Europe Banking Crash cooking

The Holy Spirit has fled the accursed European banking system, a harbinger of the coming crash.  The fall of the BES can mean chain effects in France, and in big players like Fidelity financial group.

Banco Espirito Santo (BES), the ca. $100 billion-assets, 150-year-old commercial bank of the Group, was nationalized Sunday by Portugal's government, which belied everything Portugal had said about BES for the past month. BES' realized losses, some 5 billion euros and growing, were put into a "bad bank" and assumed by the government, and those losses will keep growing. So far they took about 5 billion euros of the government's bail-out fund. The fiction that this was a "banking sector-financed fund" was maintained when the government lied outright that the bailout "cost it nothing". The banking sector premiums had put almost nothing in the resolution fund, so the government had to "lend" it 5 billion euros. This situation is true Europe-wide.

Now the contagion: a $1 billion loss for shareholder Credit Agricole France, pending more from its "partnership" with the already- bankrupt BES Group; $1.5 billion loss for Barriere, Inc., Brazil; $1 billion loss for the Blackstone Group, etc. The government now claims that its bailout has spared BES depositors any confiscation, and only junior creditors will be "bailed in". But since BES was selling "Group financial products" to its depositors at branches, they will be among the junior creditors bailed in. And — surprise! — this was declared NOT a credit event, so the junior creditors lose all CDS payouts!

A study by Sinclair & Co. Consultants released Aug. 1 says that bad debts in Eurozone banks (i.e. not including British) increased 20% from May 2013 (the last stress tests) to May 2014; they are now estimated at 2 trillion euros or $2.7 trillion in "value". Meanwhile lending by those banks fell by 2.8% in the same year, with lending to households falling by 4%, and to businesses by 2.1%.

While China and the BRICS add credit and productivity to the world economy, the trans-Atlantic financial system subtracts them.

In a final irony, Argentina's supposedly defaulted ("Griefalted") 30-year 2033 bonds were selling at 91 cents on the dollar Monday, while BES' supposedly bailed out, UN-defaulted junior bonds were selling at 21 cents/dollar.

$3 Trillion in the Bank

What if you had $3 trillion in the bank, the Federal Reserve Bank, the money collecting interest.  Well, one day you might spend this money and cause massive inflation.

The billions and trillions and zillions are after us.

Yesterday, on January 9th 2014, the Monetary Policy and Trade Subcommittee of the House Financial Services Committee held a hearing named “Federal Reserve Oversight” to discuss the Quantitative Easing Program of the Federal Reserve. Witnesses included Benn Steil, senior fellow and director of international economics, Council on Foreign Relations; Allan H. Meltzer, professor of political economy, Tepper School of Business, Carnegie Mellon University; Desmond Lachman, resident fellow, American Enterprise Institute; and Arvind Subramanian, senior fellow, Peterson Institute for International Economics, and senior fellow, Center for Global Development.
The witnesses gave the pros and cons of continuing or stopping QE in their views, with Lachman and Subramanian calling for continuing the QE because of its supposed positive influence on international growth, while Meltzer said it should be stopped immediately and we should return to an era of stability like Bretton Woods.
The one very notable point in the hearing was what Allan Meltzer said after a long period of questions coming from Congressman to the Witnesses about the effects of tapering QE related to job growth, and international markets. Meltzer said the whole discussion was avoiding the real issue. Meltzer echoed the warning given by EIR’s Paul Gallagher during a January 10th, 2013 conference call,¹ when Meltzer pointed out that while everyone is talking about QE and its effect on the economy, no one is pointing out the fact that 92% of the QE is going to idle reserves. He said, “look, we are here talking about the effect of a small percent. The real risks involved in QE is the 92%.” He described it as “a tidal wave” of some $3 trillion in currently idle reserves sitting in the banks. “It’s a lot of money and can create a lot of problems. The idea that the U.S. can buffer the problems are wrong.”
Meltzer steered the discussion back to the same question again later on in the hearing, stating that the real danger to the world economy now in the effects of flooding the economy with U.S. dollars in the unwinding process of the QE. He asked, ‘“where is so much liquidity going to go and what is going to be the effect?” He said the Administrations tying together the goal of unemployment with the time to end the QE is stupid. QE should be ended now, and there should be a plan to get rid of all of the assets and prevent their damage to the economy.
The real solution is to pass Glass-Steagall, which would pull the plug on the threat of the mass of speculation, by wiping out the speculative assets off the books, and release the economy from the burden of skyrocketing commodity prices and other dangers when they come pouring out of the banks.
Another matter of note worth looking into was an issue raised by one of the Congressman concerning the possible danger of an international “swap facility,” recently made permanent. He asked whether Congress should be concerned with what he heard that the Federal Reserve has made a permanent swap facility with the 5 major central banks. The witness from the CFR said not to worry, that it was necessary to make the swap market permanent between these banks, and that since interest rate is zero and “there is no credit rate risk,” that everything is fine, and that it would be crucial in a crisis to prevent contagion. The Congressman wondered whether this meant that anyone of the countries could get bailed out at anytime at our expense, to which he was told it was of no concern. The issue echoed the exposure of the international bail in regime by LaRouchePAC last year.

