Apr 112012
 
 April 11, 2012  Posted by at 5:11 pm Finance
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If the recent history of the unfolding Eurozone crisis is instructive, Spanish PM Mariano Rajoy’s unconditional statement today that his country will not need an EU bailout signifies that a bailout is exactly what it will need before the year is up. This fact is obvious to anyone who has the slightest idea of how bad Spain’s economy is right now, with an extremely weak housing/banking sector and unemployment that is upwards of 23% and rising. It is, of course, always the banks that get the lion’s share of any bailout money, and Spain’s banks are falling apart quickly. Sinead Cruise for Reuters reports:

Investors run scared of Spain’s battered banks

 

Spain’s banks are fast joining the ranks of the most unloved in Europe just as many need to raise capital urgently, deserted by investors who believe the country is on the brink of a recession that many lenders will not survive.

 

The government has ruled out more state aid for a sector that comprises a motley mix of international lenders and heavily indebted local savings banks. That leaves two options: raising private capital or turning to the EU for bailout funds.

 

Prospects for a private sector solution are poor. Nothing on the horizon looks likely to persuade foreign fund managers to invest, such is the fear of the banks’ growing bad loans, their holdings of shaky sovereign debt and the worsening economy.

 

Already battered by a property market crash that began four years ago and continues unabated, few Spanish banks are able to borrow funds on wholesale credit markets and the majority are instead relying on the European Central Bank.

 

“Most are currently on liquidity life support from the ECB but asset quality continues to deteriorate as house prices keep falling and unemployment is still rising,” said Georg Grodzki, head of credit research at Legal & General Investment Management.

 

“Their funding remains constrained and competition for deposits intense,” he told Reuters.

 

Economy Minister Luis De Guindos told Reuters last week that all Spanish banks had met capital requirements set by the European Banking Authority under a 115-billion-euro recapitalization plan decided by European Union leaders in December.

 

But fund managers remain skeptical due to the slow-burning property crash. They include Mark Glazener, head of global equities at Dutch asset manager Robeco, who sold off his exposure to Spain at the end of last year. “Given the scale of over-building over all these years, the present provisioning that the banks have made does not appear to be enough,” he said.

 

Central and commercial bankers admit that more capital may be needed with the banks facing further defaults by businesses and mortgage holders as the economy slips into its second recession in three years and unemployment is forecast to hit 24 percent this year.

 

“If the Spanish economy finally recovers, what has been done will be enough,” Bank of Spain Governor Miguel Angel Fernandez Ordonez said on Tuesday, insisting that no talks were underway about any possible bank bailout.

 

However, he added: “If the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities.”

Part of the problem for the Spanish banks now, in addition to their extensive exposure to troubled sovereign bonds and mortgage-related assets, is the fact that the EU’s prior “rescue” efforts have only made things much worse for the entire Eurozone periphery in the short, medium and long-term. As referenced here many times, the ECB’s LTRO programs have simply propped up the banks for a little while, while draining the peripheral economies of available credit and hastening the flight of private (now subordinated) investors from their troubled banking sectors. What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

DELEVERAGING

 

Some people believe that while the ECB’s cash injections have offered immediate relief, they have also slowed down much needed deleveraging and reform of Spain’s banks.

 

A wave of consolidation aimed at weeding out the weakest lenders will cut their number to 10 from 40 but even those expected to survive are struggling to find favor.

 

“People are asking questions about the way banks are raising capital, through accounting, merging and amortizing losses over two years,” said one London-based bank analyst who asked to remain anonymous. “It’s a kind of capital-less capital raising.”

 

Bankia (BKIA.MC), created by a merger of seven regional banks or “cajas”, has caught the eye of hedge funds which are betting on a dip in its share price in the near-term.

 

The volume of Bankia shares out on loan, a proxy for short-selling interest, jumped 5.1 percent in the week to April 9, with more than four-fifths of the total shares that can be borrowed already lent out, figures from Data Explorers show.

