This is quite possibly the most important post yet to go onto this site in it’s short life.
“Buckle Up Dorothy cos Kansas is going bye byes” [again]
The glitches in the broken matrix have been coming strong and fast this week, deja vu was everywhere, following Timmy making it into the history books, evolving into an epic weekend, a full-on black monday, with the ridiculous up / down behaviour of the stock markets, panic currency interventions by central banks the world over, the attempts to hold down the convulsing (dead) patient pumped full of adrenaline in a vein attempt to prolong the inevitable remind us of the game “Whack-A-Mole” at a Black Swan party, it seems obvious this cannot go on forever.
Well, as according to the immutable laws of maths, physics and reality, it’s not going to, the European Bank Liquidity Crisis is not only “coming”, it’s already here.
“Bottom line: 3 years after Lehman blew up we are in precisely the same position, only this time the culprits are European banks.
This is to be expected as absolutely nothing has changed in that time period, and the end result, by implication, will be absolutely the same.”
….First, IFR summarizes briefly how the last ditch liquidity conduit, repo, has now run out. The fact that even shadow banking system aggregates, or those entirely off the books, are being withheld, is very disturbing:
Bankers who once ran the now-defunct repo facilities for mid-sized European banks say the credit lines were withdrawn after risk managers became concerned about their own exposure to the enfolding sovereign debt crisis, leaving some clients now solely reliant on central banks for cash.
“Given what’s going on in the markets, there are big question marks surrounding some of these clients,” said one banker who has closed such lines. “The appetite from investment banks is fading. There is a great deal of concern about financing wrong-way collateral.”
“Many of the wholesale banks are starting to rethink these credit lines,” added the global markets chief of one European investment bank heavily present in the repo markets. “Things can turn pretty nasty if you get these things wrong.”
This is further distressing since the traditional venue of capital raising in Europe, covered bond issuance has ground to a halt, with not “a single publicly announced European covered bond deal since June.”
The culprit for the market freeze is quite simple to anyone who recalls the state of the markets in late 2008 and early 2009, when the Fed and the central bank cartel will had the option of backstopping the global financial system.
“Everyone has been cutting off their exposure,” said the head of another European investment bank. “It started with Greece, then Spain and now Italy. People don’t want to do business with these banks. Many of them have good underlying businesses but they are stuffed.”
We have discussed the European banks needing further bailouts ( Euro TARP ) and the brutally accurate Reggie Middleton has been telling everybody a Lehman style French bank blowup was coming for weeks now, and given Reggie’s stunning previous accuracy on Bear Sterns, Lehman, Ireland, Portugal, Greece, when he says the French banks are blowing up as we speak, we would advise that you listen.
The problem is now that there is nobody left big enough to help except Germany alone, who are guaranteed to decide that if being in Europe means bailing out every single Euro state, all on it’s own, then it’s easier to just pull out and let the Euro disintegrate.
The “unofficial President of Europe” (ECB Head Trichet) said yesterday” this is the biggest problem since World war II” – is he exaggerating? We think not.
The next day multiple European stock exchanges banned short sales of financial stocks, a clear sign of last ditch desperation, because it never ever works, the end result is always the same, because if something is not sustainable, it will not be sustained, whatever feeble attempts central planners try to apply.
Lets hope that all of this is wrong, but there has been an eerie surreal aspect to things this week, we advise that you heed the words of the great Hugh Hendry: ”I would recommend that you panic”
Not literally of course, but financially it is now time (yesterday) to be making any moves you might have thought of recently, so right now will have to do.