This page has been archived and commenting is disabled.

There Must Be Some Way Out Of Here

Tyler Durden's picture





 

Via Mark J. Grant, author of Out of the Box,

"There must be some way out of here," said the joker to the thief,
 
"There's too much confusion, I can't get no relief”
 
                       -Bob Dylan, All Along the Watchtower
 
Debunking Some Myths
 
First let me state , with a certain calmness, that there is a Transfer Union underway in Europe. This is the subject, you may recall, that Germany has tried to avoid at all costs which is why Eurobonds and other similar schemes have not been implemented. Europe, however, has found a clever way of implementing such a program and keeping it under the radar from the German citizens. I will explain:
 
In Greece, Spain, Portugal and Italy the ECB has implemented a program where the sovereign guarantees some bank’s bonds. The bank then pledges them as collateral at the ECB and gets cash. The bank then turns around and lends the money back to the sovereign nation and provides liquidity and economic sustenance. The Transfer Union is completed as Germany guarantees 22% of the ECB and the European Central Bank is nothing more than a conduit to lend money to the various nations. This contrivance is also not sterilized so that the ECB is, in fact, printing money which is another part of this subterfuge that no one in Europe wants you to know anything about. This strategy is what has kept all of these various countries alive while the political entity, the European Union, tries to decide what to do about the future of the troubled nations. In a very real sense the ECB is the only fully operational part of the European construct at present as the European Union does not have the “political will” to carry out its mandate.
 
“The tears I have cried over Germany have dried. I have washed my face.”
 
                        -Marlene Dietrich
 
Given what is happening, it then must be declared that the ECB is the lender of last resort and that they are printing money on a daily basis.  Sterilization may take place in some instances and for some programs but it is not universally applied or even discussed. The program also gives the ECB tremendous leverage because any threat to turn off the spigot will force any of these troubled nations to turn to the Troika and ask for aid. The assistance does come with a price tag though and it is costly; the nation is audited, reality arrives, and the country gives up the total control of their finances and their budget to the EU/ECB/IMF. In effect, the nation no longer governs itself. The IMF, of course, is nothing more really than a cover for some kind of legitimacy beyond the politics of Europe and it has become the arm piece of the Continent so that Europe can point to them and say, “it is them; not us.”
 
It turns out that Jens Weidemann, chief of the Bundesbank, is a huge fan of Greta Garbo. Apparently he got to use her famous line recently at the ECB meeting:

“I want to be alone.”

He got his wish.
 
The ECB
 
The total paid-in capital of the ECB at the end of 2011 was $13.7 billion. Currently the balance sheet of the ECB is $4 trillion. The leverage then is 292 times paid-in capital and the other assets must then be assessed as to their solvency. This is one reason why a default by Greece, or any other nation, would be so devastating to the ECB as it would wipe out their entire capital base in a heartbeat requiring re-capitalization immediately which would be politically challenging these days. Now the ECB is thought to be a riskless proposition because, in the last instance, it can print money but this is not a correct viewpoint.  There are a number of circumstances that can destroy a Central Bank, any Central Bank, and the first would be the loss of confidence in the institution or the nation (s) guaranteeing it. The second would be actual losses on their balance sheet and while no Central Bank must adhere to marks-to-market; real losses in their portfolio cannot be brushed under the rug forever. I would submit that the ECB, in particular, in having lowered and lowered their collateral requirements is putting itself in a position where their risk profile has increased dramatically. Then there is the risk of some large bank failure in Europe and while the Irish banks, Dexia and Bankia et al have been absorbed by their respective nations and so have had their balance sheets and ratings impacted; there may come a time when the European banks, already institutions with balance sheets three times larger than the sovereign nations where they are domiciled, cannot absorb without serious repercussions, the failure of some large European bank. Finally, in my mind, comes the greatest present risk and this is a run on the banks. This is a quite real present danger which is exemplified by Spain where almost 20% of the capital in the Spanish banks has fled. If the present trend and trajectory continues then we may see a systemic banking failure in Spain which would wipe out not only the banks in Spain but the ECB as the money lent to the Spanish banks goes into default.
 
Mervyn King, Governor of the Bank of England, once noted that it may not be rational to start a bank run, but it is rational to participate in one once it had started.
 