 

Analysts at Citigroup suggest Spanish house prices could fall a further 20-25 percent before hitting a floor. This will eat further into the value of the 300-plus billion euros’ worth of property assets on banks’ balance sheets – 176 billion euros of which is already classed as “troubled” by the Bank of Spain.

 

Typical loan-to-deposit ratios, a measure of financial strength, show Spanish banks are already lending more cash than they have on deposit and the ratio is set to widen even further as unemployed Spaniards plunder their savings.

 

“It is still not clear where the resources will be found to close the gap in capital and required top up in provisioning for a number of the weaker banks that form a significant part of the domestic sector,” said Virna Valenti, senior credit research analyst at UniCredit (CRDI.MI) subsidiary Pioneer Investments.

 

“Only a couple of institutions currently have access to the wholesale funding market and this will continue to be the situation for a while,” Valenti said.

 

Paul Vrouwes, senior financials manager at ING Investment Management (ING.AS), said the majority of his peers would probably steer clear of buying Spanish bank shares until the country showed it could shrink its ballooning debts and generate economic growth at the same time.

 

“I think that Spanish banks will have to pay a lot more to investors like me to raise funds in the future. I am not so sure how they will manage when the ECB money needs to be paid back,” Vrouwes said.

So there is no doubt that Spain’s banks, and therefore Spain’s government, will need a bailout in the near future. The only question that remains is whether they will actually get one. Spain needs to roll over more than $300bn in bonds over the next three years (see graph below), and that amounts to almost half of the *allegedly* available support from the EFSF-ESM bailout funds. Basically, we are talking about a country that is much too big to fail OR save, especially when considering just how little chance it has of returning to internal growth during the next few years of record unemployment, capital flight and hard-hitting austerity measures.

 

 

Even if Germany and the rest of the onlooking EU “core” can manage to agree on the provisioning of funds for a Spanish bailout, it will remain just that – a hollow agreement. By that time, it will be clear that the Greek bailout/restructuring experiment was a total disaster, Portugal is following close behind and that Spain will completely devour all of the available capital left in the core. There is a very good chance that any funds promised to Spain will never make it there, and that Germany will use it as a much-needed excuse to cut its losses and run. Or, perhaps it will first be Spain that succumbs to popular resistance by its people and decides to leave. The one outcome that Europe can no longer tolerate is another bailout process which keeps the Union together and the banks alive, while the people are left to die.

Home Forums Spain WILL Need a Bailout Soon

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April 11, 2012 at 5:11 pm #8562

ashvin

If the recent history of the unfolding Eurozone crisis is instructive, Spanish PM Mariano Rajoy’s unconditional statement today that his country will
[See the full post at: Spain WILL Need a Bailout Soon]

April 11, 2012 at 9:42 pm #2578

jal

What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

Exchange/replace the “unproductive debt” for a cash producing/generating asset. (printing press heheheh)

April 11, 2012 at 10:02 pm #2579

ashvin

jal post=2184 wrote:

What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

Exchange/replace the “unproductive debt” for a cash producing/generating asset. (printing press heheheh)

Yes, that’s one of the things that the EZ periphery including Spain need to do. Print away their debts, or, better still, establish a legitimate debt moratorium/forgiveness program. They cannot do either of those things in a meaningful way as long as they remain a part of the Union.

April 11, 2012 at 10:28 pm #2580

jal

establish a legitimate debt moratorium/forgiveness program.

The best way to do that is to move the un-performing debts to a “structure” that will save the banks. (keep the banks from going bankrupt. An equivalent F&F)

April 11, 2012 at 11:10 pm #2581

Anonymous

Ash, I read recently on ZH about the possibly near introduction of Floating Rate Notes by the US Treasury. ZH seems to think this is a huge deal. I reread the article as well as posted questions on their blog, but I still haven’t had it explained to me in a way I can understand. Would you be willing to what ZH and Prof Singh are trying to say about the significance of FRN and why that means to “Get Out of Dodge” (do they mean Equities?) in this post:
http://www.zerohedge.com/news/if-1951-accord-any-indication-treasurys-imminent-launch-floaters-will-be-signal-get-out-dodge

Thank you!

