Big Trouble in Europe

Greg Hunter’s USAWatchdog.com

There is big trouble in Europe with their sovereign debt crisis and insolvent banks.  Deutsche Bank CEOJosef Ackermann gave a stunning speech recently where he said, “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”  The Businessinsider.com story also goes on to say, “The implication is that not just Eurozone countries are buckling under the pressure of Greece’s, France’s, and Italy’s debts, but banks are too. It sounds like a desperate call for a bailout. Now.  However he says, “State funds could use means to put stability back into many companies and countries, but that does not remain the only solution.”  Still, the situation he describes looks dire. He says, “Many countries and households would have to reduce their debt. The mortgage business and consumer loans were [the few things] driving growth. In addition, there’s the problem of shrinking populations in several European countries, which negatively affects the growth of credit markets.  All this reminds one of the Autumn of 2008,” said Ackermann. “We should resign ourselves to the fact that the ‘new normality’ is characterized by volatility and uncertainty.”  (Click here to read the complete BusinessInsoider.com story.) 

So, will the EU bailout the banks on its continent or let them go under?  Who knows, but things are getting worse not better.  That’s for sure.  Karl Denninger, at the Market-ticker.org, says “It’s Over” when it comes to Eurozone financial institutions.  Denninger basically says the system we find ourselves in is doomed to fail because it is full of fraud!  Please read Mr. Denninger’s post below:

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It’s Over

By Karl Denninger

Put a fork in it folks.

As I write this the DAX is down well over 5% and there are multiple banks that are lock-limit down and have been suspended over in Europe.

Greek 1 and 2 year bonds are trading over 50% on yield.  That’s not a yield, it’s an implied recovery on a default which the market now says is inevitable.

The fraud has finally caught up with the scammers and taking on more and more debt to cover up unpayable debt has run its course.  Nobody believes it will work any longer, essentially.  The market has called on the scams and frauds and is now serially demanding proof that the banks can fund their liabilities.  It is doing so by driving down equity prices, forcing the institutions into a corner where their cash flow inadequacy is exposed.

Banks in the US and Europe have covered this up for the last three years.  I pointed out the scams in 2007 and used as an example Washington Mutual when I caught them paying dividends with money they did not have.

That was all that honest regulators (call them “cops” if you wish) needed to step in and demand that crap stop immediately, and to close the institution if they couldn’t or wouldn’t cease and desist.

But that was not done.

Then 2008 happened, exactly as I predicted it would.  Why?  Because while you can lie about balance sheets for a long time, I’ve never seen a bank anywhere in the world that will let you lie about a deposit ticket.  That is, cash flow always wins.

The solution?  Borrow more money!  Look Ma, I can’t be broke – I still have checks!

That was good for two years.  But now that scam has run out of gas as well, as the ability to continue to roll over paper one instrument after another finally hit the wall and people said “wait a second, this is a scam – you can’t pay the original note and are trying to con me!”

Well, yes.  They were.  This is a surprise when we’ve spent 30 years running the same scam?  Exactly how dumb are you to continue to buy into the same scheme that you know blew up in your face in 2008?

In 2007 and early 08 I counseled “ring-fencing” the government in the United States and pulling the supports, forcing the over-levered to default.  Yes, I know, that would be disruptive.  Very disruptive.  But the government would go on and in the places where there was too much leverage, those people would go bankrupt on both sides of the transaction.  Instead of blowing $4.5 trillion on “stimulus” programs we could have spent $200 billion providing three hots and cot to a quarter of the population for a year.  “Creative destruction” would have taken care of the rest – the bad institutions would have gone under, bankruptcy would have been rampant, but from the ashes there would have been a massive rebound in the economy and the clouds would lift – with about half the debt in the nation gone.  (Click here to read the rest of Denninger’s post.)

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