picture

I'm gonna go check all of the Markets. If anything has moved, even blinked in the last in the past 3 hours, I'm asuming this site will be gone when I get back.

Just the suggestion of this is gonna piss off  a lot of people. I'd be moving your shit to 2 non-collocated servers.

This just cleaned up some market data we have, we have been running regression on it for 2 months. never thought to look in the Z1.

Buy ya a drink at the Thunderdome.

Tue, 12/13/2011 - 06:45 | 1973110 Scalaris
Scalaris's picture

The decade-long concentrated wealth amassment of the centralized interests, represented by the global banking industry, was a result of decade-long artificial liquidity creation made possible by rampant credit expansion, which has in turn resulted in the creation of inordinate levels of unsustainable, for the global economy, levels of debt, which has now being decentralized and assumed as a liability by the social collective that is the tax-paying population, with the facilitation of the political class.

Simply put,

  1. Bankers created fake liquidity through the creation of credit
  2. Fake liquidity created wealth and debt
  3. Wealth is assumed by interests represented by the banking industry
  4. Politicians intervene by transferring tax-funded resources to banking industry equity
  5. Debt is assumed by the taxpayers

During the past decade, the effortless integration of the banking sector into the political administration was done in such seamless fashion, that it had entirely solidified any still unbound theories regarding the, foreseen by many, "new world order".

I admit that despite trying to constantly accumulate information in order to educate myself, regarding the broader historical timeline of political, economic and military events, I still find it amazing how such changes were able to take place, while such large parts of the global population remain unfazed.

I don't know if there's still any kind of doubt, that whatever evolved social system mankind has built, has been a very cleverly machinated fabrication of an artificial reality, concealing a modern version of master/slave relation.

And people are still sufficiently programmed to believe that they are given the power of choice, to elect appropriate representatives through a democratic process, who will in turn represent their very own interests, when confronted with century-old ruling interests.


O/T - A somewhat interesting article by Prof. Chems Eddine Chitour (École nationale polytechnique d'Alger)

Original French: L'Occident en déclin : La fuite en avant d'une 3e guerre mondiale 

English Translation: The West is in decline: The headlong rush of a third world war

Tue, 12/13/2011 - 07:22 | 1973134 Escapeclaws
Escapeclaws's picture

We need a shadow ZH forum called "ZH for Dummies" where articles such as the one above can be explained to us in the two digit IQ crowd. Just as I finally more or less came to understand the re-hypothecation scandal, now there is this to try to wrap my head around. Christoffel symbols are easier to understand.

Tue, 12/13/2011 - 08:55 | 1973262 Havana White
Havana White's picture

Yes.  A few well-positioned "In other words..." would help the broader readership a lot in stuff like this.  Will have to email around this a.m. for help on this one's fine points.

Tue, 12/13/2011 - 07:49 | 1973168 LookingWithAmazement
LookingWithAmazement's picture

More safety: EFSF bonds much in demand: 3 x bid to cover, interest 3 months 0,222%. #WhatCrisis?

Tue, 12/13/2011 - 08:06 | 1973175 Zero Govt
Zero Govt's picture

Good article but to split hairs i fail to see the point between regulated (in the sunlight) banking and unregulated (shadow) banking. Here:

MBS's fraud piled on fraud on a massive scale - regulated

Hyperfraudification theft and fraud on a massive scale - unregulated

What's the point, that unregulated fraud and theft is any different to regulated fraud and theft? Where??

This proves only one thing, that regulators (and Govt) make no difference whatsoever, they are fuking useless spare parts and simply add another layer of crones for the crooks of international banking to corrupt

and you can add as many new Policing and regulatory agencies or political offices of croney tossers as you like and it'll make no difference.

The ONLY regulator that resolves criminal issues and does it faster is the free market and a free society. Had the free market operated all the human scum of banking would be bankrupt as of 2008 and out of the game.