April 11, 2012 at 11:34 pm #2582

ashvin

MayAllBWell,

Sure. I don’t have time tonight, but I’ll take a look tomorrow and get back to you.

April 12, 2012 at 12:37 am #2583

Golden Oxen

Everyone is going to need a bailout soon. Let’s not go down the list one at a time with the attendant nitty gritty. Can they print there way out of this debt horror or can’t they? Therein lies the rub.

April 12, 2012 at 12:46 am #2584

pipefit

Spain will need a bailout, but they won’t take the same austerity package that Greece took, Greece style, lol. Spain’s unemployment is way too high already.

Gonzalo Lira thinks Spain will be the first out of the Euro, but he’s usually wrong. My guess is that they get an ‘accommodation’, of some sort.

They’ve already broken every treaty they have over there, so it won’t be that difficult to shovel several hundred billion Euros into the Spanish coffer on a Sunday night.

April 12, 2012 at 7:34 am #2587

TheTrivium4TW

Hi All,

“Printing” is just as much a default as defaulting. The only difference is WHO will take the loss.

Will it be the debtors or the debt holders?

The debtors are obviously banking, pun intended on the debt holders taking the loss.

That’s an interesting bet since the debt holders will decide who will take the loss – and they’ve ripped the face of the debtors every chance they’ve had up until now.

QE was not about helping the economy any more than the Fed has a dual mandate (they don’t – read Section 2A of the Federal Reserve Act for yourself – their mandate is singular… they are lying and so is academia and the media).

Quantative Easing was all about using public money to quantitatively ease the losses of the inner party players at the expense of everyone else.

In other words, they used public money to 1. get better prices for themselves as they exit the markets and 2. make sure the public is blasted with even more debt as the bag holders for the various markets.

Someone claimed I was wrong when I claimed the debt holders would make the debtors pay, not themselves.

They claimed derivatives meant the debt holders would bail out the debtors.

Last I heard, the derivatives were bets against higher interest rates (the bank side, anyway). It sounds to me like they will collapse the economy, drive rates down near zero and then use government to invalidate all those derivatives just before they hyperinflate to balance their books.

The table is tilted, people. The game is rigged.

JP Morgan isn’t giving out 4% 30 mortgages because they are going to super inflate anytime soon.

They haven’t ripped off debtor faces for decades only to bail them out at the end.

These are some cold SOBs.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

Got that? Ford was in a very good position to know – and he’s dead on about people not understanding Debt Dollar Tyranny, too.

April 12, 2012 at 7:38 am #2588

Coco

Debt forgiveness in Spain begins at the top – the ¨conservative¨ government already issued an amnesty for all those who were hiding assets to avoid paying taxes. 10% tax and all is forgiven – no matter how much or how long it was hidden.

And Mariano Rajoy, the newly elected PM with an absolute majority, is skulking out the back of congress to avoid anwering questions.

http://southofwatford.blogspot.com.es/

April 12, 2012 at 7:51 am #2589

TheTrivium4TW

Golden Oxen post=2189 wrote: Everyone is going to need a bailout soon. Let’s not go down the list one at a time with the attendant nitty gritty. Can they print there way out of this debt horror or can’t they? Therein lies the rub.

“Printing” bails out the debtors (sheep), taking the nation’s into receivership as they all go bankrupt enriches and empowers the debt holders (wolves).

Go ahead and bet on the wolves bailing out the sheep.

I bet that the wolves eat the sheep.

See previous my post for why QE was enacted – the narrative wasn’t reality. It rarely ever is.

Don’t believe me… blind belief is bad (not that you would – you think my view is abhorrent).

But keep the idea on the back shelf. The Fed came out today and is laying the groundwork for letting deflation hit so they can asset strip society one more time.

I think QE3 may occur – but it won’t be to “jump start the economy” or “bail out debtors.”

It will be to enrich the inner party and to indebt everyone else. Same as it always was.

These wolves wear suits and they act as some kind of cloaking device for the evil that dwells within those suits.

The insiders aren’t hoarding trillions in cash and debt and giving away 4% mortgages because the insiders are going to “print” all their own wealth away.

Not.

Gonna.

