Brexit-Beleaguered Bankers Back to Begging for Bailouts!

By David Haggith, the Great Recession Blog.

By Lucian.amarii (Jup) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

Nothing is more shameless in a bedazzling sort of way than rich banksters standing on the public curb with their hands out. First, we had the admission this past week by a major French bank that Italian banks are so sick (and so too big to fail) they could cause systemic banking failure throughout Europe if not bailed out by over-taxed taxpayers.

Lorenzo Bini Smaghi — who was a member of the European Central Bank’s executive board and who is now Chair of French megabank Societe Generale — said the only way to save European banks, if they start to fall like dominoes due to Italy’s banking problems, is with taxpayer-funded bailouts.

Europe’s banking market faces the risk of a systemic crisis unless governments accept the idea of taxpayer money as the ultimate recourse in a crisis, Bini Smaghi said. Any intervention should be as swift as possible, he said. (Newsmax)

A French CEO says his massive bank and others could fall like dominoes due to Italy’s problems? That has to be good for his falling stocks. So, you ask yourself, why would he say something to spook an already scared stock market?

Then we had Italy’s prime minister, Matteo Renzi, pressuring Europe to bail out Italy’s banks by pointing out that Italian bank problems with bad loans pale in comparison to Deutsche Bank’s towering derivatives problem over in Germany.

“If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said. (Zero Hedge)

Gee, you’d think they were trying to talk the EU into a panic … as if it weren’t already there. Considering that 17% of Italy’s bank loans have gone sour (which sounds monumental to me), Deutsche Bank must be bad beyond belief at a hundred times worse! That’d be an undoable 170% bad, which is pretty dang bad!

Italian banks are deep into the sour apple bin because their solution to bad loans during the last crisis was to just roll them along by not foreclosing and hope that future economic growth would make the borrowers solvent again, but that kind of economic expansion never came. That left a lot of decay down in the apple bin after the Great Recession, and not too surprisingly the rot has spread. The amount of decay is now four times bigger than it was back then … and it was deadly then! As horrible as that sour mess is, Italy’s premier tells us Deutsche Bank is a hundred times more dangerous than that!

Why are banksters and politicians taking this beggar-thy-neighbor approach by pointing out how bad other European banks are — the Frenchy pointing at Italy, the Italian pointing at Germany? Statements like “Our own banks are so bad they need immediate bailouts, but they’re only a hundredth as bad as yours” are not statements that former central bankers, current megabuck megabank CEOs and prime ministers usually make when they all live or die under the same economy.

When you see a lot of rats like that scurrying together up the stairs of the ship, you might want to make a move for the lifeboats.

The answer must be that it’s a desperate play. They need to drive fear like a stake into the hearts of the masses and their fellow politicians in order to get the bailouts they lust after while keeping the masses from rebelling Brexit-style against them. Italy’s premier wants to inject state cash into failing Italian banks to recapitalize them. I’m sure that sea chests full of state money would give his wealthiest friends nice chairs to sit on in the lifeboats, but public bailouts are now against the EU’s post-Great-Recession regulations so he’s trying to scare the EU into bending on the regs.

Shameless are the banksters and shameless are their political pals with their “your money or our lives” piggy bankster terror.

How close to falling off a cliff is the EU now that Brexit has kicked them in the ankles?

As  Jeff Gundlach said this week,

Watch Deutsche Bank shares go to single digits and people will start to panic… you’ll see someone say, ‘Someone is going to have to do something’. (Zero Hedge)

They’re not even waiting that long, Jeff. That is what these bankster and politician statements are all about. To keep the masses from revolting, everyone needs to be made intensely afraid of what will happen as the alternative if the dinosaur banks are not given public CPR, and in Deutsche Bank, they have much to be afraid of, as it towers over the world with over $70 trillion of derivatives exposure.

Let’s hope the public has had enough of putting its lips to the dinosaurs’.

Leave it to mega banksters to get the solutions entirely wrong … again

They never learn from their failures, and they’re hoping the public never learns either … or, at least, that the public can be scared beyond its learning curve. (A hope that failed with the brave British exit. So, the banksters are a little afraid now that the smell of revolt fill the air like gun smoke.)