The price tag of cleaning up a systemic banking crisis is significant in its size and breadth. The fiscal costs average 13% of GDP and economic output losses average 20% of GDP for important crises from 1970 to 2007 according to data supplied by the International Monetary Fund. Consequently to stare at the ECB and declare it a “risk free proposition” is naïve at best and quite dangerous at the worst. You may think what you like but you must retain sound principles.
 
“Those are my principles and if you don’t like them---well, I have others.”
 
                  -Groucho Marx

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 09/10/2012 - 08:29 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

....said the Joker to the thelf.

Mon, 09/10/2012 - 08:32 | Link to Comment Rubicon
Rubicon's picture

You can say that again!

Mon, 09/10/2012 - 08:41 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Next time I'll spell it right.....I promise!

 

Mon, 09/10/2012 - 17:10 | Link to Comment Catflappo
Catflappo's picture

He did say it again!

Mon, 09/10/2012 - 10:07 | Link to Comment frenzic
frenzic's picture

there's too much confusion, I can't get no relief

 

you said it bro

Mon, 09/10/2012 - 13:07 | Link to Comment SAT 800
SAT 800's picture

Very popular song in Nam; I remember listening to it on a brother's tape player, and staring off into the night, and thinking; yeah, well; I guess we'll find out.

Mon, 09/10/2012 - 08:31 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Ok.....I shouldn't double post that. It would almost be like rubbing it in.

 

Clean up on aisle 5.

 

Mon, 09/10/2012 - 08:32 | Link to Comment mrktwtch2
mrktwtch2's picture

its damn near impossible to be short this market for more than 5 minutes..

Mon, 09/10/2012 - 10:44 | Link to Comment trebuchet
trebuchet's picture

a time will come...  just not today

Mon, 09/10/2012 - 08:34 | Link to Comment Haager
Haager's picture

+++ nothing else to say.

 

Oh, wait: There's no yellow brick road in Europe...

Mon, 09/10/2012 - 08:59 | Link to Comment The Wizard of Oz
The Wizard of Oz's picture

GOODBYE YELLOW BRICK ROAD!

Mon, 09/10/2012 - 12:17 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Funeral for a <euro> Friend is what's at the end of that road.

Mon, 09/10/2012 - 08:32 | Link to Comment PrintingPress
PrintingPress's picture

That's one sexy printing machine!

Mon, 09/10/2012 - 08:33 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Lots of paper promises being made by insolvent nation-states.  Nothing new here.  Until those new fusion reactors come online, growth is dead.  Suck it up sheeple.

Mon, 09/10/2012 - 08:41 | Link to Comment Hayabusa
Hayabusa's picture

Everybody's doing it... everybodys's doing it....

Mon, 09/10/2012 - 08:42 | Link to Comment Disenchanted
Disenchanted's picture

 

 

nope...

 

There's no way out of here, when you come in you're in for good
There was no promise made, the part you've played, the chance you took
There are no boundaries set, the time and yet you waste it still

 

David Gilmour - There's No Way Out Of Here

Mon, 09/10/2012 - 08:56 | Link to Comment Flakmeister
Flakmeister's picture

Damn beat me to it....I'll finish it though.... (I had this gem on vinyl....)

 

There's no way out of here
When you come in
You're in for good
There was no promise made
The part you played
The chance you took

There are no boundaries set
The time and yet
You waste it still
So it slips through your hands
Like grains of sand
You watch it go

There's no time to be lost
You'll pay the cost
So get it right
There's no way out of here
When you come in
You're in for good

There never was there an answer
There an answer
Not without listening
Without seeing

There are no answers here
When you look out
You don't see in
There was no promise made
The part you played
The chance you took

There's no way out of here
When you come in
You're in for good

There never was there an answer
There an answer
Not without listening
Without seeing

There's no way out of here
When you come in
You're in for good
There was no promise made
The part you played
The chance you took

There's no way out of here
When you come in
You're in for good
There's no way out of here
When you come in
You're in for good
There are no answers here
When you look out
You don't see in
There's no way out of here
When you come in
You're in for good

Mon, 09/10/2012 - 15:20 | Link to Comment Disenchanted
Disenchanted's picture

 

 

 

 

"(I had this gem on vinyl....)"

