There is a reason why Italy keeps bailing out Monte Paschi, Italy's third largest, most scandal-ridden and most insolvent bank not to mention the oldest in the world, again [6]and again [7] and again [8], and which is currently demanding yet another bailout [9]. The reason is presented in the chart below which shows the amount of Italian bonds held by the Italian bank. According to yesterday's earnings release [10], BMPS' Italian bond holdings just hit an all time high [10] with Monte Paschi buying over €3 billion in Italian sovereign bonds in Q2 alone.
[11]
Putting the above into words:
- An insolvent government promises to provide more funny-money and guarantees to an insolvent bank, while in return...
- The insolvent bank keeps buying the bonds sold by the insolvent government, thereby...
- Continuing the charade that both entities are solvent
There has to be a name for such a truly "innovative" New Normal symbiotic relationship.