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Why The Core Needs To Save The Periphery

Tyler Durden's picture




 

We have discussed, at length, the symbiotic (or perhaps parasitic) relationship between the banking system in Europe and the governments (read Central Banks). The LTRO has done nothing but bring them into a closer and more mutually-reinforcing chaotic relationship as we suspect many of the Italian and Spanish banks have gone all-in on the ultimate event risk trade in their government's debt. It should come as no surprise to anyone that the bulk of the Greek bailout money will flow directly to the European banking system and Credit Suisse has recently updated the bank exposure (by country) to peripheral sovereign debt that shows just how massively dependent each peripheral nation's banking system is on its own government for capital and more importantly, how the core (France and Germany) remains massively exposed (in terms of Tier 1 Capital) to the PIIGS. Retroactive (negative) salary cuts may well not be the worst of what is to come as the bankers deleveraging returns to bite them in a phoenix-like resurrection of sovereign risk on now even-more sovereign-bloated (and levered) balance sheets.

At what point does a regulator realize that perhaps it is not such a great idea to have double the exposure to the local sovereign (Greece/Italy) relative to Core Tier 1 Capital? Or is contagion risk due for review in Basel IIIIIIIII?

 

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Wed, 02/22/2012 - 10:46 | 2184641 Sandy15
Sandy15's picture

Ok, this is ridiculous .......sometime between now and Nov they have to let the market pull back somewhat........  Come on FED, let it be a little more natural.

Wed, 02/22/2012 - 10:53 | 2184669 SheepDog-One
SheepDog-One's picture

They fucked up, man! I was posting here a year ago that they better CHILL around 11,500- 12,000, they scammed it up too high too fast and now have no wiggle room...now theyre stuck with trying to push for ALL-TIME RECORD market highs, with gas over $4 now thru the rest of the year? Theyre going to implode themselves! NO ONE is buying it!

Wed, 02/22/2012 - 11:09 | 2184760 Leopold B. Scotch
Leopold B. Scotch's picture

Oh, Dash it all!  I'm all in!

Wed, 02/22/2012 - 11:50 | 2184936 LowProfile
LowProfile's picture

Me too!  (e_e)

Wed, 02/22/2012 - 11:15 | 2184784 bdc63
bdc63's picture

They ASSUMED that at some point the retail investors would come in and they could sell to them at the top ... looks like they are still waiting for that to happen ... stock pumping is at an all time high on CNBC, and yet the retail investors are still sitting on their hands.

Maybe the little boy has cried "wolf" one too many times?

Wed, 02/22/2012 - 11:20 | 2184804 SheepDog-One
SheepDog-One's picture

Well hell...who is out there sitting on a huge pile of money just wondering when theyll hit the buy button on a huge stock purchase? They wouldnt buy at 10,000, but surely will buy at 13,500? These people are crazy and desperate.

Wed, 02/22/2012 - 12:09 | 2185009 The trend is yo...
The trend is your friend's picture

when the institutions realize that retail is truley done with this shit, which they are, they will all hit the panic button at same time.  The AAPL sell off was a pre cursor of what's to come, especially in the most widely held names

Wed, 02/22/2012 - 10:53 | 2184687 Dr. Engali
Dr. Engali's picture

Don't worry there will be a pull back. Maybe sooner than you think.

Wed, 02/22/2012 - 11:01 | 2184726 greyghost
greyghost's picture

off topic......heads up...one of their own....a marie colvin has been killed in syria. now the reporters and news speak people will be going ape shit over the syrian revolution

Wed, 02/22/2012 - 11:05 | 2184719 mayhem_korner
mayhem_korner's picture

 

 

The markets are losing ground in real terms.  All the digital bailouts are simply migrating to wherever they can.  But equities are down relative to gold & oil since the indexes "bottomed" in March '09.  So on a relative basis, things aren't so rosy...but the MSM will declare victory for lack of understanding real returns.

Edit: remember when pinball machines were engineered such that a good score was something like 50,000?  Last I saw, you get 50,000 for slinging the ball up the entry channel, and a free game doesn't come until you get 25 million.  Anyone that believes they've gotten better at pinball by virtue of higher scores is apt to believe the equity markets are way up, too.