Instead politicians have propped these criminals up, regulators have sat on warehouses of rules and whistled Dixie and the Judiciary-Legal System has shut up shop nice and tight and all allowed the thieving and fraud (problem) to not only not get fixed but to continue on, Govt subsidised, and get far more rotten

The Free (competitive) Market: no Govt, Laws, judiciary or regulation required's free, it's effective and you cannot beat it

Tue, 12/13/2011 - 08:11 | 1973201 Ghordius
Ghordius's picture

yeah, it would be nice

the problem with any territory without Gov is that somebody's Gov is going to claim it

the old thing with "Every Country has a Military - either it's own or somebody's else's"

even the US Founding Fathers envisioned a "well-ordered militia" - the smallest form of government you can have, as far as I know, since no taxes are needed for defence - in theory

IMO you would have more political impact if you would shift from the impossible ZeroGov to X-gov and quantify how big X should be

Tue, 12/13/2011 - 08:08 | 1973188 GCT
GCT's picture

Yep all the worlds problems as usual are the USA fault.  The article does get old.  I may not be a smart person but I can read and I do my research.  Bashing the USA is all the rage and honestly it gets old.  Parts of it I do agree with others is just more dribble because most of Europe needs the USA to be their fucking lap dog when it comes to projecting military power across the world.  France and Briton attacked Libya because Libya would no longer take their precious Euro or Greenback for that matter and wanted gold.  Pissed Europe off so they attacked in the name of human rights.  Talk about calling the kettle black please.

Of course like everything else they could not sustain the battle so they needed our help to continue the fight because they ran out of bombs.  We did not start it but as usual the USA had to clean up behind you.  I can remember another war where I was a part of that started in the 50's and ended in the 70's as I was apart of it.  Honestly we need to pull all of our troops out of Europe and let them go at it for a change.  We would save billions.  Just like the leaders cannot even solve their own broke soverign and want everyone else to bail them out once again.  The fed rode in a couple of weeks ago to help you out.  Most likey they will do it again. 

Funny how European leaders will not even solve their own Financial problems and expect the world to help them out.  Even China is not that stupid.  We did not cause your financial problems but we taxpayers will be on the hook for it and we need to solve our own problems.  I do not get riled up too often as I am too old for it.  But this article is typical of France a power without alot of power.  The only reason your still at the table in the UN is because you have nukes and Americans have a deep tie to France.

Tue, 12/13/2011 - 08:34 | 1973239 Ghordius
Ghordius's picture

bashing the USA? I thought we are in a period when bashing everybody else is all the rage, and the EZ in particular...

please remember that when you have US based multinationals that do business all over the world it's them calling for the US power projection, not the Brits or the French

Where does Apple produce your iPhone? Where comes the oil your car needs?

Look up the Suez Crisis, the Brits and the French were happily ready to bash Egypt and Oncle Sam called them back - since then the Pentagon rules there

Vietnam? Well, yes, the French did not that well there, but nobody could force the US to intervene

financial problems? the freshly minted dollars had to go somewhere, and they did, all over the world. we are just all realizing that not all investments were that wise, that's all

Look it this way: France is just one of Uncle Sam's more temperamental girlfriends throwing a tantrum, from time to time, and this joint action in Libya could not have happened without US approval, no way. Look up which companies are gobbling up this oilfield and you get the composition of the interests involved.

Tue, 12/13/2011 - 08:23 | 1973221 cuttlefish
cuttlefish's picture


Some of you are wondering why the Fed is so willing to get involved in this Euro Mess well there is several reasons.

1)      Much of the Fed is owed by European Banks, go figure.

2)      US bank are desperately trying to unwind derivatives exposures to European Banks. IE G- Sacks throwing their customers under a bus selling them Euro Bank stocks. For the life of me you think their customers would learn.

3)      The Euro is actually backstopped by a very large amount of you guessed it T-Bills oh yea. So when the Euro gets called out they will call on the US Treasury for redemption of the Bonds. Thus we are on the hook again.

So time is up and the party is over, so before the fat lady sings get your God, Gold, and Guns ready!


Tue, 12/13/2011 - 08:41 | 1973250 Ghordius
Ghordius's picture

1. the FED is "owned" by the Primary Dealers

2. the PDs are transnational and everywhere - (some of them are legally based in the EU)

3. some of the EU banks (PDs and non-PDs) had huge debts in USD and huge assets in USD

4. the FED gave them more sugar since the USD interbank lending retracted

5. what you call "backstopped" it's "FX reserve"

you are nearly there

Tue, 12/13/2011 - 08:45 | 1973259 LouisDega
LouisDega's picture

Excellent. Nice reading material whilst i take my morning Leisman

Tue, 12/13/2011 - 10:56 | 1973763 hvl626
hvl626's picture

Wow. We go to the end of the comments before recognizing the ownership ties between the Fed and the European banks. And even then the Rothschild family is not mentioned. The 12 Federal Reserve BANKS, each incorporated, are owned by the commercial banks (shareholders) that must put up front money to play in the game (a franchise?).The FDIC is another corporate body. It is the FR BOG that is alleged to be owned by Wall Street and international banks.