The only solution to the failure of behemoth banks that bloated banksters can come up with is that taxpayers should bail them out in order to save themselves from having the banks collapse on them. It never enters their minds that, if these banks are already known to be too big to fail, the most obvious solution was to break them up a couple of years ago before the bad stuff hit so that they could be parted out in an organized manner. It’s a little late now, but it would still be better than additional conglomeration:

Smaghi wants to go further than just bailing out the failures. Instead of breaking the behemoths up so they don’t roll over and crush entire nations, Smaghi’s answer is to bail them out and make them bigger:

Both Italy and Germany have too many banks that are not profitable and more consolidation is needed, the chairman said.

You would think that, if ever there was a no-brainer for what not to do, making too-big-fail banks bigger would be it; but, as I wrote at the start of the Great Recession, even George Bush’s solution was to double down on the size of banks, which he was first to publicly call “too-big-to fail”:

Whenever one of our economic titans teetered on the edge of bankruptcy this past year, the peril from its collapse to everything in its shadow pressured the executive branch to create a deal over the weekend before the market opened again on Monday. The masterminds of mayhem rushed in to pump some “good” news into Wall Street ahead of the market opening to avert disaster. At every turn, the government’s answer to the risk of corporate obesity was to take two weak and wobbly mammoths and cobble them together into some bigger and more ungainly creature. Each resulting conglomeration came out looking like Frankenstein’s monster with all its seams showing. Thus, many of the following solutions were amalgamated during midnight hours in the board room laboratories of the Washington Wunderkind. (“Collapse of the Colossus“)

They’re too big to fail, so solve their problems by doubling them in size? I don’t know how you get any dumber than that even by hitting yourself over the head repeatedly with suitcases full of money. The solution advocated for busted banks that require taxpayer bailouts is, according to Bush back then and Smaghi now, to conglomerate the failing monstrosities into even larger institutions.

History is repeating itself in such a manner that I could just change the names of banks in my article and republish the same article today that I wrote about this nonsense years ago:

J.P. Morgan Chase and Company, a name that was already a mouthful of earlier conglomerations, gulped down a belly full of Bear. I guess that would make them the J.P. Morgan, Chase, Bear, Stearns, and Company company. The Federal Reserve helped prepare the Bear to make it more palatable for Morgan to eat. Apparently that role is the meaning behind their nickname “Fed.” Somehow the Fed thought a dying beast fed on Bear would be an improvement on the “too big to fail” scale.

Fat on Bear, you’d think the beast would have been satisfied for a little while, but within a month it felt the need to digest the largest bank failure in world history — Washington Mutual. Again, the Fed cooked the meal. I won’t even try to squeeze that addition into J.P.’s burgeoning name, except to say that the feeding frenzy was mutual. And with that, J.P and Companies acquired a bank that was even a different breed from itself. An investment bank consumed a consumer bank.

Sighs. We never learn a thing … even on the obvious stuff. The worst part is that nearly a decade on, the public keeps sucking this swill up. Well … until Brexit. Let’s hope Brits stay the course and others join their revolt.

Smaghi’s got a smoggy brain if he really believes his own solution, but that’s a group-think peril in the banking industry anyway. It’s ludicrous to believe you can make giant corporations more efficient by stuffing two of them into the same suit. It is far beyond merely ludicrous to think that you can take one extremely unhealthy supersized corporation and make it healthier by stuffing another dying giant inside of it! That’s like curing cancer by feeding the patient a diet of fried tumors.

At an early point, sure, making a business bigger creates economies of scale … if both of the businesses you marry together are reasonably healthy. At some point, however, that nasty old Law of Diminishing Returns I keep ragging about kicks in. The periphery of the corporation becomes too far removed from the center to be well managed. No one really understands everything the business is doing. Employees can hide among the masses to where no one knows someone is not working because no one even knows what that guy’s job is. One branch doesn’t know it is repeating the work of another branch. Etc.

If banksters like Smaghi really believe these banks cannot sink without capsizing all of Europe in their wake, then the responsible thing to do is to begin a “Ma Bell” on them — start tearing them down into smaller, more efficient, profitable companies. Time for reorganization. That way they the worst parts can crash safely on their own later on without any help from the rest of us.

The answer is certainly not to start rerevising all the newly revised regulations, as Smaghi and others are rapidly recommending. Why would we want to return to the starting point of the last massive crash?

Will the public be beggared or buggered … British style?