 

Those were the days...

Mon, 09/10/2012 - 17:17 | Link to Comment Element
Element's picture

Damn, I missed this reply.

Mon, 09/10/2012 - 08:45 | Link to Comment eigenvalue
eigenvalue's picture

Lower their collateral requirements are in fact not a problem as long as you have enough haircuts. If you implement a 90% haircut, you will be perfectly safe. Even those Greek government bonds got a 21.5% recovery rate.

Mon, 09/10/2012 - 08:50 | Link to Comment docj
docj's picture

Sheesh - at some point I would hope that the average nominal (or at least chronological) adult would get wise to the fact that the only thing keeping this global "market" together is wishing it so, and of course frauds and schemes like outlined in this piece.

Then I have a 5-minute conversation with an average nominal (or at least chronological) adult and conclude that such a realization will never, ever happen and that remindes me as to how WeAreSoTotallyFreakingScrewedTM.

Mon, 09/10/2012 - 09:16 | Link to Comment AynRandFan
AynRandFan's picture

Yup!  It's as simple as believing nothing will happen because it hasn't already.

Mon, 09/10/2012 - 08:59 | Link to Comment prodigious_idea
prodigious_idea's picture

I just threw one of those printers in the trash.  Damn I wish that I had discovered it could print money.

Mon, 09/10/2012 - 09:00 | Link to Comment eddiebe
eddiebe's picture

Sure there is a way out, it's called death.

Mon, 09/10/2012 - 09:09 | Link to Comment michael_engineer
michael_engineer's picture

"There must be some way out of here," said the joker to the thief,
"There's too much confusion, I can't get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth."

"No reason to get excited," the thief, he kindly spoke,
"There are many here among us who feel that life is but a joke.
But you and I, we've been through that, and this is not our fate,
So let us not talk falsely now, the hour is getting late."

All along the watchtower, princes kept the view
While all the women came and went, barefoot servants, too.

Outside in the distance a wildcat did growl,
Two riders were approaching, the wind began to howl

Mon, 09/10/2012 - 09:35 | Link to Comment michael_engineer
michael_engineer's picture

This part of the lyrics seems so apt and appropriate :

"None of them along the line know what any of it is worth."

Mon, 09/10/2012 - 09:22 | Link to Comment noses
noses's picture

I WANT THAT PRINTER!

Mon, 09/10/2012 - 09:32 | Link to Comment samcontrol
samcontrol's picture

easy , buy silver

Mon, 09/10/2012 - 09:32 | Link to Comment samcontrol
samcontrol's picture

easy , buy silver

Mon, 09/10/2012 - 09:26 | Link to Comment spanish inquisition
spanish inquisition's picture

So the new scam is the sovereigns are boosting the ratings of the banks junk bonds? The bonds now qualify for ECB programs. The ECB can create infinite leverage on "sound" collateral. The money that makes it back to the people is immediatly removed from the financial system.

To sum up, ECB vs Moron. By not trading the IOU's in the suitcase for anything else, Jim Carrey's character in Dumb and Dumber was practising greater financial restraint and fiscal responsibility than the ECB.

Mon, 09/10/2012 - 09:59 | Link to Comment Ungaro
Ungaro's picture

Shocking, so shocking! All the subterfuge, deception and deceit just to keep some zombie banks and arcane political concepts afloat... Oy!

Mon, 09/10/2012 - 10:02 | Link to Comment mayhem
mayhem's picture

song just started playing on Pandora... spooky. I think this MUST be a sign so I'm going all in.

Mon, 09/10/2012 - 10:43 | Link to Comment Bartanist
Bartanist's picture

Sure, there is a way out of here ... but children and sociopaths are in control. Children have no sense of delayed gratification and "respect" (fear of others, yes, respect no) for others and sociopaths have no moral compass and appreciation for the whole of society. They cannot envision and do not care what it takes to maintain a functioning society... oh, they have ideas, but they are only based on their own needs. 

Mon, 09/10/2012 - 11:25 | Link to Comment czarangelus
czarangelus's picture

circle jerk

Mon, 09/10/2012 - 17:16 | Link to Comment Element
Do NOT follow this link or you will be banned from the site!