Happen.

The inner party has been working on this “end game” scenario since they installed Debt Dollar Tyranny back in 1913. This isn’t anything new or unexpected – they KNEW the end would look like this almost 100 years ago.

April 12, 2012 at 8:07 am #2590

TheTrivium4TW

MayAllBWell post=2187 wrote: Ash, I read recently on ZH about the possibly near introduction of Floating Rate Notes by the US Treasury. ZH seems to think this is a huge deal. I reread the article as well as posted questions on their blog, but I still haven’t had it explained to me in a way I can understand. Would you be willing to what ZH and Prof Singh are trying to say about the significance of FRN and why that means to “Get Out of Dodge” (do they mean Equities?) in this post:
http://www.zerohedge.com/news/if-1951-accord-any-indication-treasurys-imminent-launch-floaters-will-be-signal-get-out-dodge

Thank you!

Hi MAB,

I’m sure Ash will go into more detail, but my take is that ZH is speculating that the necessity of floating rate notes to get people to still buy treasuries as interest rates rise.

Without floating rate notes, people would resist buying treasuries because they’d get murdered by ever increasing rates.

Of course, the treasury holders are mostly inner party members and their corporate fronts, so this would mostly a bailout by another name.

ZH seems to be calling for Obama or Romney to reign in the Fed, but I think they are wrong. I think the banksters put someone in office with, shall we say, “liabilities,” to ensure that he follows through on his bankster operative agendas…

The international financiers are running the show now.

April 12, 2012 at 8:09 am #2591

TheTrivium4TW

ashvin post=2185 wrote: [quote=jal post=2184]

What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

Exchange/replace the “unproductive debt” for a cash producing/generating asset. (printing press heheheh)

Yes, that’s one of the things that the EZ periphery including Spain need to do. Print away their debts, or, better still, establish a legitimate debt moratorium/forgiveness program. They cannot do either of those things in a meaningful way as long as they remain a part of the Union.

And their politicians under the thumb of the Debt Dollar Tyrants.

Sovereign money can exist, but it doesn’t maximize profits for Debt Dollar Tyrants – and they are orchestrating world events right now… the people have to wake up to their “Art of War” or else the future is more bleak than the bleak future we face for willfully falling into their credit bubble trap.

April 12, 2012 at 1:42 pm #2592

pipefit

The Tri-”Someone claimed I was wrong when I claimed the debt holders would make the debtors pay, not themselves.”

You are wrong. You’re focusing too narrowly. The main creditors are the Asians, and the main debtors are the developed nations of the West. How is china gonna make us pay?

We can’t pay, so we won’t. The question is if we can default in a manner that doesn’t bring down the world’s economy by 30% or 40%. Quite frankly, I don’t know.

Look what happened to Japan, when we inflated away 2/3 of our debt to her. The Japanese were in a bind and needed that money, and then, poof, it wasn’t there. Given the state of the Chinese banking system, it looks bad.

At some point, China is going to demand geopolitical concessions for being cheated out of their currency reserves.

April 12, 2012 at 2:53 pm #2593

TheTrivium4TW

pipefit post=2198 wrote: The Tri-”Someone claimed I was wrong when I claimed the debt holders would make the debtors pay, not themselves.”

You are wrong. You’re focusing too narrowly. The main creditors are the Asians, and the main debtors are the developed nations of the West. How is china gonna make us pay?

We can’t pay, so we won’t. The question is if we can default in a manner that doesn’t bring down the world’s economy by 30% or 40%. Quite frankly, I don’t know.

Look what happened to Japan, when we inflated away 2/3 of our debt to her. The Japanese were in a bind and needed that money, and then, poof, it wasn’t there. Given the state of the Chinese banking system, it looks bad.

At some point, China is going to demand geopolitical concessions for being cheated out of their currency reserves.

Who owns more debt than the private international banking cartel that controls the Federal Reserve?

What price the new democracy? Goldman Sachs conquers Europe

http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html

You know, the group that has taken over Europe without firing a shot (and NOT by bailing them out) and WHO will control the destiny of America?

