Incidentally, this is what a nuclear explosion looks like one millisecond after the bomb's detonation:
The real story of the present, is the shadow banking system, the unstable and massive repo market, and the apparent daisy chain of hyper-rehypothecated collateral. It looks like the sound bite version amounts to the fact that the European banking system is on the leading edge of collapse for the whole system. These institutions are by all evidence now badly deficient of the three hallmarks of real banks—deposits, capital and collateral.
BNP-Paribas is the classic example: $2.5 trillion of asset footings vs. $80 billion of tangible common equity (TCE) or 31X leverage; it has only $730 billion of deposits or just 29% of its asset footings compared to about 50% at big U.S. banks like JPM; is teetering on $500 billion of mostly unsecured long-term debt that will have to be rolled at higher and higher rates; and all the rest of its funding is from the wholesale money market , which is fast drying up, and from repo where it is obviously running out of collateral.
Looked at another way, the three big French banks have combined footings of about $6 trillion compared to France’s GDP of $2.2 trillion. So the Big Three french banks are 3X their dirigisme-ridden GDP. Good luck with that! No wonder Sarkozy is retreating on France’s AAA and was trying so hard to get Euro bonds. He already knows he is going to be the French Nixon, and be forced to nationalize the French banks in order to save his re-election.
By contrast, the top three U.S. banks which are no paragon of financial virtue—JPM, BAC, and C—have combined footings of $6 trillion or 40% of GDP. The French equivalent of that number would be $45 trillion. Can you say train wreck!
It is only a matter of time before these French and other European banks, which are stuffed with sovereign debt backed by no capital due to the zero risk weighting of the Basel lunacy, topple into the abyss of the shadow banking system where they have funded their elephantine balance sheets. And that includes Germany, too. The German banks are as bad or worse than the French. Did you know that Deutsche Bank is levered 60:1 on a TCE/assets basis, and that its Basel “risk-weighted” assets are only $450 billion, but actual balance sheet assets are $3 trillion? In other words, due to the Basel standards, which count sovereign and other AAA assets as risk free, DB has $2.5 trillion of assets with zero capital backing!
This is all a product of the deformation of central banking and monetary policy over the last four decades and the destruction of honest capital markets by the monetary central planners who run the printing presses. Furthermore, this has fostered monumental fiscal profligacy among politicians who have been told for years now that the carry cost of public debt is negligible and that there would always be a central bank bid for government paper. Perhaps we are now hearing the sound of some chickens coming home to roost.
Poor relatives - who are the poor relatives? One thing is for sure, there is no rich aunt/uncle around, anymore.
Reports Zero Hedge, quite in line with my own thinking:
Every day that Germany continues to flirt with the idea of propping up Europe, is another day that the country gets closer to its own fiscal crisis.
The mainstream media believes that Germany is somehow the bastion of fiscal strength. However, even a cursory look at the facts disproves this.
For starters, German banks post some of the highest leverage rations in Europe: higher that Italy, higher than Ireland, even higher than Greece. In fact, German banks are actually sporting leverage EQUAL to that of Lehman Brothers when it went bust.
Germany is in serious trouble, but her chancellor arrogantly pretends that the good fortune of Europe lies in our hands. And this article is tame, compared to the onslaught of hubris emanating from Germany.
Global statism - wherever you go on this planet, you run into the same wall.
I am not sure I understand everything Bass says; however, having blogged much about the US', Europe's and a little about China's highly unsound economic conditions, I welcome the reminder of the terrible and undignified state of Japan, and the rare voice that (beginning at time mark 4:45) points out quite correctly that my native Germany is not the giant of economic wisdom, discipline, and power that everybody seems to think she is. Like the other "great" powers mentioned above, she is a phase-out model, unfortunately, however, one with an outstanding record of repeating the mistakes of the past.
I elicit shock with my (Germany-experienced) American acquaintances when I suggest that Germans are the most "religious" people I know. My compatriots uniformly and fanatically believe in the state, any state, Imperial, Fascist, Communist, Democratic, as long as it is impressive and imposing enough, the divine state, subliminally so paternally awesome as to make people give up the inconvenience of self-responsibility for unconditional compliance. We have not learnt the most important lesson of our history, when we got rich after the second world war, we did not understand why, calling the phenomenon das Wirtschaftswunder (the economic miracle), and now that things are turning bad, we do not know why either. What scares me most is that at the core the wish for authoritarian leadership is as strong as ever, and the ridiculous fiction of democracy (in its present form) has only helped to veil the danger. But this latter point deserves a post in it's own right.
And below a more lengthy (24 minutes vs. 6 minutes) interview, where Kyle Bass repeats most of his points made in the above clip, and adds lots of good ideas.
"The arms industry did not create the war system. On the contrary, the war system created the arms industry.... All constitutions in the world vest the war-making power in the government or in the representatives of the people. The root of the trouble, therefore, goes far deeper than the arms industry. It lies in the prevailing temper of peoples toward nationalism, militarism, and war, in the civilization which forms this temper and prevents any drastic and radical change. Only when this underlying basis of the war system is altered, will war and its concomitant, the arms industry, pass out of existence."
The Ludwig von Mises Institute has re-released the book, from which the above quote stems: The Merchants of Death.
So much to cover, so much tied to each other. Wow, this is going to be a great week.
1. The downgrade of US debt by S&P is ridiculous. Since when can't the US print money to pay its bills? Is there really any risk of default? No. If you loan green slips of paper to the US government, they can always give you green slips of paper in return. Get it?