I wonder if European taxpayers are angry enough yet to revolt against Smaghi’s suggestion. The rest of Europe doesn’t seem as brave as the Brits. Take Greece, for example, which chose to stay in perpetual bondage to its German dominatrix. Even in the UK, the peasant revolt is dicey. Brexit was certainly a vote against this kind of elitist arrogance, but already many Brits are scrambling to find ways to overturn their own democratic decision because massive changes inevitably cause a volatile repositioning in markets. Revolts aren’t tidy.

You’d think after the Great Recession all central banks would have stopped allowing consolidation of the massive banks they oversee. Well, you’d think that if you believed they were really all that concerned about banks being too big to fail. That everything they do continues to make big banks bigger shows all they really care about is getting taxpayers to bail out their cronies.

Because taxpayers have not insisted on breaking up big banks for taxpayer protection, it has not happened. Until they demand it, as the Brits demanded Brexit, it never will happen! It is not a concept that would ever occur to imperial banksters. It is not the way their kept politicians think either.

After a decade of unbearable banking behavior that has spiraled right back to where we started … only higher up for a bigger fall, revolt could easily break out everywhere. But don’t expect the public to be smart. They’ve been completely blind while the banksters buggered them so far. Just expect them to be mad as hornets when you stir up their bin of rotten apples.

Brexit is an organized revolt with a clear objective of extraction from a bloated and failing enterprise, but it will still be incredibly messy. The domino affect of what fails because of the extraction will take months to play out. With surgery, there is blood and there is swelling, and there is pain.

I expect a growing number of simply angry revolts to occur from this point forward that will be far messier. They will look more like terrorist explosions than surgery because people don’t know the right answers. As a result, the public anger at getting raped again is not likely to have much helpful focus. People will be right to be angry — very right — but will they have any idea that size reduction is a big part of what really needs to happen? I think they will just be pushed by fear toward even greater globalization as the only answer big enough to save them.

Sadly, big is the problem.

So, back to my economic predictions

Anger may cause more nations to splinter off of Europe, but that depends on how messy Brexit becomes. If the dust settles in Europe in the next few months as it already has here in the US, other nations will be encouraged to break away. But I’m not so sure Europe will let the dust settle.

Right now banksters and politicians appear to be doing their best to kick the dust up into the air in order to terrorize everyone else into fear of breaking away and into giving their money to banksters. I think Europe will make the UK’s break as ugly of a divorce as possible in order to make all other nations afraid of doing the same thing — just as Germany did with Greece when Grexit was essentially being voted upon.

Whatever remains of Europe, you can be certain the central powers that be will use fear to tighten the reins of power. It may be a smaller Europe, but it will be even more centralized. Because of how trends are shaping up, I think we are about to repeat another devastating lesson from history: European power appears likely to become more Germanic, and that has never been a good thing.

For some reason that nation, more than any other, gravitates toward an obsessive-compulsive need to control Europe. Germany continually believes its ways are superior so that it SHOULD control Europe. While Germans may not be thinking of overt control, their thinking seems to run like this: “We must make them see that our ways are economically superior because then they will become as economically sound as we are,” Deutsche Bank not withstanding.

Thus, Merkel and her German kommandants push Germanic discipline on the rest of Europe like they are force-feeding broccoli to a baby. In doing so they appear completely blind to how they are stoking the fires of enraged rebellion. (For example, Merkel never saw that force-feeding immigration would empower the Brexit vote.) Merkel has already aggregated European power around herself. Even though she doesn’t hold Europe’s most powerful position, she wields more influence over Europe than anyone as she marches them all to the German way.

Ironically, a single bank in that fiscally disciplined nation — Deutsche Bank — appears most likely to be the force that takes the entire European shambles goose-stepping over the cliff:

Today, we got the most definitive confirmation yet that the noose is tightening not only around Italy, but Germany itself … when none other than David Folkerts-Landau, the chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks. Speaking to Germany’s Welt am Sonntag, the economist said European institutions should get fresh capital for a recapitalization following a similar bailout in the US. What he didn’t say is that the US bailout took place nearly a decade ago, in the meantime Europe’s financial sector was supposed to be fixed courtesy of “prudent” fiscal and monetary policy. It wasn’t…. “Europe is seriously ill and needs to address very quickly the existing problems, or face an accident,” said the chief economist. (Zero Hedge)

Yes, the most likely bank to bust first appears to be German, and it is monstrous in size … as Italy more than eagerly pointed out. But that’s what happens when centralized power becomes too disconnected from its periphery because of size. It pushes stubbornly for what the center wants, causing something like Brexit to break off the outer edge. That, in turn causes other fractures that run right back to the center.

