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The balance sheet recession that seems to have correctly diagnosed the problem facing Japan (and now Europe and the US)  - explicitly causing debt minimzation as opposed to profit maximization - seems to be taking hold. However, it appears this death-knell for credit-created growth is now being seen in China - as AlsoSprachAnalyst interprets "people are not borrowing, but selling assets to pay down debts, and/or holding cash". What is most worrisome is that while the focus of the world has been on European bank runs (for fear of bank failure and redenomination risk), 21st Century Business Herald now notes that these bank runs have spread to China's industrial and construction-heavy city of Wuyishan. Queues were seen on various branches of China Construction Bank, Agricultural Bank of China, and Industrial and Commercial Bank of China. One local resident told the reporter that the city “has gone crazy”.

Update: as expected, "IMF Says Spain Discussions Internal, No Talks With Spain"

Wondering what prompted the most recent "month end mark up" ramp in stocks? Look no further than the IMF, which one month after failing miserably to procure a much needed targeted amount of European bailout funds as part of Lagarde's whirlwind panhandling tour, hopes that markets are truly made up of idiots who have no idea how to use google and look up events that happened 4 weeks ago. So here it is: the Spanish bail out courtesy of the IMF. Well, not really. Because according to other headlines the IMF claims no plans are being drafted for a bailout. Why? Simple - if the IMF admits it is even considering a bailout, it will launch a bank run that will make the Bankia one seem like child's play, as the cat will truly be out of the bag. So instead it has no choice, but to wink wink at markets telling them even though it has been locked out from additional funding by the US, UK, Canada and even China, it still has access to funding from... Spain.

A week ago we tweeted, jokingly, or so we thought, the following:

Rumor Europe has run out of toasters to hand out with new checking accounts

— zerohedge (@zerohedge) May 24, 2012

As it turns out it was no joke. Because instead ot the Generally Accepted Depositor Principles bauble generically handed out to witless investors, what Bankia is now resorting to is... a Spiderman Beach Towel in exchange for a €300 deposit.

It is rather amazing what one finds when a company which previously had allegedly posted a profit of €41 million, somehow becomes insolvent, needs a nationalization to avoid a full out liquidation, and gets bailed out by the state. One of the first things one finds is that the profit pitched to that particular class of gullible idiots, known as shareholders, was an outright lie. And yes, on that one very rare occasion when an auditor refuses to sign off on a bank's financials, in this case Deloitte, run far, and run fast. Instead what one finds is a massive loss. From Reuters: "BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government." Well, duh, something "new" better be reflected, or else the general public may just get the impression that banks are merely pulling numbers out of their glutes, that the entire balance sheet, income and cash flow statements are just a jumble of utter BS, and that keeping one's deposits in a system predicated on lies and fraud may not be the smartest thing. But no: that would imply one is inciting a bank run, and that is frowned upon by the very same government which does everything in its power to facilitate just the data manipulation that magically results in a profitable bank being on the verge of liquidation. But that's not all. According to Spain's Expansion, the total loss could be far worse, more than double the just reported, to a total of €7 billion. Indicatively, the move from a profit to a €7 billion loss, in a US context, is roughly the same as if US bank holding company X were to go from being profitable to posting a nearly $100 billion loss.

In Christian ethics – although not in exclusivity – there are a number of vices, most often referred to as the seven deadly or capital sins, which depict the antithetical side of virtue. Of the seven, avarice or greed (Avaritia in Latin) comes at the head of the list for me since its practice affects the wellbeing of others, and not just those who profess it. And it was this lady, Avaritia, who walked the Red Carpet a week ago, Friday, May 18, in a glittering dress that reminded us of what rapacious capitalism is all about, as shares of Facebook started trading past their scheduled time in the NASDAQ. A very surprising opening with a larger (25 percent) number of shares issued for trade, at a much higher (52 percent) price… or a “more aggressive” price in Wall Street IPO parlance.

The volume of searches for the phrase 'Bank Run' has just hit an all-time high - higher now than even during the peak of the Lehman Brothers 'moment'. While English dominates the language choices, the Europeans (Dutch, Germans, and French) are extremely 'interested' as are the Chinese...but it appears the Singaporeans are running the most scared (as we noted here) is perhaps not surprising, followed by the Irish and the Americans - with Germany a disappointing 10th - perhaps they really do not care as much as everyone's bluff-calling hopes. It seems the fears of real 'bank runs' are becoming virtually 'viral' - not a good sign for the stability of the fictional-reserve-banking-dependent status quo.