Wed, 02/22/2012 - 11:15 | 2184786 SheepDog-One
SheepDog-One's picture

Sure, of course in real life everything is imploding, just trillions in fake money levitating the equity and bond bubble.

Wed, 02/22/2012 - 12:34 | 2185100 Miss Expectations
Miss Expectations's picture

I remember the same thing (opposite direction) happened with women's clothes.  I was always a 6 petite.  Then (with no weight loss), the only size that would fit was a 4, then a 2, then a 0.  The clothing manufacturers actually invented a size zero!   There must have been a lot of thrilled women buying size 6 clothes (when they were actually a size 12).

Wed, 02/22/2012 - 13:06 | 2185224 mayhem_korner
mayhem_korner's picture

 

 

+1 Great observation.  Grade scales in public schools no doubt the same too.

So everyone is wandering around thinking they're smarter, skinnier, richer, and a better pinball player than in fact is true.  To quote George Costanza: it's like discovering plutonium...by accident!

Wed, 02/22/2012 - 21:12 | 2187318 StychoKiller
StychoKiller's picture

I can remember pinball machines that gave you a free game only after you scored better than 1000.  Most bumpers were worth 1 to 10 points, with the occasional 100-point bonus.

Wed, 02/22/2012 - 10:48 | 2184649 Conman
Conman's picture

Yup, markets have gone full retard.  Know the saying, never go full retard?

Wed, 02/22/2012 - 10:48 | 2184650 Manthong
Manthong's picture

But in three years all that LTRO poison will be paid back.. right?

(snarky sarc)

Wed, 02/22/2012 - 10:47 | 2184651 John Law Lives
John Law Lives's picture

"Fitch Cuts Greece, Near-Term Default ‘Highly Likely’"

Published: Wednesday, 22 Feb 2012
By: CNBC.com

http://www.cnbc.com/id/46478493

Wed, 02/22/2012 - 10:53 | 2184691 LawsofPhysics
LawsofPhysics's picture

Desperate paper-pushers, sure Fitch, go ahead and pull the CDS trigger then.  I dare you.

Wed, 02/22/2012 - 10:57 | 2184710 mayhem_korner
mayhem_korner's picture

 

 

They don't have the police protection to do that.

Wed, 02/22/2012 - 11:19 | 2184801 bdc63
bdc63's picture

silly, silly people.

fitch doesn't get to decide what constitutes a CDS credit event ... the bankers that wrote the CDS's do.

Wed, 02/22/2012 - 10:47 | 2184653 SheepDog-One
SheepDog-One's picture

Watching the core 'ticks and leeches' scurry about desperately trying to find more blood to suck from the dead corpse....AMUSING!

Wed, 02/22/2012 - 10:48 | 2184659 Gomie
Gomie's picture

Joe says, not to worry about anything:

Soaring oil prices in the spring of 2008 sent gasoline prices surging and accelerated the recession. Now, rising gas prices are threatening the recovery. But lower natural gas and utility costs this time around might limit some of the damage, says Deutsche Bank chief U.S. economist Joseph LaVorgna.

In a note to clients Tuesday, titled “Why this time could be different,”

Wed, 02/22/2012 - 10:51 | 2184682 SheepDog-One
SheepDog-One's picture

SURE! This time, we can have the bankrupt and unemployed pay $5 for gas, NO PROBLEM!

'Lower utility costs'....I guess Joey Baloney needs to get MY utility bill!

Wed, 02/22/2012 - 10:56 | 2184703 John Law Lives
John Law Lives's picture

"I guess Joey Baloney needs to get MY utility bill!" Agreed. For that matter, I am not seeing much (if any) decline on our natural gas bill versus last year (as far as the actual cost per unit of natural gas goes). Transportation costs factor into the cost of natural gas services that are passed on to the consumer. The impact of surging gasoline prices has far greater impact than a decline in natural gas prices.