2. The S&P downgrade and possible downgrades by Fitch and Moody is payback for the Dodd-Frank bill which begins to reign in and regulate this industry. If you go to this page on S&P's website you can see how they refute some of the new regulations. For a quick history about the rating agencies you can go to this NPR Planet Money story. It is quite interesting to see that the federal government outsourced the rating of debt instruments to these firms and now wants to take that away. Someone isn't too happy with that. Also very interesting that the source of money of these firms were you and me, the buyer of debt, but now their revenue comes from the issuer of the debt. By the way, if the government doesn't issue any more debt then there are no more dealers creating/selling bonds and thus S&P, Fitch, and Moody have less to rate and thus less income. Now you know why Obama is saying it is the Tea Party's fault for the downgrade since we didn't issue enough more debt. And you can forget what S&P says that we need to balance our budget. Hogwash, they want more debt. Of course that won't sell to you, so they have to repackage it. Of course there could be another reason to do the downgrade...
3. With the downgrades making an excuse to topple the market, one has to ask why now? How about bank failure. After the TARP episode of 2008, and everyone clamouring to stop any more banker bailouts, what would happen to a bank if it were to fail today? Or at least get severely hammered that it didn't have the capital to exist anymore and desperately needed a suitor? Well, look no further than BoA's 20% decline today. That's the next ship to go under. Now the question is who will pick them up?
NOTE: The below is NSFW, but chalk full of good information.
Note: The above video was made on August 5th. They nailed the events of today (Monday).
If you skipped the video, here's the run down. JP Morgan is looking to swallow BoA. Welcome to the 1890's people. The 'Morg is back and running the show. They've got to work fast before the Tea Party steps up and wipes out their pols in the Congress, so brace for impact. Oh, and we'll all cheer about the 'Morg taking over BoA. Since after all that's the "free market" way of doing things.
4. The metals are heating up too especially with the information that China is a heavy buyer who are going directly to the miners. Hmm, I recently heard someone (RM) say they were investing in miners.
Wild and wooly. Hang on to your hats. This week should get real interesting. (I reserve the option of supplying an oops post later.)
As for the future? Never bet against the Fed (while it still exists). Thus, we're fire'n up the printing press, and we're having a party. Or at least trying to maintain equilibrium the Keynesian way. Until we can't float anymore.
Neither do I wish to make a point about the US-Israel relationship, nor do I understand the Israel-related allusions of the image, I simply like the striking depiction of the BU(shO)BAMA system, the concerted cynical usurpation of America by the Republican and the Democrat establishment.
Obama - The Audacity of Fraud, my post from 2008 predicts the below findings. There is nothing special about the uneducated, waffling, and self-aggrandizing Bomber Barry. Barack Hussein Obama is simply the new chief-puppet to take the self-empowerment of the two colluding parties that own America to the next level.
We hold these truths to be self-evident, that all people should be made equal, that they are endowed by their government with certain unalienable Rights, that among these are jobs, healthcare and housing.–That to secure these rights, Governments must rule over the people, deriving their just powers from the consent of the elite, –That whenever the people becomes destructive of these ends, it is the Right of the Elite to alter or to abolish it, and to institute more Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect the power and control of the elite. …We, therefore, the Representatives of the political elite, in faculty lounges, Assembled, appealing to the United Nations for the rectitude of our intentions, do, in the Name, and by Authority of government, solemnly publish and declare, That the American people ought to be governed by the United Nations; that they are Absolved from all Allegiance to the Constitution, and that all political connection between them and the Founding Fathers, is and ought to be totally dissolved; and that as highly-taxed and dependent States, they have full Power to levy taxes, disrupt Peace, contract new departments and agencies, regulate Commerce, and to do all other Acts and Things which the political elite may of right do. And for the support of this Declaration, with a firm reliance on the protection of the establishment media, we mutually demand your Lives, your Fortunes and your sacred Honor.
Some excerpts from the latest post by Commander Jeff Huber, whose commentary at his Pen and Sword blog I always find worthwhile to follow:
As distasteful as I find the agenda of the political right, I’m inclined to sympathize with their desire to rein in the totalitarian tenor of Obama’s reign, but impeach the guy? Come on. Not even Denny Kucinich has a serious notion of doing such a thing. In the age of the New American Centurions, we don’t impeach presidents for taking us into illegal wars. These days we only impeach presidents for their inability to keep their orbs and scepters in their pants.
We’ve been in a constitution crisis since 1950 when Harry Truman committed us to a full-blown war in Korea that ended in a negotiated tie with a foe that still flares up on us like a wicked case of facial herpes. The constitutional crisis Obama has created is just another twig on the pyre of our republic. And after the Bush and Cheney administration flushed shame and irony and truth and accountability and the bill of rights all the way to the Congressional Cafeteria, who will ever impeach anyone for anything ever again?
Nor is it likely we’ll ever be able to vote the warmongers out of office. If you’re not sharing a pillow with the war profits machine you don’t get elected. [...]
The only way I see the public start demanding that we extract ourselves from what even Uncle Bob Gates admits are “wars of choice” (he’s “wary” of them now that he’s all but ensured that they never end) is if prominent political and media figures start stating in unvarnished patois that the likes of Obama and Gates and Mullen and Petraeus are using our troops as pawns, not to preserve our nation but to preserve the military-industrial complex that President Dwight Eisenhower warned us would acquire “unwarranted influence” over government policy if we allowed it to.