David Folkerts-Landau, the chief economist of Deutsche Bank joins French bank CEO Smaghi and Italian Premier Renzi is saying that a bank bailout has become so quickly urgent that Europe must break its new banking regulations to allow a bailout immediately, or the crash will begin. His conclusion does not seem very Germanic:

Strictly adhering to the rules rules would cause greater harm than if they were suspended.

Rules that Germany championed may have to be broken if they hurt Germany, instead of periphery states like Greece. Apparently, the dominatrix loves to crack the whip but not receive it. I anticipate Merkel will put the whip away now that it appears its sting could snap her own behind, but she may be too slow in giving up her own ideas.

It’s all part of the next leg down in the Epocalypse — first Brexit, then European banking stocks collapse, then some major European bank gives Europe its Lehman Brüders moment … and over the cliff they all go.

Deutsche Bank stock is now worth just 8% of its peak 2007 value. It’s already been a loooong ride downhill for one of Europe’s most iconic banks, but Brexit kicked DB in the crotch because almost 20% of its revenues came from the UK, bringing its stock down to a groveling “crash value” now of $12.60 a share. One of the world’s largest and oldest banks looks ready to fall into the gaping abyss of the Epocalypse. No wonder European banksters are screaming “Bailout!”

Auf Wiedersehen.


While banks are falling, gold is rising. Here is how you can convert your 401K into physical gold:


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  • ICFubar

    Let them fail. With the never ending supply of money these crooks are seeking, in the past,present and future the public can capitalize some new banks and governments that actually understand that money can be the helpful servant of human kind or its cruel master, all depending on who creates money, in whose interests or how it is created and in what Quantity based on the economy it represents. There you have it, the whole secret behind money.

    • Brockland A.T.

      Well, they obviously don’t know anything about banking. Why is failure being rewarded?

      Public banking is the best way out of the present economic mess.

      http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-public-banks/public-banks-are-essential-to-capitalism

      https://ellenbrown.com/books/the-public-bank-solution/

      • ICFubar

        They don’t have a basic understanding of economics or capitalism period. At the least objectionable to them should the work of Professor Steve Keen on economics as applied to capitalism. This is a fascinating interview of the man himself. I subscribe to Brown’s blog just to keep up on what she is doing.
        https://www.youtube.com/watch?v=KIaXVntqlUE

        • jadan

          Brown’s last essay in this forum had nothing to do with public banking. In spite of her two books, the last being “The Public Bank Solution”. She actually has no public banking solution for our situation, btw. But that’s for another day. Recently, she suggested that the ECB transform itself into the Fed, and buy up all the toxic debt from the banks with an EU QE program, just as was done here. She suggested that the newly sovereign ECB, buy up this bad debt with euros hot off the press, but unlike the Fed then tear up the bonds so they are no longer on the books. Presto magico! Crisis solved. Banks recapitalized, debt forgiven. She rescues all the bond holders and prevents the too big to fail euro banksters from facing the music. All it takes is for the nation states to abandon their national banks and make the ECB the sovereign banking entity for all these spineless former national entities that finally sacrifice themselves on the altar of monetary and political union.Let’s call this new bank “The Rothschild Supreme Monetary Authority”. And let’s call it a public bank so it doesn’t smell so much like the Nazi financial rescue of the 30’s.

          • ICFubar

            I ‘m not a big fan of Brown’s solutions either but do keep track on what she has to say. Her policy objectives seem to end with public ownership of banking without addressing the inherent flaws of capitalism or in other words just turn the present system over to public banks ‘an fogetabouit” Fractional reserve with all its flaws merely transferred to the public domain will in the end have the same problems unless control of money and the regulation of speculative investment is manifestly under management. IE, as per Keen’s thoughts that housing prices should be some co related ratio of what their annual rental price would be. Say 10x for an easy figure to work with. Meaning a house that rents for $15,000 a year would have a capped sale price of $150,000, or a property that would rent for$36,000 a year would cap at $360,000 taking speculation out of this vital commodity for the public and controlling what has been a speculative disaster for the economy as a whole.