You may well be correct that international debt is higher than international banking cartel debt, but it is the THE CARTEL that will make the decisions – and they may well enjoy another excuse for major war and population reduction… if you know WHO they are… you’ll know what I mean.

April 12, 2012 at 3:11 pm #2594

pipefit

“but it is the THE CARTEL that will make the decisions – “

They could have booted Greece out of the Euro Zone, and chose not to. Or did they really have a choice? I think not. I think a disorderly Greek B.K. would have exposed the cartel as themselves bankrupt.

Look at it this way. The USA has a $15 trillion economy. Take out the government, and it is maybe a $8 trillion annual GDP, private sector. Then take out retail, finance, education, and how much wealth is actually produced. Just a wild guess, I’d say 2 or 3 trillion per year.

And how many trillions in claims are there on that 2 or 3 trillion? There’s nothing here to take. Yeah, they can seize people’s houses, then do what? Rent them out? To whom?

And of course Spain is even worse.

The main thing the cartel has going for it is the military industrial complex, but the ability of the USA to fund that is diminishing quickly. They could start a nuclear war, I suppose, but in that case, you and me won’t have to worry much about earthly matters……………..

April 12, 2012 at 4:49 pm #2596

ashvin

MayAllBWell,

I very briefly discussed the issue of FRNs at the end this post – Paying for Protection

At that time, I figured it was simply another way for the UST to accommodate ever-increasing demand for treasuries in the current environment, where people are fleeing European bonds and other high-yield debt-assets in droves. The FRNs are basically a way to buy treasuries (preserve capital) with an implicit interest rate swap built in, which eliminates IR risk and only leaves credit risk. Basically, it is a bond packaged with a hedging mechanism.

ZH seems to think that the fact that the TBAC (the big banks) are on board with this idea implies they believe short-term IR will spike in the near future, perhaps later this year or sometime next year, and by that time the UST will have substituted FRNs for a good portion of the outstanding normal treasury notes held by the large financial institutions. This will leave both the UST and the large institutions solvent, while those holding other risk-assets such as private bonds and stocks will get clobbered. Indeed, a significant spike in short-term IR should be expected to trigger a huge RISK OFF period.

That being said, my initial thoughts are that ZH is being a bit alarmist here, as usual. It’s still possible that the FRNs are just a means of providing more customized supply of treasuries to institutions with increasing demand. Similar to IR swaps or any other hedging device, they will also help sustain demand at extremely low interest rates. I can’t imagine the Fed is planning on raising its funds rate any time soon (they said not until 2014), and don’t see many other reasons for a gut-wrenching spike in treasury rates either.

Several years down the line, though, it could be an entirely different story, and the fact that the UST’s debt portfolio has been largely transitioned to FRNs may be a useful mechanism for it to forestall a full-blown sovereign debt crisis like those occurring in the Euro periphery. Although, many things may have changed by that time (including the composition of the EU), and it is hard to predict just how devastating a large spike in IR will be. One thing is for sure – investments in equities will be demolished.

April 12, 2012 at 5:17 pm #2597

jal

Let’s try to look into what could be happening to try to save Spain.
Read the following to get an introduction.

http://www.oftwominds.com/blogapril12/2008-reprise4-12.html

Is 2012 a Reprise of 2008?   (April 12, 2012)

The collateral was leveraged 33-to-1.
If $1 of collateral is supporting an inverted pyramid of $33 of leveraged debt, which is then the collateral supporting an even larger pyramid of derivatives, then when that $1 of collateral vanishes, the entire edifice has lost its base.
In our example, the mortgage is still valued on the books at $450,000, but the actual collateral — the house — is only worth $250,000. The idea being pursued by central banks around the world is that if they pump enough free money and liquidity into the system, and buy up impaired debt (i.e. debt in which the collateral has vanished), then the illusion that there is still some actual collateral holding up the market can be maintained.
The European Central Bank (ECB) has played the same hand as the Federal Reserve: Do more of what has failed spectacularly.  Expand the money supply, pump in more liquidity and buy up the impaired debt all in the hope that the market will believe that there is still some collateral holding up the leveraged-debt pyramid.