Representatives from those entities wrote the legislation for the Fed at Jekyll island in 1913. It is claimed JP Morgan was found to be a shill for the Rothschild family upon the reading of his will. The control of the European banks (Primary Dealers?) by the family appears to be beyond question. The family claims control has diminished but ownership of the BIS is not public information.

The profit of the Fed is the property of the U.S. government by law. Numerous criminal acts are involved to hide money that belongs to the government and each auction is another count.

The mathematical progression of the Fed’s receiving Treasury securities and the creation of book-entry (fiat, inflationary) money has been shown to become profit for the Fed. No other feasible progression has been found. This hidden profit by the FRBNY totaled a minimum of $1.4 trillion in 2010. How long can they avoid prosecution? Ref.  RIP OFF BY THE FEDERAL RESERVE,

Tue, 12/13/2011 - 08:29 | 1973233 PulauHantu29
PulauHantu29's picture
Home sales even worse than we thought

Last year saw the fewest number of homes sold in 13 years. Now we find the number is even smaller than the 4.91 million sales we thought occurred.



Tue, 12/13/2011 - 08:38 | 1973247 GCT
GCT's picture

Ghordis sorry for the rant.  Your right on some items.  It just gets old.

Tue, 12/13/2011 - 08:46 | 1973260 Ghordius
Ghordius's picture

;-) I know and I do think Uncle Sam is a bit underappreciated at times...

Tue, 12/13/2011 - 09:23 | 1973347 Freewheelin Franklin
Freewheelin Franklin's picture

Being a novice, let me see if I got this right. The central banking system creates money out of thin air, and the shadow banking system creates credit out of thin air.

Tue, 12/13/2011 - 10:22 | 1973571 hvl626
hvl626's picture

You are confused about what is "money."  Speaking for the US, those green bits of paper in your billfold are clearly marked "FEDERAL RESERVE NOTE."  A 'note' is a notation of a loan as stated by a Fed spokesman in Congressional hearing. The object is a promise to pay the bearer "lawful money." Ref. Title 12, section 411. They used to be inscribed as convertible into gold or silver at the Fed. Then they were inscribed as redeemable for lawful money. Now they say they are legal tender. And you thought they were money. They are an indication the Fed has given you credit in the form of a loan.

When a bank grants a loan on the fractional reserve system, it writes/adds a credit on your checking account.  If you withdraw "greenies" from the bank, you have physical evidence of the credit the bank has given you.

The entire economy is based upon credit.

Tue, 12/13/2011 - 10:05 | 1973486 mick_richfield
mick_richfield's picture

Ah.  Snap.

All our arguments about the likelihood of catastrophic inflation versus catastrophic deflation are probably meaningless, because we are all using analogies with the 1920s and 1930s.  But that was a hard-money world, and we have now built a runaway fiat-money world.

We are reasoning from our experience with the Great Chicago Fire, but what we are facing is a nuclear meltdown.


Tue, 12/13/2011 - 10:14 | 1973520 steve from virginia
steve from virginia's picture


I like the idea but without a source/numbers and confirmable data, this is simply entertainment.

Please: data source, link and a human name, thanks.

We understand the 'Buy gold, Bitchez' bit ...

Tue, 12/13/2011 - 10:20 | 1973555 Captain Kink
Captain Kink's picture

We need Batman.  Where is Batman?  Biff. Pow! Clean up this mess in no time.

Tue, 12/13/2011 - 10:43 | 1973666 EZYJET PILOT
EZYJET PILOT's picture

So if the banks are getting unlimited money from the ECB via US banks, via the Fed discount window, what are they spending the money on!? Someone said they are buying European bonds, are they? If so who is buying the bonds off them, is it the ECB and if so are they making a huge profit on this trade? I can't see that they are buying Euro bonds as there isn't a market for them, unless the ECB is buying illegally on the sly, which Tyler did allude to in a recent article. This is all bullshit, nothing makes any damn sense. I get the impression that rehypothication features heavily in all of this.€200-billion-cumulative-piigs-bonds-purchases-now-monetizing-30-more-fed

Fri, 12/16/2011 - 03:05 | 1986198 Bertie Wooster
Bertie Wooster's picture

great, but can you please explain what shadow banking means?  You (the author) sorta left that one out of the article as if we all know what you're talking about.

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