Wed, 02/22/2012 - 11:02 | 2184733 WonderDawg
WonderDawg's picture

Not to mention, what was unemployment back in 2008?

Wed, 02/22/2012 - 10:50 | 2184671 falak pema
falak pema's picture

I don't understand the UK banking exposure. I thought it was higher than 9% on cumulative peripherals. 

The ratios look skewed.

Wed, 02/22/2012 - 10:54 | 2184697 LawsofPhysics
LawsofPhysics's picture

U.K. is betting on the U.S. and Japan - winning!  

Wed, 02/22/2012 - 10:57 | 2184711 falak pema
falak pema's picture

The UK banking exposure in Ireland, when I last checked, was higher than its exposure to Spain. It doesn't show up here. Also, the absolute levels look low compared to Euro core banks (G/F). The 2011 tables showed higher UK exposure. 

Wed, 02/22/2012 - 11:05 | 2184741 craig_slater_nl
craig_slater_nl's picture

BBC has nice graphic to illustrate who owes what to who. UK exposure highest to US and Spain,

 

http://www.bbc.co.uk/news/business-15748696

Wed, 02/22/2012 - 21:15 | 2187332 StychoKiller
StychoKiller's picture

Quite the royal clusterfsck!

Wed, 02/22/2012 - 11:06 | 2184757 Gomie
Gomie's picture

Nice miss on housing numbers. Must be good news though to support more screams of "This MUST be the bottom"

Wed, 02/22/2012 - 11:07 | 2184759 williambanzai7
williambanzai7's picture

This is funny, seriously funny

Wed, 02/22/2012 - 11:22 | 2184766 q99x2
q99x2's picture

The markets have no one left to trade with. Bankster machines are agreeing with each other that things are worth what they are. Middle class gave up their bank accounts. There's no one left to feed on. It is over. The day the markets died. From the chevy to the Levi... and so on. Kaput, broken, flatlined, dead without a cat to bounce.

Poof.

The show is over dudes. Dorothy left for Kansas a week ago.

Wed, 02/22/2012 - 11:24 | 2184822 lolmao500
lolmao500's picture

Is that %/GDP?? If so, oh goody!

Wed, 02/22/2012 - 11:30 | 2184858 Freegolder
Freegolder's picture

I believe Core Tier 1 capital includes many of the government bonds we are looking at anyway!

The UK looks good in that chart, but we're monetising our own Gilt issuance, so it'll be sterling that carries the can, rather than bank or bondholder losses.

 

Wed, 02/22/2012 - 11:38 | 2184887 lolmao500
lolmao500's picture

http://www.haaretz.com/news/middle-east/russia-israeli-strike-on-iran-wo...

Russia: Israeli strike on Iran would be 'catastrophic' Deputy Russian FM warns Israel against striking Iranian nuclear sites, saying Israel must understand consequences of such an action.

http://www.civil.ge/eng/article.php?id=24476

Putin: 'Rearming Georgia by U.S. Huge Mistake'

Wed, 02/22/2012 - 11:52 | 2184948 CWulf
CWulf's picture

I can't count that many I's, it all starts to blurrrrr...

Wed, 02/22/2012 - 11:56 | 2184964 loveyajimbo
loveyajimbo's picture

Don't worry!!  If there is any wrongdoing going on, you can be very sure that the pride of our Justice Dept, young Eric Holder and his nobel compatriots at the SEC will SPRING into action and arrest and prosecute the evildoers!!!  They will NEVER countenance fraud or theft!!  They will... arrrrgh!! Damn!  I just woke up, I must have had a bad burrito...

Wed, 02/22/2012 - 12:36 | 2185083 slewie the pi-rat
slewie the pi-rat's picture

speaking of "basel" [IIIIIIIIIIII ], switzerland doesn't count?

oppps!  my bad!

didn't notice the "anal"ysis was done by "'cred'-titSuisse"

perhaps the core "needs" to save the piigies {isn't propaganda eZ to spot sometimez?} b/c the swissies are melbaFukingToast under any other possible scenario?

Rising gold got you down? Call the BIS at 1-800-RIG-MKTS

L0L!!!

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