Let’s concentrate on the following statement.

“… and buy up the impaired debt …”
If you really want to understand how the numbers work,then use a spreadsheet.

The conclusion is …
If the leveraging is 33:1 then the banks get all of their money back if the ECB takes only 1 of 33 bad assets at a 100%. The banks are saved.
If the ECB takes all 33 bad assets at 100% then the banks are going to be rolling in cash.
If you are still confused, Go back and read the example above.

Thank You.
===

April 12, 2012 at 7:02 pm #2600

Anonymous

Thank you, Ash for your – level-headed – explanation. It also helps to hear you say that ZH is often alarmist, because I’ve noticed that too. In fact, I got alarmed after reading that article! :-) I think i understand better what this is about now.

I wonder if you are also willing to comment on the following:

ZH has said that retail mostly sat out this equities rally and that (therefore) primary dealers and other big players are to a large degree “all-in”, unable – so far – to pass the bag off to retail, though they repeatedly try to coax retail to buy, for example through MMM messaging.

The big players are thus motivated to either try and keep the rally going ever higher, maintain it flat, or be the first to sell and get out. The first ones to sell in a bubble and escape the game win, everybody else looses.

So it’s this “first ones out” that I have a question about. It seems to me there are many big players, each one looking out for their own self interest and willing to stab the others in the back or cooperate as needed. Each one would love to be the first out, but I think there’s a problem.

In the old days, perhaps a few could sneak out first (ie: sell big time and all of a sudden). But nowadays the big players are all privy to sensitive and incredibly quick computers and program sentinels which are constantly patrolling every nano-move in the markets. I don’t think anyone can “sneak out” in a big way anymore, because as soon as the move starts, everyone is alerted and instantly responsive.

The only exceptions to this I can think of is if there’s an entity that has technology that is much faster than all the others. Or if several of the big players cooperate and act in accord, leave together, and split the spoils.

I have this image of a smoky room all filled with mafiosi bosses, untold riches in bags all around the room, with guards at every exit carrying loaded guns. Each boss would like to escape with lots of loot… But no one can leave…. Unless?

April 12, 2012 at 7:29 pm #2601

ashvin

MayAllBWell,

The issue you just raised is what I refer to as the “financial fingerprint of instability” (see Revisiting the Financial Fingerprint of Instability). It is a situation in which the financial markets, and most clearly the equity markets, have lost most of their resilience and are now extremely prone to high volatility over short periods of time. The consequences of that for the big players should not be under-estimated, as they are now forced to cannibalize themselves for marginal profits in the “new normal” of synchronized HFT.

As the graphs above indicate, it is not just investors’ time horizons that have lost most of their variability with the inexorable rise of HFT, but also the differences in the number of stocks traded and the volume of those trades. And the situation has only become worse since that time. From mid-2011 to the first month of 2012 was a period marked by an unprecedented drop in volume for the S&P 500, while European markets have followed similar trends [As the No-Volume Market Churns]. This was also a period of great volatility in markets, with frequent episodes of systemic fear gripping these markets by their throats in the Fall of 2011.

Indeed, U.S. markets finally ended a gut-wrenching 2011 barely changed from where they started the year. The only thing investors gained from the tumultuous market that year was painful whiplash and heartache, as well as the prospect of even more instability in the future. One of the key drivers of this greatly decreased variability in the market over the last few years had been the unabated exodus of the retail investor, who could no longer endure the torture and had completely yielded to robotic traders.

People investing their capital through mutual funds and pension funds have traditionally been the source of variable time horizons, investment sizes and allocations for the equity markets, but they are all but out of the equation now. What’s perhaps more interesting is how even the limited variability provided by HFT market participants is now in the process of disappearing, as the robotic traders who can longer compete are weeded out.

So, as noted in my original piece, the natural and variable heartbeat of most equity markets worldwide, and especially in the U.S., has been completely eradicated, leaving the “brain” starved of oxygen for much too long. There is no cognition, creativity or conscience left – only the mundane and de-humanized life of patients who are being kept alive by an assortment of machines. However, even the machines are running out of the energy required to keep them powered on, because liquidity is no longer enough for the big money players. The hope of witnessing the market bounce back to a healthy and stable life has been overtaken by the pain and agony of watching it die.