          • Tim Owen

            I’ve only read a couple of things by Ellen Brown so I can’t respond specifically to what you’ve written as far as it deals with that except to highlight why you think public banking couldn’t help solve our current problems (but I’d still like to know why?)

            But FWIW I would really appreciate your thoughts on this talk:

            https://youtu.be/0YhrtktLQQw

        • Brockland A.T.

          Thanks.

          Its funny to watch Dr. Keen trying to keep a straight face going along with the farce that the dismal science exists to explain something, not excuse something.

          • ICFubar

            I much prefer to have a complex system that effects the lives of every living thing and inanimate object on this planet under some form of logical scrutiny, and the more correct in determinants the better. But to each their own is my motto.

          • Brockland A.T.

            The neocons aren’t keeping to themselves. Their motto of ‘share the pain’ is most unwelcome.

      • Yesenia Alston

        <<o. ✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:✸✸✸✸✸:::::::!uf250w:……,……

  • Tim Owen

    Could someone help me understand the following:

    Why isn’t the Swedish answer to their ~ 1991/2 crisis available to Europe?

    Before I go on, please don’t assume that I haven’t thought about questions of scale, the fact that Sweden was experiencing a crisis in a generally benign environment etc. What I’m trying to understand is how fiat money and banking interact.

    The Swedish model in my understanding is basically this: you seize the banks in question, fire and possibly prosecute the management, go through their books splitting bad assets from good, reopen the bank with the good assets while slapping the bad assets onto the central banks books. You sell the healthy bank back to the private sector as soon as possible and liquidate the shitty assets when times are better because of your actions. Crisis ended (with market discipline enforced.)

    It would be my contention that such a salutary outcome is only possible because the central bank / treasury is able to “afford” to do this because it is able to emit whatever amount of fiat currency required to do it.

    So what’s behind all the references to the taxpayers being “on the hook” for this in the article above?

    Don’t get me wrong: I would agree that the GFC was really a large exercise in looting. I just think that you’ve got the “getaway” moment wrong. In other words it’s as if the article is implying the crime happens when the crime is recognized. But these are two different things.

    My favourite comment about the GFC came from an ex RBC VP who told – I think it was John Lanchester – that it was caused by excessive pay. I took him to mean that the banks went insolvent because the pay of their workers was determined by their collective facility at disguising dross as gold credit-wise and they were paid according to the latter valuation.

    I like simple explanations.

    That said, what I’m trying to get at is… In this context it seems slightly sinister to be playing up the tax payers being “on the hook” for say DB’s failure when:

    – the looting has already happened (and the only way to get justice would be to seize all the the unjustified bonuses that occurred before anyone understood what was going on)
    – the only effective way to deal with a banking crisis is to recapitalize banks as in the Swedish example above
    – scaring people with the idea that, as taxpayers, they are thereby bearing the costs seems weird as a) the crimes already happened b) they are far more likely to be victimized by the bank crisis itself (seizing up of the credit system, bank runs etc.) c) the CB / Treasury of a sovereign issuer is not revenue constrained and so is the sole actor that can actually solve the crisis

    Frankly I find Europe’s hard money obsession bizarre and completely tragic.

    • Brockland A.T.

      Very likely because public accountability in 1991-2 Sweden was based on a strong proportionally representative government; laying down smoke for the banksters wasn’t popularly supported (but still elite supported, hence there was still a bailout). Finding ways to keep the game going didn’t make the agenda. The government and the banks ultimately answered to The People and a compromise worked out for everyone.

      Sweden did became an EU member in 1995. Not surprisingly, errant EU members have no interest in the 1991-2 Swedish solution (slap some wrists and end the game) and are backed by the ECB. The EU’s democracy deficit makes accountability difficult to achieve for individual populations of member states. The main concern is keeping the game going; accountability isn’t a factor anymore.

  • Bum Bum

    Most people on Earth are totally enslaved by the monetary system (by taking a job and a loan for example). They pay interest all their lives (@0.5 million dollars per person over their lifetime) and it never crosses their minds that by doing so they help strengthen the very system that makes them slaves.

    Few individuals (12 families or so) control the entire monetary system on Earth. Most people do not even know who they are; they hide themselves using banks they own. They have succeeded in convincing most people on Earth that making $ is the ultimate goal in life. They throw some $ for grabs and people compete, fight for them, are ready to kill, even make a war. They also lend money to governments and soon everyone becomes a puppet controlled by a $. Guess who benefits most.