Now that the Ira Sohn conference has become a worthless hypefest, in which everyone and their kitchen sink is invited in a desperate attempt by hedge funds to offload positions put on ages ago to witless alphaclone chasers, the real "idea dinners" are few and far between. One such remaining one, which unlike others does not seek to publicize its positions to every retail investor, is that held by Monness Crespi, in which very select hedge funds are invited. Below we summarize the stock picks from last night's dinner. We are not at all surprised to find FaceBook already making enemies.

Did France, Italy and Greece think they are the only ones who can float strawmen in the media? No. Once again, Germany shows us how it is done. From Tomorrow's edition of Deutsche Wirtschafts Nachricthen: "The Greece-exit is a done deal: According to the German economic news from financial circles EU and the ECB have abandoned the motherland of democracy as a euro member. The reason is, interestingly, not in the upcoming elections - these are basically become irrelevant. The EU has finally realized that the Greeks have not met any agreements and will not continue not to meet them. A banker: "We helped with the Toika. The help of the troika was tied to conditions. Greece has fulfilled none of the conditions, and has been for months now." So more posturing? Or is Germany truly just so sick and tired of bailing out not just Greece (which pockets between 0% and 20% of any actual bailout cash), and indirectly French banks which as of this moment are the biggest pass thru beneficiaries, and of course the ECB with its tens of billions in old par GGB holdings, that this article is, gasp, founded in reality? Is Europe approaching its own Lehman moment when everyone says "just screw it", and let the dice fall where they may? Many said Lehman could never be allowed to fail. They were wrong. Just as many are saying that Europe will never let Greece leave as the costs to the continent are just too great. Well, judging by tonight's epic fiasco of a Euro-summit, the last thing we would attribute to Europe's leaders is clear and rational thought.

It just never gets old...

• Rajoy to ask for ECB assistance, according to reports (Sharecast)
• Bundesbank Suggests Greek Exit From Euro Would Be Manageable (Bloomberg)
• Unemployed Burn as Fed Fiddles in Debate Over Natural Rate (Bloomberg)
• Regulators, investors turn up heat over Facebook IPO (Reuters)
• China to boost private energy investment to bolster economy (Reuters)
• OECD fears euro woe to snap brittle world recovery (Reuters)
• China slowdown threatens Australia - World Bank (Herald Sun)
• Guessing game begins over next Treasury chief (Reuters)
• Italians spurn main parties in local polls (FT)
• A fragile Europe must change fast (FT)
• Spain to outline Bankia plan, may announce bailout size (Reuters)
• China Should Adjust Policy Early - Government Researcher (WSJ)

Did Facebook Feed Inside Information to the Big Boys … While Leaving the Individual Investor In the Dark?

All you need to read.

Not us. Note the rather amusing, and potentially prophetic, Google translation of Spanish daily Expansion's headline from today.

• Hilsenrath: Fed Pondering Why Inflation and Deflation Threats Ebbed (WSJ)
• The Naivete: France to push for eurozone bonds (FT)
• The rebuke: Merkel Says She Won’t Shy From Clash With Hollande at EU Summit (Bloomberg)
• The Euro-love: Hollande's euro arguments "nonsense": Austria's Fekter (Reuters)
• Obama Campaign Does Damage Control After Dems Question Anti-Bain Strategy (ABC)
• Greece: four major banks recapitalized by Friday (L'Echo)... and if they aren't?
• China to fast-track infrastructure investments (Reuters)... because China needs more cement
• Jeeps Sell for $189,750 as China Demand Offsets Tariffs (Bloomberg)
• As Facebook’s Stock Struggles, Fingers Start Pointing (NYT)
• Facebook 11% Drop Means Morgan Stanley Gets Blame (Bloomberg)

When Mr. Market ultimately becomes disenchanted with the fiscal excesses of the sovereign deadbeats, he can express his ire most energetically. When the current bond bubble here in the US ultimately bursts, as it must, it's going to be a bloodbath.  Of course, there is much, much more at stake to coming to the correct answer on the recovery, or lack thereof, than that. For instance, poor economies make for poor reelection odds for political incumbents. And when it comes to maintaining a civil society, the lack of jobs inherent in poor economies often leads to a breakdown in civility. On that note, overall unemployment in Spain is now running at depression levels of almost 25%, and youth unemployment at close to 50%. How long do you think it will be before the citizens of this prominent member of the PIIGS will refuse being led to the slaughter and start taking out their anger on the swine (governmental and private) seen as bearing some responsibility for the malaise? Meanwhile, back here in the United States, the commander-in-chief is striding around the deck of the ship of state trying to look like the right man for the job in the upcoming election, despite the gaping hole of unemployment just under the economic water line. His future prospects are very much entangled with this question of recovery.

So, what's it going to be? Recovery… no recovery… or worse, maybe even a crash?