Some of the BIGGEST players, i.e. the people even higher than the Mafia bosses in your analogy, can probably afford to take a hit in the equity markets, as they can dump their holdings early on and can continue to feed on the lifeblood of smaller institutions and taxpayers. These are the people who will probably have bets placed against the market that more than offset any non-backstopped losses they will incur. The bond and derivative markets, though, are a different story, even for them.

April 12, 2012 at 7:45 pm #2602

Anonymous

Thank you, Ash.

April 13, 2012 at 3:08 pm #2617

jal

http://www.zerohedge.com/news/how-ecb-turning-spain-greece

How The ECB Is Turning Spain Into Greece

(ECB liquidity now accounts for 8.6% of all Spanish banking assets), is a very high number – on par with Greek, Irish, and Portuguese levels around 10% where their systems are now fully dependent on the ECB for the viability of their banks. His bottom line, Spain is not looking good here and while plenty of chatter focuses on the ECB’s ability to use its SMP (whose longer-term effectiveness is reduced due to scale at EUR214bn representing just 3% of Eurozone GDP), consider what happened in Greece! The ECB did not take a Greek haircut and so the greater the amount of Greek debt the ECB bought, the greater the eventual haircut the private sector was forced to take.

The conclusion is …
If the leveraging is 33:1 then the banks get all of their money back if the ECB takes only 1 of 33 bad assets at a 100%. The banks are saved.
If the ECB takes all 33 bad assets at 100% then the banks are going to be rolling in cash.
If you are still confused, Go back and read the example from CHS above.

April 16, 2012 at 9:51 am #2642

TheTrivium4TW

pipefit post=2200 wrote: “but it is the THE CARTEL that will make the decisions – “

They could have booted Greece out of the Euro Zone, and chose not to. Or did they really have a choice? I think not. I think a disorderly Greek B.K. would have exposed the cartel as themselves bankrupt.

Look at it this way. The USA has a $15 trillion economy. Take out the government, and it is maybe a $8 trillion annual GDP, private sector. Then take out retail, finance, education, and how much wealth is actually produced. Just a wild guess, I’d say 2 or 3 trillion per year.

And how many trillions in claims are there on that 2 or 3 trillion? There’s nothing here to take. Yeah, they can seize people’s houses, then do what? Rent them out? To whom?

And of course Spain is even worse.

The main thing the cartel has going for it is the military industrial complex, but the ability of the USA to fund that is diminishing quickly. They could start a nuclear war, I suppose, but in that case, you and me won’t have to worry much about earthly matters……………..

Why did the oligarchs of old want to own all the land and resources and treat people like serfs?

It appears to be in their nature.

Have you heard the about the scorpion and the frog?

http://allaboutfrogs.org/stories/scorpion.html

It appears this is simply what they do.

BTW, I’m hoping for hyperinflation so that my neighbors don’t become JP Morgan and Goldman Sachs. I want my neighbors to have a chance to actually own their homes.

I “get” that a deflationary depression is simply sicked in a society based on debt. Denninger keeps rooting for it, but I don’t think he actually “gets it.”

It is gonna be wicked when 50% of the money supply disappears.

The crowd that thinks people will reject dollars simply don’t understand the system. To “reject dollars” is to reject debt – and you can’t just do that without losing the asset… which is money destruction and deflation by definition.

Yes, it’s horrible. These people are wicked – it is simply what they do.

So we have to get prepared, build local sustainability and warn others so they can prepare.

April 16, 2012 at 9:54 am #2643

TheTrivium4TW

ashvin post=2207 wrote: The bond and derivative markets, though, are a different story, even for them.

Which is exactly why they’ve tied society to those debts.

Oh, they will rescind them in time, but only just before they would actually damage the “inner party” cartel.

The derivatives are very useful as a cement anchor to tie to society as it is thrown overboard. The line will be cut when an oligarch risks getting pulled in, though.

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