Footnotes

¹"There will be a trigger, there might very well be a take off all of the a sudden in the price of food, because of the declines the real production of food, which is going on in conditions of drought, and under conditions of very rapid price fluctuations, of all the inputs to food, and of the food itself. Food commodities themselves. This could very well trigger it, but the basic mechanism that you are looking at, is that the central banks, led by the Federal Reserve, and the European Central Bank are printing trillions and trillions of new currency, putting into circulation directly through the major national and international bank holding companies. And the reason given by them themselves, why they claim this is not an inflationary policy, is that the vast bulk of that new capital and new liquidity given to these banks in this way, is being then put right back into the Federal Reserve, and the other major central banks, and the national central banks of Europe. The banks are putting it right back into the central banks, as what are called excess bank reserves. And they are being paid interest by the central banks on those reserves for the first time. The Federal Reserve has never done this before. Its the first time in its hundred year history that it has paid interest to get banks to put this money right back into the Federal Reserve. The ECB doing the same thing.
At a certain point, when a sudden speculative bubble grows up, or starts to escalate, as for example with a trigger escalation in the prices of food, watch that unused trillions come pouring out into commodity speculation, for example, and suddenly set off hyperinflation. So its not something that can be predicted at a given time. After all, in Wiemar Germany, the worst and most famous case, or most infamous case, they did this kind of money printing to pay unpayable government debts for more than two years, with no apparent inflationary impact until all the sudden it exploded and consumed the currency, and the entire economy. So we can't say when, we can say it will happen."

Euro is DOA

Hey Harlem dudes,

 And then you had to spoil it all, but saying something stupid- Save the Euro!
(Frank Sinatra or spoof, Something Stupid)


The Euro is not going to make it, and you could call the Euro and the Euro financial system, DOA, that  is dead on arrival.

The Italian government and the European Commission have activated crisis units to face an expected panic sale on Monday, July 23.
Yesterday, Italian and Spanish bond and stock markets plunged, and the spread went back at record height. Spanish 10-year bond yields rose to 7.284% yesterday, and Italian yields climbed above the 6% mark. The stock markets plunged 4.7% in Spain and 4.4% in Italy.
The Italian government has cancelled a bond auction scheduled for Aug. 14, but at the end of the month about EU31 billion must be somehow refinanced. Projections say that at current rates, Italy shall pay an additional EU15 billions on debt service by 2015 (almost EU100 billions in total).
Government sources speak of "those damned 50 days" from now to the expected ruling of the German Constitutional Court on Sept. 12, according to La Repubblica.
The fact is, that even if the Court rules in favor of the ESM, the euro is doomed anyway. Life for the ESM is now complicated by the fact that the left arm of the EU is sabotaging the right arm.
Eurostat is now demanding that the ESM clarify uncertainties as to who pays the final bill. Should Spanish banks bailed out by the ESM go bankrupt, Eurostat says that it must be clear whether the EU100 billion shall be paid by Spain or by ESM shareholders (the ESM member countries). Since it is clear that a bailed-out country cannot pay the bill, this is going to create more opposition among the public, such as in Germany.
Nevertheless, it is feared that puppet Italian Prime Minister Mario-netta Monti will use the pretext of the speculative attack to carry out another ambush against Italian taxpayers. Rumors circulate that the government might impose a tax on personal property which might reach EU250 billion. Monti gave a press conference yesterday and attacked a newspaper which had indirectly compared him with Mussolini. The ESM will condemn us to a "Ventennio"—20 years, usually a reference to Mussolini's Fascist dictatorship—the newspaper had written

Spain, and the Insane Banks

The banks are still going down despite the NY Times talk that Spain is all right.

FRANKFURT — With an agreement to bail out Spain’s struggling banks, Europe again avoided financial chaos in a debt crisis that is in its third year. But Europe still faces far bigger challenges that threaten the Continent and with it, the world economy.

The most urgent of those concerns is being driven by events in a country at the other edge of the euro zone: Greece.

While the Spanish banking rescue will be expensive — as much as $125 billion — it will be well within the means of a European emergency fund established for just such purposes. 

What BS!!!!  The Spanish debt hole is about $1 trillion.  Time for Glass-Steagall Act 1933 USA type legislation.  We need a bankruptcy reorganization.